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Qualcomm Reports Third Quarter Results

– July 22, 1996 – SAN DIEGO - July 22, 1996-Qualcomm Incorporated (NASDAQ: QCOM) today announced revenues for the third fiscal quarter of 1996 of $235 million, up 136 percent from revenues of $100 million in the third fiscal quarter of 1995. Earnings were $.02 per share versus $.13 per share in the year ago quarter, reflecting the heavy investment in new products and market development which have contributed to the rapid growth of sales and orders. Revenue for the nine months ended June 30, 1996 were $531 million, a 100 percent increase compared to $265 million, for the same period in fiscal 1995. The earnings per share for the nine months ending June 30, 1996 and 1995 respectively were $.19 per share and $.34 per share. The balance sheet as of June 30, 1996 remains strong with a cash and investments balance in excess of $300 million.

Backlog and contracts as of June 30,1996 totaled over $1.3 billion for Code Division Multiple Access (CDMA) subscriber, infrastructure, and Application Specific Integrated Circuit (ASIC) products. Portions of the backlog and certain contracts are subject to performance guarantees and contingencies, including finalization of financing terms. "We've spent many months in preparation for becoming a market leader in CDMA equipment, and we believe this advanced work and investment are paying off, as evidenced by the recent announcement of orders for $850 million of CDMA subscriber units from two of the largest Personal Communications Services (PCS) service providers," said Irwin Mark Jacobs, chairman and chief executive officer of Qualcomm.

For the quarter, communications systems revenues increased to $175 million, 185 percent over the third fiscal quarter in the previous year, as sales of CDMA subscriber and ASIC products accelerated rapidly, combined with the growth of OmniTRACS system revenues. Communications systems gross margin was 23 percent in the quarter versus 45 percent in the third quarter of 1995 due to lower gross margins on CDMA and ASIC products compared with the OmniTRACS® business that contributed the majority of communications systems revenue in the year ago quarter. The gross margin on CDMA products was also impacted by fixed costs associated with a ramp-up of high volume manufacturing and with costs of increasing field service capability, both domestically and internationally.

Contract services revenues increased to $35 million, a 29 percent increase over the fiscal 1995 third quarter of $27 million, primarily attributable to the continued ramp-up of the Globalstar development.

Revenues from license and development fees and royalties increased $14 million, a 126 percent increase, to $25 million from the same quarter one year ago. License and development fees included two new subscriber equipment licensees, Siemens Rolm Communications and Kenwood Corporation, as well as software licenses and other fees from new and existing licensees. Also royalties, principally from the sale of infrastructure equipment by licensees, increased with delivery of commercial CDMA networks around the world. The Company expects to continue to experience quarterly fluctuations in license and development fees due to the variability in the amount and timing of CDMA license fees and royalties.

Research and development expenses rose to $47 million, a 120 percent increase over the year ago quarter. These expenses declined as a percent of sales to 20 percent from $21 million or 21 percent of sales in the year ago quarter, as a result of sales growth in products resulting from research and development efforts. R&D dollar investment grew significantly as the Company continued development of its product portfolio and increased efforts to reduce cost and optimize performance. Increasing resources are focused on equipment features and functionality related to follow-on handset and ASIC products, OmniTRACS, and international opportunities in Wireless Local Loop (WLL).

Sales and marketing expenses rose to $19 million, a 67 percent increase, versus the year ago quarter of $11 million as Qualcomm continued to expand its worldwide sales and marketing efforts to capitalize on the increased acceptance of CDMA products, both domestically and in many developing countries. General and administrative expenses were $14 million, a 48 percent increase over third quarter fiscal 1995. The increase in G&A also reflects the hiring and training of additional personnel to support the Company's growth. SG&A was 14 percent of sales in the quarter, compared to 21 percent of sales in the year ago quarter.

Business Highlights for the Quarter:

  • During the third quarter, two of the largest PCS service providers, Sprint Spectrum L.P. (SSLP) and PCS PrimeCo, announced agreements to purchase CDMA cellular and PCS handsets from Qualcomm Personal Electronics (QPE), a 51 percent Qualcomm owned joint venture with Sony. The value of the contracts is $850 million with shipments expected to begin in July, and establishes QPE as a major supplier of CDMA handsets to the wireless telecom industry. To support these and other orders for cellular and PCS systems, QPE plans to further expand the handset production capacity to a target of 300,000 handsets per month by the end of the calendar year. During the quarter, QPE's CDMA handset production capacity continued to ramp up and nearly 125,000 phones, predominately Qualcomm's QCP-800, were shipped to Hong Kong, Korea, AirTouch, Bell Atlantic NYNEX Mobile (BANM), and various other carriers.

  • Initial quantities of CDMA infrastructure equipment were shipped to SSLP. Significant revenue recognition on shipments of CDMA infrastructure is not expected until commercial service is launched, currently planned for the Company's fiscal 1997. The CDMA infrastructure division finalized negotiations to ship CDMA WLL and cellular infrastructure to JSC Sviazinform Chelyabinsk Region of the Russian Federation for a system certification followed by commercial deployment.

  • A number of service operators launched commercial CDMA systems during the quarter and commercial CDMA service is now available through two Korean operators, Shinsegi Telecomm, Inc., and Korea Mobile Telecommunication Corp (KMT), bringing the total CDMA subscriber population in Korea to over 100,000. Bell Atlantic NYNEX Mobile and AirTouch launched commercial service in New Jersey and Los Angeles, respectively. Other worldwide CDMA deployments are occurring rapidly as future cellular, PCS and WLL systems have been announced in Africa, Puerto Rico, Virgin Islands, Peru, Brazil, Argentina, Venezuela, China, Singapore, Malaysia, Thailand, Canada, Russia, India, and elsewhere. In July, Clearnet Communications Inc. announced it expects to commence PCS service in 1997 in certain of Canada's largest cities, using CDMA technology supplied by Lucent Technologies. Additionally, both BCTEL Mobility and PCS PrimeCo successfully demonstrated CDMA digital mobile telephone calls using 13 Kbps voice coding technology on commercial hardware in a "live" environment.

  • Of strategic importance for the continued adoption of CDMA technology worldwide, Japan's Cellular Telephone Company Group, a confederation of non-governmental wireless carriers, the largest of which is DDI, announced the selection of CDMA technology. Japan represents one of the fastest growing wireless markets in the world, with over 10 million subscribers. Also, the Canadian Department of Industry has adopted CDMA as an approved cellular telecommunications standard in Canada. Bell Mobility selected network infrastructure equipment supplied by the Northern Telecom (Nortel) and Qualcomm strategic relationship for deployment in their CDMA Personal Communications Services (PCS). Qualcomm will supply Nortel with a percentage of the $US 225 million order.

  • Qualcomm'S OmniTRACS business shipped over 10,200 units in the quarter, and the Federal Communications Commission (FCC) approved the expansion of the OmniTRACS system license from 150,600 to 250,600 OmniTRACS mobile communication units. New customers include P.A.M. Transportation Services, Inc., Superior Carriers, and OTR Express, Inc. Over 165,000 units have been shipped to U.S. and worldwide markets to date. The OmniTRACS division has signed agreements with original equipment manufacturers and service providers such as Lockheed Martin, Caterpillar, Freightliner, Air-Weigh Scales and Ragsdell Group, Inc., to provide features and services to meet the increasing demands of customers.

  • During the quarter, Globalstar, L.P., a partnership formed by Loral, Qualcomm, and other international telecommunications companies, signed agreements with three additional service providers to provide Globalstar service in Mexico, Brazil and Russia. At present, agreements exist with exclusive service providers covering 90 countries, representing 70 percent of the Globalstar business plan. Globalstar has also announced that it has obtained the majority of the financing required to complete the over $2 billion project, scheduled for commercial deployment in 1998.

  • Qualcomm's Eudora software group continued to expand its worldwide presence by signing additional distributor agreements for Eudora ProTM software, delivering new Windows NT® , Windows '95® and UNIX® platform communications server products, and opening Eudora Pro to developers with a new Extended Messaging Services Application Programming Interface (EMSAPI) for the development of plug-in modules for the Company's Eudora Pro 3.0 electronic mail products. The Institute for Global Communication, a leader in wireless communications and advanced electronic messaging solutions for the Internet, selected Eudora Pro Software as their Internet communications vehicle of choice.

In recognition of his significant contributions to applied science and digital communications over a thirty-five year period, Dr. Andrew J. Viterbi, vice chairman and chief technical officer of Qualcomm, was elected to the United States National Academy of Science.

Headquartered in San Diego, Qualcomm develops, licenses, manufactures, markets, and operates advanced communications systems and products based on its proprietary digital wireless technologies. The Company's primary product areas are the OmniTRACS® system (a geostationary satellite-based, mobile communications system providing two-way data and position reporting services), CDMA wireless communications systems and products and, in conjunction with others, the development of the GlobalstarTM low-earth-orbit (LEO) satellite communications system. Other company products include the Eudora ProTM electronic mail software, VLSI components, and communications equipment and systems for government and commercial customers worldwide.

Except for the historical information contained herein, this news release contains forward-looking statements that are subject to risks and uncertainties, including timely product development and shipments, variation of royalty, license and other revenues, failure to satisfy performance obligations, difficulties in obtaining components needed for production of wireless equipment, and a change in economic conditions of the various markets the Company serves, as well as the other risks detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended September 24, 1995 and most recent Form 10-Qs.

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