10-QPeriod: Q2 FY2015

QUALCOMM INC/DE Quarterly Report for Q2 Ended Mar 29, 2015

Filed April 22, 2015For Securities:QCOM

Summary

Qualcomm Inc.'s (QCOM) 10-Q filing for the period ending March 28, 2015, reveals a mixed financial performance characterized by revenue growth but a significant decline in net income compared to the prior year. Total revenues increased to $6.9 billion, driven by both equipment and services (QCT) and licensing (QTL) segments. However, net income attributable to Qualcomm fell sharply to $1.05 billion from $1.96 billion in the same quarter last year, largely impacted by a substantial $975 million fine imposed by China's National Development and Reform Commission (NDRC). Despite the profitability hit from the NDRC fine, the company's operational performance in terms of unit shipments for its MSM integrated circuits saw a healthy increase. Qualcomm also demonstrated a strong commitment to returning capital to shareholders through significant share repurchases and an increased dividend. Management highlighted ongoing investments in new technologies and strategic acquisitions, such as the pending acquisition of CSR plc, as key drivers for future growth, though challenges remain in certain markets like China concerning licensing compliance. Investors should closely monitor the resolution of ongoing legal and regulatory investigations and the success of the CSR acquisition.

Financial Highlights

49 data points
Beta

Revenue

$6.89B

61.9% Gross Margin

Net Income

$1.05B

15.3% Net Margin

EPS (Diluted)

$0.63

Total Assets

$47.17B

Cash & Equivalents

$5.49B

Free Cash Flow

-$658.00M

Financial Statements
Beta
Revenue$6.89B
Cost of Revenue$2.63B
Gross Profit$4.27B
R&D Expenses$1.38B
SG&A Expenses$545.00M
Operating Expenses$5.56B
Operating Income$1.34B
Interest Expense$1.00M
Net Income$1.05B
EPS (Basic)$0.64
EPS (Diluted)$0.63
Shares Outstanding (Basic)1.65B
Shares Outstanding (Diluted)1.67B

Key Highlights

  • 1Total revenues increased by 8.3% year-over-year to $6.9 billion for the second quarter of fiscal 2015.
  • 2Net income attributable to Qualcomm decreased significantly to $1.05 billion, down from $1.96 billion in the prior year's quarter, primarily due to a $975 million fine from China's NDRC.
  • 3MSM integrated circuit shipments increased by 24% year-over-year to 233 million units.
  • 4The company announced a significant increase in its stock repurchase authorization to $15 billion and a 14% increase in its quarterly dividend.
  • 5The pending acquisition of CSR plc for approximately $2.3 billion is progressing, targeting a close by the end of summer 2015, aiming to expand Qualcomm's presence in the Internet of Everything and automotive infotainment markets.
  • 6The company continues to face several ongoing legal and regulatory investigations in various jurisdictions, including the U.S. SEC and DOJ, FTC, and European Commission, though the NDRC investigation has been resolved.
  • 7Cash and cash equivalents, along with marketable securities, decreased to $29.6 billion from $30.1 billion at the end of the previous fiscal year.

Frequently Asked Questions

The significant decrease in net income was primarily driven by a $975 million fine imposed by China's National Development and Reform Commission (NDRC) as a resolution to their investigation into Qualcomm's business practices under China's Anti-Monopoly Law. This fine was recorded as an expense in the second quarter of fiscal 2015.

Qualcomm is actively returning capital through share repurchases and dividends. They authorized a new stock repurchase program of up to $15 billion and repurchased approximately $3.6 billion in the first six months of fiscal 2015. They also announced a 14% increase in their quarterly cash dividend per share, moving from $0.42 to $0.48.

Qualcomm has entered into an agreement to acquire CSR plc for approximately $2.3 billion. The acquisition has received approval from CSR shareholders, and most regulatory agencies have approved or declined jurisdiction, except for China's Ministry of Commerce. The deal is expected to close by the end of the summer of 2015, subject to final conditions. This acquisition is intended to bolster Qualcomm's position in the Internet of Everything and automotive infotainment sectors.

Key challenges include ongoing legal and regulatory investigations in multiple jurisdictions, potential difficulties in China regarding licensing compliance and royalty reporting, increased competition in the semiconductor market, and the risks associated with integrating the pending CSR acquisition. The company also noted potential adverse impacts on its semiconductor business (QCT) in the second half of fiscal 2015 due to shifts in customer share and competitive pressures.