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QUALCOMM INC/DE Annual Report, Year Ended Sep 27, 2020

Filing Date
Filed November 4, 2020
Period End
September 27, 2020
Security
QCOM
One revenue dollarkept$0.22
In the record · 2016–202610-K1010-Q338-K138

QCOM filed 10 annual reports (10-K), 33 quarterly reports (10-Q) and 138 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · May ’17May ’17
  2. Leadership change8-K · Aug ’19Aug ’19
  3. Material agreement8-K · Oct ’21Oct ’21
  4. Leadership change8-K · Jan ’26Jan ’26

01—Abstract

Summary

Summary of the 10-K filed November 4, 2020. Cited figures are marked; the original filing is the authoritative source.

QUALCOMM's fiscal 2020 10-K (fiscal year ended September 27, 2020) shows revenue of $23.5 billiona, down 3% from $24.3 billion, while net income rose 19% to $5.2 billion, helped by a $1.8 billion one-time revenue recognition from the Huawei settlement and new license agreement.

Excluding that settlement, the year reflects a COVID-19 demand headwind for smartphones and related devices, partly offset by a 5G-driven mix shift in QCT, where revenue grew to $16.5 billionb and segment EBT margin improved to 17%. QTL licensing revenue excluding unallocated items was $5.0 billion, with EBT margin of 68%, though total licensing revenue fell to $7.2 billion from $9.7 billion because fiscal 2019 included a $4.7 billion Apple settlement. The filing also highlights ongoing regulatory exposure.

The Ninth Circuit reversed the FTC antitrust judgment in August 2020, which is a significant positive for the licensing model, although the FTC petitioned for rehearing en banc and that petition was denied in October 2020. Several other matters remain open, including EC fines of roughly $1.5 billionc accrued (under appeal), a new EC investigation into RFFE practices, a new KFTC investigation, and consumer class actions. Management states that losses are reasonably possible but not probable for most of these, so no further accruals were recorded beyond the EC fines.

Capital returns continued with $2.9 billiond in dividends and $2.4 billion in buybacks, and the company expects to resume repurchases in fiscal 2021. Long-term debt is about $15.5 billion in principal, and cash, cash equivalents and marketable securities totaled $11.2 billion. Investors should weigh the strength of the 5G ramp and licensing reversals against customer concentration (Apple, Chinese OEMs), China and U.S.-China trade exposure, the risk that customers vertically integrate their own modems, and the $405 million of investment impairments, which include OneWeb.

02—Key points

Key Highlights

  1. Revenue fell 3% to $23.5B, but GAAP net income rose 19% to $5.2B (diluted EPS $4.52), supported by $1.8B of Huawei settlement and license revenue recorded in Q4 FY2020
  2. QCT revenue rose 13% to $16.5B on 5G demand and RFFE growth (RFFE revenue up 60% to $2.4B), with segment EBT margin improving to 17%
  3. QTL segment revenue rose 10% to $5.0B with a 68% EBT margin, though total licensing revenue declined to $7.2B from $9.7B due to the prior-year $4.7B Apple settlement
  4. Ninth Circuit reversed the FTC v. Qualcomm district court judgment and vacated the injunction in August 2020; the FTC's en banc rehearing petition was denied in October 2020
  5. Ongoing regulatory exposure includes about $1.5B of accrued EC fines under appeal, a new EC RFFE investigation, and a new KFTC investigation, with management viewing other losses as reasonably possible but not probable
  6. Customer concentration remains high: four customers/licensees accounted for 19%, 12%, 10% and 10% of FY2020 revenue, and Apple is expected to shift to its own modems over time
  7. Shareholder returns continued with $2.9B in dividends and $2.4B in buybacks; $4.6B remains authorized, and the company resumed repurchases in fiscal 2021

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2020, Qualcomm Inc kept $0.22.

  1. Revenue$23.53B100.0%
  2. Cost of revenue−$9.26B39.3%
  3. Gross profit$14.28B60.7%
  4. Operating costs−$8.02B34.1%
  5. Operating income$6.25B26.6%
  6. Interest, other & tax−$1.06B4.5%
  7. Net income$5.20B22.1%
Computed from 10-KFY2020filed November 4, 2020Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2020 revenue went

$23.53B
  • Cost of revenue: $9.26B, 39% of revenue
  • R&D: $5.97B, 25% of revenue
  • Net income: $5.20B, 22% of revenue
  • SG&A: $2.07B, 8.8% of revenue
  • Interest, other & tax: $1.06B, 4.5% of revenue

Kept 22% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2020filed November 4, 2020
Revenue$23.53B60.7% Gross MarginNet Income$5.20B22.1% Net MarginEPS (Diluted)$4.52Total Assets$35.59BCash & Equivalents$6.71BFree Cash Flow$5.81B

Financial Statements

FY2020 against FY2019

Line itemFY2020FY2019Change
Revenue$23.53B$24.27B−3.1%
Cost of Revenue$9.26B$8.60B+7.6%
Gross Profit$14.28B$15.67B−8.9%
R&D Expenses$5.97B$5.40B+10.7%
SG&A Expenses$2.07B$2.19B−5.5%
Operating Expenses$17.28B$16.61B+4.0%
Operating Income$6.25B$7.67B−18.4%
Interest Expense$602.00M$627.00M−4.0%
Net Income$5.20B$4.39B+18.5%
EPS (Basic)$4.58$3.63+26.2%
EPS (Diluted)$4.52$3.59+25.9%
Shares Outstanding (Basic)1.14B1.21B−6.2%
Shares Outstanding (Diluted)1.15B1.22B−5.8%

05—Questions

Frequently Asked Questions

  1. Why did net income rise while revenue declined?

    Fiscal 2020 included $1.8 billion of Huawei settlement and license revenue, while fiscal 2019 included a $4.7 billion Apple settlement, so reported revenue fell 3%. Net income rose because of lower income tax expense ($521M versus $3.1B, which included a $2.5B deferred tax asset derecognition in fiscal 2019), partly offset by $405M of investment impairments. The effective tax rate fell to 9%.

  2. How much of the business is exposed to China and to customer concentration?

    China (including Hong Kong) generated $14.0 billion, or about 60%, of fiscal 2020 revenue. A small number of customers and licensees account for a large share of revenue, and Apple, Chinese OEMs, Samsung and Xiaomi each exceeded 10% in at least one period. The filing also flags U.S.-China trade and national security policies as a risk to both sales and supply.

  3. What is the status of the FTC antitrust case?

    In May 2019 the district court ruled against Qualcomm and imposed injunctive relief. On August 11, 2020 the Ninth Circuit reversed that judgment, vacated the injunction and the partial summary judgment, and the FTC's petition for rehearing en banc was denied on October 28, 2020. The decision is a material positive for the licensing model, although other regulators and private class actions remain pending.

  4. What is the outlook for 5G and the company's capital returns?

    Management expects 5G demand to ramp across smartphones and expanding industries such as automotive and IoT, with R&D and capex rising in fiscal 2021. Capital returns were $5.3B in fiscal 2020 (dividends plus buybacks). The quarterly dividend was announced at $0.65 per share in October 2020, and buybacks resumed in fiscal 2021 with $4.6B of authorization remaining.

06—Continue

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