10-QPeriod: Q1 FY2017

QUALCOMM INC/DE Quarterly Report for Q1 Ended Dec 25, 2016

Filed January 25, 2017For Securities:QCOM

Summary

Qualcomm Inc.'s (QCOM) Q1 FY17 report shows a 4% revenue increase to $6.0 billion year-over-year, driven by both equipment and services, and licensing segments. However, net income attributable to Qualcomm saw a significant 54% decrease to $682 million, primarily due to an $868 million charge related to the Korea Fair Trade Commission (KFTC) investigation and other factors impacting operating expenses. The company announced a definitive agreement to acquire NXP Semiconductors N.V. for approximately $38 billion, a move expected to be funded through a combination of offshore cash and new debt. This significant transaction, along with ongoing legal and regulatory challenges, including the KFTC fine and new litigation from Apple, presents both strategic opportunities and considerable risks for the company. Investors should monitor the progress and potential outcomes of the NXP acquisition and the resolution of these legal and regulatory matters.

Financial Highlights

48 data points
Beta

Revenue

$6.00B

59.3% Gross Margin

Net Income

$682.00M

11.4% Net Margin

EPS (Diluted)

$0.46

Total Assets

$52.37B

Cash & Equivalents

$6.88B

Free Cash Flow

$1.59B

Financial Statements
Beta
Revenue$6.00B
Cost of Revenue$2.44B
Gross Profit$3.56B
R&D Expenses$1.31B
SG&A Expenses$591.00M
Operating Expenses$5.22B
Operating Income$778.00M
Interest Expense$90.00M
Net Income$682.00M
EPS (Basic)$0.46
EPS (Diluted)$0.46
Shares Outstanding (Basic)1.48B
Shares Outstanding (Diluted)1.50B

Key Highlights

  • 1Total revenues increased by 4% to $6.0 billion, driven by growth in both equipment/services and licensing segments.
  • 2Net income attributable to Qualcomm decreased significantly by 54% to $682 million, largely due to an $868 million KFTC investigation charge.
  • 3The company announced a $38 billion definitive agreement to acquire NXP Semiconductors N.V., to be funded by offshore cash and new debt.
  • 4QCT (Qualcomm CDMA Technologies) revenues remained stable despite a 10% decrease in MSM integrated circuit shipments, attributed to a higher-priced product mix and increased revenues from other products.
  • 5QTL (Qualcomm Technology Licensing) revenues increased by 13%, primarily due to higher reported sales of CDMA-based products and increased revenue per reported unit, though still impacted by underreported units.
  • 6Significant legal and regulatory challenges persist, including a new antitrust complaint filed by Apple Inc. and ongoing investigations in multiple jurisdictions.
  • 7The company is actively divesting a substantial portion of its marketable securities portfolio to help finance the NXP acquisition.

Frequently Asked Questions

For the first quarter of fiscal year 2017, Qualcomm reported a 4% increase in total revenues to $6.0 billion. However, net income attributable to Qualcomm decreased significantly by 54% to $682 million, primarily due to an $868 million charge related to the Korea Fair Trade Commission (KFTC) investigation and other expense increases.

Qualcomm announced a definitive agreement to acquire NXP Semiconductors N.V. for approximately $38 billion. This is a major strategic move expected to close by the end of calendar 2017, funded by offshore cash and new debt. The acquisition aims to expand Qualcomm's presence in areas like automotive and IoT. However, it also brings significant financial commitments and integration risks.

Yes, Qualcomm faces several significant legal and regulatory challenges. These include a substantial $868 million charge related to a KFTC investigation, ongoing antitrust investigations in various global jurisdictions, and new litigation filed by Apple Inc. concerning patent licensing and antitrust claims. The company believes its practices are compliant but acknowledges that unfavorable resolutions could materially impact its business.

Qualcomm is financing the NXP acquisition through a combination of existing offshore cash, new debt, and by divesting a substantial portion of its marketable securities portfolio. The company secured $13.6 billion in committed financing and intends to issue additional debt. While its liquidity is expected to be sufficient for the next 12 months, the NXP transaction will utilize a significant portion of its cash, cash equivalents, and marketable securities.