01—Abstract
Summary
Summary of the 10-K filed November 6, 2013. Cited figures are marked; the original filing is the authoritative source.
QUALCOMM's fiscal 2013 10-K (fiscal year ended September 29, 2013) shows a business at a high point of growth.
Revenue rose about 30% to $24.9 billiona from $19.1 billion, and net income attributable to Qualcomm rose about 12% to $6.9 billion, or $3.91 diluted EPS. Growth was driven by QCT (chips), whose revenue grew 38% to $16.7 billion as MSM shipments reached about 716 million units (up 21%). QCT margins compressed, however: segment EBT as a percentage of revenue stayed flat at about 19%, and gross margin declined on lower average selling prices and unfavorable product mix.
QTL (licensing) remains the high-margin engine, earning $6.6 billionb of EBT on $7.6 billion of revenue, roughly 87% margin, and benefiting from CDMA device growth. Licensing still represents 30% of revenue, down from 33% a year earlier, because chip revenue is growing faster. Capital returns were substantial.
Qualcomm repurchased $4.6 billionc of stock, paid $2.1 billion in dividends, and raised the quarterly dividend 40% to $0.35 per share. About $4.9 billion remained under a new $5.0 billion buyback authorization, with at least $4 billion of repurchases planned for fiscal 2014. Cash and marketable securities totaled $29.4 billion.
Operating cash flow rose to $8.8 billiond from $6.0 billion. Key risks are concentration and legal exposure. Samsung and the Apple supplier group (Foxconn/Hon Hai) together accounted for 43% of consolidated revenue.
China alone represented 49% of revenue. A $173 million ParkerVision patent verdict was recorded as a charge, and several antitrust and regulatory matters remain open in the EU, Korea, and Japan, along with SEC and DOJ FCPA investigations. Management also flagged R&D rising to $5.0 billion, a 27% increase, which weighs on near-term margins as the company pursues new segments such as small cells, IMOD display, and the Internet of Everything.
02—Key points
Key Highlights
- Revenue grew about 30% to $24.9B (FY2012: $19.1B); net income attributable to Qualcomm rose about 12% to $6.9B, with diluted EPS of $3.91.
- QCT chip revenue reached $16.7B (+38%), with about 716M MSM shipments (+21%), but segment EBT margin stayed flat at about 19% as gross margins compressed on lower ASPs and product mix.
- QTL licensing generated $7.6B in revenue and $6.6B in EBT (about 87% margin), though licensing's share of total revenue fell to 30% from 33%.
- Customer concentration is high: Samsung and the Apple supplier group (Foxconn/Hon Hai) contributed 43% of revenue, and China accounted for 49% of revenue.
- Shareholder returns were strong: $4.6B in buybacks, $2.1B in dividends, a 40% dividend increase to $0.35 per quarter, and $4.9B remaining under the buyback authorization.
- A $173M ParkerVision patent verdict was recorded as a charge, and antitrust matters in the EU, Korea, and Japan plus SEC/DOJ FCPA investigations remain unresolved.
- R&D spending rose 27% to $5.0B, and the company holds $29.4B in cash and marketable securities, with operating cash flow of $8.8B.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Qualcomm Inc kept $0.28.
- Revenue$24.87B100.0%
- Cost of revenue−$9.82B39.5%
- Gross profit$15.05B60.5%
- Operating costs−$7.82B31.4%
- Operating income$7.23B29.1%
- Interest, other & tax−$377.0M1.5%
- Net income$6.85B27.6%
Where FY2013 revenue went
$24.87B- Cost of revenue: $9.82B, 39% of revenue
- Net income: $6.85B, 28% of revenue
- R&D: $4.97B, 20% of revenue
- SG&A: $2.52B, 10% of revenue
- Other operating costs: $331.0M, 1.3% of revenue
- Interest, other & tax: $377.0M, 1.5% of revenue
Kept 28% as net incomeOther operating costs $331.0M · 1.3%Interest, other & tax $377.0M · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed November 6, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $24.87B$19.12B | +30.0% |
| Cost of Revenue | $9.82B$7.10B | +38.4% |
| Gross Profit | $15.05B$12.03B | +25.1% |
| R&D Expenses | $4.97B$3.92B | +26.9% |
| SG&A Expenses | $2.52B$2.27B | +10.9% |
| Operating Expenses | $17.64B$13.44B | +31.2% |
| Operating Income | $7.23B$5.68B | +27.2% |
| Interest Expense | $23.00M$90.00M | −74.4% |
| Net Income | $6.85B$6.11B | +12.2% |
| EPS (Basic) | $3.99$3.59 | +11.1% |
| EPS (Diluted) | $3.91$3.51 | +11.4% |
| Shares Outstanding (Basic) | 1.72B1.70B | +0.9% |
| Shares Outstanding (Diluted) | 1.75B1.74B | +0.7% |
05—Questions
Frequently Asked Questions
What drove Qualcomm's revenue growth in fiscal 2013?
Growth came mainly from QCT integrated circuits, which rose $4.6B to $16.7B on higher unit shipments of MSM chips (about 716M units, up 21%) and sales of connectivity products. Licensing revenue also grew, by $1.2B to $7.9B, on higher CDMA device sales by licensees.
Is Qualcomm's chip business becoming less profitable?
Chip-segment EBT as a percentage of revenue held at about 19%, but gross margin percentage declined because of lower average selling prices and an unfavorable product mix. R&D and SG&A grew faster than QCT revenue in some periods, so margins are under pressure even as volumes rise.
How dependent is Qualcomm on a few customers and regions?
Highly dependent. Samsung and the Apple supplier group together made up 43% of consolidated revenue, and China, South Korea, and Taiwan made up 49%, 20%, and 11%, respectively. Losing or shrinking purchases from one of these customers would materially affect results.
What are the biggest legal and regulatory risks disclosed?
The company recorded a $173M charge for the ParkerVision verdict, with an appeal planned. It also faces an EU Commission antitrust investigation (Icera complaint), a Korea Fair Trade Commission ruling under appeal to the Supreme Court, a Japan Fair Trade Commission cease-and-desist order, and SEC and DOJ FCPA investigations. Management says losses from the unresolved matters are possible but not probable, and it has not accrued for them beyond ParkerVision.
How is Qualcomm returning capital to shareholders?
It repurchased $4.6B of stock in fiscal 2013 and paid $2.1B in dividends ($1.20 per share). The quarterly dividend was raised to $0.35, and the company plans at least $4B in buybacks in fiscal 2014 from a $4.9B remaining authorization. Management says it will continue to use dividends and buybacks as its main capital-return tools, subject to capital availability.
06—Continue