10-QPeriod: Q3 FY2016

QUALCOMM INC/DE Quarterly Report for Q3 Ended Jun 26, 2016

Filed July 20, 2016For Securities:QCOM

Summary

QUALCOMM Incorporated (QCOM) reported its third quarter fiscal year 2016 results, showing a revenue increase of 4% year-over-year to $6.04 billion, driven by both its Equipment and Services (QCT) and Technology Licensing (QTL) segments. Net income attributable to Qualcomm also saw a significant jump of 22% to $1.44 billion, or $0.97 per diluted share. This performance reflects continued strength in its licensing business, partially offset by a decline in integrated circuit shipments. The company continues to navigate a complex industry landscape, with ongoing investments in 4G LTE and future 5G technologies. Management highlighted the opportunities in China with the rollout of 4G LTE and the expansion in emerging regions. However, challenges remain, including ongoing regulatory investigations in various jurisdictions and ongoing patent licensing disputes, particularly with certain licensees in China who are believed to be not fully complying with their contractual obligations. Qualcomm is actively managing its capital structure, returning capital to shareholders through dividends and share repurchases, with $3.2 billion remaining under its authorization. The company also announced a strategic realignment plan aimed at improving financial performance and driving profitable growth through cost reductions. A significant planned development is the formation of a joint venture with TDK Corporation for radio frequency front-end modules, expected to close in early 2017.

Financial Highlights

51 data points
Beta

Revenue

$6.04B

58.1% Gross Margin

Net Income

$1.44B

23.9% Net Margin

EPS (Diluted)

$0.97

Total Assets

$50.79B

Cash & Equivalents

$5.88B

Free Cash Flow

$1.84B

Financial Statements
Beta
Revenue$6.04B
Cost of Revenue$2.53B
Gross Profit$3.51B
R&D Expenses$1.27B
SG&A Expenses$620.00M
Operating Expenses$4.45B
Operating Income$1.59B
Interest Expense$75.00M
Net Income$1.44B
EPS (Basic)$0.98
EPS (Diluted)$0.97
Shares Outstanding (Basic)1.47B
Shares Outstanding (Diluted)1.49B

Key Highlights

  • 1Total revenues increased by 4% year-over-year to $6.04 billion.
  • 2Net income attributable to Qualcomm rose 22% year-over-year to $1.44 billion.
  • 3Diluted earnings per share (EPS) increased to $0.97 from $0.73 in the prior year quarter.
  • 4Equipment and services revenues remained flat year-over-year at $3.87 billion, despite an 11% decrease in MSM integrated circuit shipments.
  • 5Licensing revenues increased by 6% year-over-year to $2.17 billion, boosted by revenue recognition from the LG Electronics arbitration settlement.
  • 6The company continued its capital return program, repurchasing $3.7 billion of stock and paying $2.2 billion in dividends during the first nine months of the fiscal year.
  • 7Qualcomm is proceeding with a Strategic Realignment Plan aimed at cost reduction and improved financial performance, expecting substantial implementation by the end of fiscal 2016.

Frequently Asked Questions

Qualcomm's total revenues increased by 4% year-over-year to $6.04 billion, primarily driven by a 6% increase in licensing revenues, which benefited from the recognition of revenue related to the dismissal of the arbitration with LG Electronics. Equipment and services revenues remained flat despite a decline in chip shipments, indicating a mixed performance within that segment.

Qualcomm is committed to returning capital to shareholders through a combination of dividends and stock repurchases. During the first nine months of fiscal 2016, the company repurchased $3.7 billion of its stock and paid $2.2 billion in dividends. As of June 26, 2016, $3.2 billion remained authorized under its stock repurchase program, and the company announced a new quarterly dividend of $0.53 per share.

Management sees significant opportunities in China with the ongoing rollout of 4G LTE and expansion in emerging regions. However, key challenges include ongoing regulatory investigations in multiple jurisdictions, disputes with certain licensees regarding royalty reporting and payments, and intense competition in the semiconductor market. The company is also investing heavily in future technologies like 5G.

The Strategic Realignment Plan, announced in July 2015, is designed to improve execution, enhance financial performance, and drive profitable growth. It includes cost reduction initiatives, particularly in the QCT segment, and a reduction in annual share-based compensation grants. The company expects these initiatives to be substantially implemented by the end of fiscal 2016 and aims to reduce annual costs by approximately $1.1 billion from fiscal year 2015 levels.