10-QPeriod: Q2 FY2018

QUALCOMM INC/DE Quarterly Report for Q2 Ended Mar 25, 2018

Filed April 25, 2018For Securities:QCOM

Summary

Qualcomm's (QCOM) Q2 fiscal year 2018 report shows a mixed financial performance, with revenues growing 5% year-over-year to $5.3 billion, driven by an increase in equipment and services from the QCT segment. However, net income saw a significant decline of 52% to $363 million due to a substantial income tax expense related to the U.S. Tax Cuts and Jobs Act of 2017, which included a one-time repatriation tax charge of $5.3 billion. Licensing revenues (QTL) were negatively impacted by ongoing disputes with key licensees, particularly Apple and its contract manufacturers, leading to no royalty revenue recognition from these entities for the quarter. Significant operational highlights include the announcement of a Cost Plan aimed at reducing annual costs by $1 billion, with initial restructuring charges of $310 million recorded in the quarter. The proposed acquisition of NXP Semiconductors remains a key strategic focus, with the deal terms amended to increase the offer price and a revised closing date extension to July 25, 2018, contingent on regulatory approvals, particularly from China. The company continues to invest in 5G and other emerging technologies while navigating substantial legal and regulatory challenges, including ongoing antitrust investigations and patent disputes with Apple.

Financial Highlights

48 data points
Beta

Revenue

$5.22B

57.1% Gross Margin

Net Income

$330.00M

6.3% Net Margin

EPS (Diluted)

$0.22

Total Assets

$64.13B

Cash & Equivalents

$37.95B

Free Cash Flow

$516.00M

Financial Statements
Beta
Revenue$5.22B
Cost of Revenue$2.24B
Gross Profit$2.98B
R&D Expenses$1.40B
SG&A Expenses$869.00M
Operating Expenses$4.82B
Operating Income$400.00M
Interest Expense$179.00M
Net Income$330.00M
EPS (Basic)$0.22
EPS (Diluted)$0.22
Shares Outstanding (Basic)1.48B
Shares Outstanding (Diluted)1.49B

Key Highlights

  • 1Total revenues increased by 5% to $5.3 billion in Q2 FY18, primarily driven by growth in equipment and services.
  • 2Net income decreased significantly by 52% to $363 million, heavily impacted by a substantial tax charge of $5.87 billion related to the U.S. Tax Cuts and Jobs Act.
  • 3Licensing revenues (QTL) were negatively affected by ongoing disputes with Apple and another major licensee, resulting in no royalty revenue recognized from these sources.
  • 4The company announced a Cost Plan targeting $1 billion in annual cost reductions, with $310 million in restructuring charges incurred in the quarter.
  • 5The acquisition of NXP Semiconductors is progressing, with an increased offer price of $127.50 per share and an extended closing date to July 25, 2018, pending regulatory approval.
  • 6QCT segment revenues grew, boosted by RF360 Holdings joint venture and increased MSM unit shipments, though impacted by lower average selling prices for connectivity products.
  • 7Despite strong cash generation from operations, the company faces significant legal and regulatory challenges, including multiple antitrust investigations and patent disputes worldwide.

Frequently Asked Questions

The primary reason for the significant decrease in net income is the one-time tax expense of $5.87 billion recorded in the first quarter of fiscal year 2018 related to the U.S. Tax Cuts and Jobs Act of 2017, which included a repatriation tax charge and the remeasurement of deferred tax assets.

The disputes with Apple and its contract manufacturers have significantly impacted Qualcomm's licensing revenues (QTL). For the six months ended March 25, 2018, Qualcomm did not record any revenue from royalties due on sales of Apple's products or the other licensee's products. This has negatively affected QTL revenues and earnings before taxes.

Qualcomm has amended the purchase agreement with NXP Semiconductors, increasing the cash offer price to $127.50 per share, representing a total consideration of $44 billion. The closing date has been extended to July 25, 2018, and the transaction remains contingent on receiving regulatory clearance, particularly from China's Ministry of Commerce, and other customary closing conditions.

Qualcomm announced a Cost Plan designed to align its cost structure with long-term margin targets, aiming to reduce annual costs by $1 billion. In the second quarter of fiscal 2018, the company recorded $310 million in restructuring and related charges associated with this plan, primarily for severance costs. These cost reductions are expected to be fully realized by fiscal year 2019.