10-QPeriod: Q3 FY2017

QUALCOMM INC/DE Quarterly Report for Q3 Ended Jun 25, 2017

Filed July 19, 2017For Securities:QCOM

Summary

QUALCOMM INC/DE (QCOM) reported a significant decline in revenue and net income for the third quarter of fiscal year 2017 compared to the prior year. Total revenues decreased by 11% to $5.4 billion, and net income attributable to Qualcomm dropped by 40% to $866 million. This performance was primarily driven by a sharp decrease in licensing revenues, which fell by 42% to $1.25 billion. This decline was largely attributed to royalty disputes with key customers, notably Apple's contract manufacturers, and the impact of the BlackBerry arbitration settlement. Despite the revenue challenges, the company's equipment and services segment showed growth, increasing by 6% to $4.12 billion, mainly due to an increase in RFFE products from the new RF360 Holdings joint venture and connectivity shipments. The company also raised $11 billion in debt in May 2017 to help finance the proposed acquisition of NXP Semiconductors N.V., significantly increasing its long-term debt and altering its liquidity profile. Investors should monitor the resolution of the ongoing disputes with Apple and other licensees, as well as the progress and integration of the NXP acquisition.

Financial Highlights

52 data points
Beta

Revenue

$5.36B

53.5% Gross Margin

Net Income

$856.00M

16.0% Net Margin

EPS (Diluted)

$0.57

Total Assets

$64.38B

Cash & Equivalents

$14.91B

Free Cash Flow

$171.00M

Financial Statements
Beta
Revenue$5.36B
Cost of Revenue$2.49B
Gross Profit$2.87B
R&D Expenses$1.39B
SG&A Expenses$710.00M
Operating Expenses$4.60B
Operating Income$758.00M
Interest Expense$133.00M
Net Income$856.00M
EPS (Basic)$0.58
EPS (Diluted)$0.57
Shares Outstanding (Basic)1.48B
Shares Outstanding (Diluted)1.49B

Key Highlights

  • 1Total revenues declined 11% year-over-year to $5.4 billion in Q3 FY17.
  • 2Net income attributable to Qualcomm decreased by 40% to $866 million.
  • 3Licensing revenues experienced a significant drop of 42% to $1.25 billion, impacted by royalty disputes with Apple's contract manufacturers and the BlackBerry arbitration.
  • 4Equipment and services revenues grew 6% to $4.12 billion, driven by RFFE products and connectivity shipments.
  • 5The company issued $11 billion in unsecured notes in May 2017, substantially increasing its long-term debt to fund the NXP acquisition.
  • 6Cash and cash equivalents increased significantly to $14.9 billion, largely due to the recent debt issuance.
  • 7The company is facing multiple ongoing legal proceedings and regulatory investigations globally, including disputes with Apple and regulatory actions in Korea and the EU.

Frequently Asked Questions

The primary reason for the significant drop in licensing revenue was the ongoing royalty disputes with Apple's contract manufacturers, who did not fully report or pay royalties due. Additionally, a settlement related to the BlackBerry arbitration resulted in a substantial reduction in licensing revenue in the quarter.

Qualcomm issued $11 billion in unsecured notes in May 2017, significantly increasing its long-term debt. This debt, along with other financing, is intended to fund the acquisition. The acquisition is expected to consume a substantial portion of the company's cash, cash equivalents, and marketable securities upon closing.

The equipment and services segment showed growth, increasing by 6% year-over-year, primarily driven by an increase in revenues related to radio frequency front-end (RFFE) products from the new RF360 Holdings joint venture and higher connectivity shipments. However, this growth was partially offset by a decline in share with a large customer.

Qualcomm is involved in numerous legal proceedings and regulatory investigations globally. Key issues include ongoing disputes with Apple regarding royalties, antitrust investigations in various jurisdictions (e.g., Korea, EU, US FTC), and patent infringement claims by third parties. An unfavorable resolution of these matters could have a material adverse effect on the company's business.