10-QPeriod: Q2 FY2017

QUALCOMM INC/DE Quarterly Report for Q2 Ended Mar 26, 2017

Filed April 19, 2017For Securities:QCOM

Summary

Qualcomm Incorporated's (QCOM) 10-Q filing for the period ending March 25, 2017, reveals a mixed financial performance. Total revenues declined by 10% year-over-year to $5.0 billion, primarily driven by a significant 39% drop in Licensing (QTL) revenues, which was heavily impacted by a $974 million reduction due to the BlackBerry arbitration decision. Conversely, Equipment and Services (QCT) revenues saw a modest 10% increase to $3.7 billion, signaling resilience in the chip manufacturing segment. Net income attributable to Qualcomm fell by 36% to $749 million, reflecting the substantial impact of the licensing revenue shortfall and ongoing legal and regulatory challenges. Despite the revenue and profit declines, the company continues to execute on its strategic priorities, notably the proposed $38 billion acquisition of NXP Semiconductors, which is expected to close by the end of calendar 2017. This transformative deal, along with the recently completed RF360 Holdings joint venture with TDK for $3.1 billion, indicates a strong focus on expanding Qualcomm's technology offerings and market reach. The company's liquidity remains robust, with substantial cash and marketable securities, although a portion is earmarked for the NXP acquisition. However, ongoing investigations, litigation, and significant legal settlements, such as the BlackBerry arbitration, pose material risks to future financial performance and operational stability.

Financial Highlights

49 data points
Beta

Revenue

$5.02B

56.0% Gross Margin

Net Income

$749.00M

14.9% Net Margin

EPS (Diluted)

$0.50

Total Assets

$56.08B

Cash & Equivalents

$7.12B

Free Cash Flow

$820.00M

Financial Statements
Beta
Revenue$5.02B
Cost of Revenue$2.21B
Gross Profit$2.81B
R&D Expenses$1.39B
SG&A Expenses$615.00M
Operating Expenses$4.29B
Operating Income$729.00M
Interest Expense$107.00M
Net Income$749.00M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)1.48B
Shares Outstanding (Diluted)1.49B

Key Highlights

  • 1Total revenues decreased by 10% to $5.02 billion compared to the prior year quarter, primarily due to a significant decline in licensing revenue.
  • 2Licensing revenue (QTL) experienced a substantial decrease of 39% to $1.33 billion, heavily impacted by a $974 million reduction from the BlackBerry arbitration decision.
  • 3Equipment and Services revenue (QCT) increased by 10% to $3.69 billion, showing growth in the chip segment.
  • 4Net income attributable to Qualcomm decreased by 36% to $749 million, reflecting the combined impact of lower revenues and significant charges.
  • 5The company is pursuing a major acquisition of NXP Semiconductors for an estimated $38 billion, expected to close by the end of calendar 2017.
  • 6A new joint venture, RF360 Holdings, was formed with TDK Corporation for $3.1 billion to focus on radio frequency front-end modules and filters.
  • 7Qualcomm recorded a $921 million charge in the six-month period related to a fine imposed by the Korea Fair Trade Commission (KFTC).

Frequently Asked Questions

The substantial decrease in licensing revenue was primarily due to a $974 million reduction recorded in the second quarter of fiscal 2017, resulting from the adverse decision in the BlackBerry arbitration case. This decision required Qualcomm to pay BlackBerry $815 million plus interest.

Qualcomm announced a definitive agreement to acquire NXP Semiconductors for approximately $38 billion. The transaction is expected to close by the end of calendar 2017, subject to regulatory approvals. This acquisition will be funded through a combination of existing cash, new debt, and potentially drawing on committed financing facilities totaling $11.1 billion. The company expects this to utilize a substantial portion of its cash and marketable securities and necessitate taking on significant new debt.

Qualcomm is involved in numerous legal and regulatory matters. Key issues include the ongoing dispute with Apple Inc. leading to multiple lawsuits globally, a $921 million fine from the Korea Fair Trade Commission (KFTC) for alleged violations of Korean competition law, and various other investigations and lawsuits related to its patent licensing practices and alleged anti-competitive conduct in multiple jurisdictions, including the US, Europe, and China.

The formation of the RF360 Holdings joint venture with TDK Corporation, for which Qualcomm paid $3.1 billion, was completed in February 2017. This joint venture focuses on radio frequency front-end modules and filters. The acquired assets and operations are included in Qualcomm's QCT segment. While the operating results of RF360 Holdings were not material to the consolidated financials for the reported periods, the acquisition represents a significant strategic investment to expand Qualcomm's product portfolio.