Qualcomm Reports Record Fiscal 1997 Results
SAN DIEGO — November 11, 1997 — Qualcomm Incorporated (NASDAQ:QCOM) today reported revenues of $601 million for the fourth quarter of fiscal 1997 and $2.1 billion for the fiscal year ended September 28, 1997. These figures represent 112 percent and 158 percent increases over revenues of $283 million and $814 million for the year ago fourth quarter and for fiscal 1996, respectively.Net income for the fourth quarter was $30 million, or $.41 per share, resulting in fiscal 1997 net income of $92 million or $1.27 per share. These results approximately quadruple both the fourth quarter 1996 net income of $8 million, or $.11 per share and fiscal 1996 net income of $21 million or $.30 per share. Total backlog and contracts as of September 28, 1997 were $2.3 billion, reflecting a 35 percent increase over the previous year.
"Our 1997 results reflect the tremendous growth and momentum of cdmaOne mobile and fixed wireless communications systems, which are currently being deployed in more than 30 countries around the globe," said Dr. Irwin M. Jacobs, chairman and CEO of Qualcomm Incorporated. "As we look into 1998, we are focused on extending our competitive advantage in CDMA and OmniTRACS products, preparing for the commercial launch of the Globalstar system and further growing our revenues and profits. These initiatives will enable us to continue to build the wireless future worldwide."
During fiscal 1997, Qualcomm achieved numerous milestones including:
- The successful transition to its new line of phone models including the QCP-2700, the first of its kind dual-band Code Division Multiple Access (CDMA)/analog phone for Personal Communications Services (PCS) subscribers and the Q phone, both of which began shipping during the fourth quarter of fiscal 1997. The new models deliver exciting new features in a smaller size for CDMA cellular and PCS customers.
- The cumulative shipment of approximately 3 million CDMA handsets since production began at Qualcomm Personal Electronics (QPE), a joint manufacturing venture between Qualcomm and Sony Electronics. QPE sold out of its first generation phones.
- The cumulative shipment of over 10 million Mobile Station Modem (MSM) chips since shipments began to CDMA phone manufacturers, including QPE, and the cumulative shipment of over 1 million Cell Station Modem (CSM) chips to CDMA infrastructure manufacturers, including Qualcomm. The Company also recently introduced and delivered samples of its fourth generation CDMA MSM chip set, providing increased functionality and decreased power consumption.
- The collaboration among the CDMA Development Group (CDG), Qualcomm, Lucent, Motorola, Nortel and Samsung on a "third generation" system based on IS-95 technology. This approach will offer wider-band options for data-intensive applications while also maintaining full compatibility with cdmaOne systems and their evolutionary enhancements. Both cdmaOne enhancements and third generation cdmaOne systems will support high burst rate access to the Internet.
- The commercial launch of the Company's CDMA wireless local loop systems in India and Russia. In addition, the Company began deployment of a nationwide PCS mobile system in Chile and a wireless local loop system in Ukraine using Qualcomm's infrastructure and subscriber products.
- The worldwide acceptance of Qualcomm's IS-95 technology was evidenced by the growing CDMA subscriber base, which currently includes more than 3.5 million users in South Korea and over one million users in North America and elsewhere. This acceptance is underscored by the addition of 13 new IS-95 licensees during fiscal 1997, with a total of nine CDMA subscriber licensees, one infrastructure licensee, one ASIC licensee and two test equipment licensees. This brings the total number to over 50 companies now authorized to build and sell equipment based on Qualcomm's CDMA technology.
- The launch of a GSM -CDMA field trial and economic study with Vodafone in the United Kingdom to demonstrate CDMA wireless accessintegrated into a GSM network.
- The receipt of a contract from Globalstar for over $300 million in commercial gateway equipment. The contract, which is for 38 gateways initially, includes options to expand orders to over $600 million.
- The shipment of 36,000 OmniTRACS units, bringing the total number of units installed worldwide to 210,000.
- The introduction of the Eudora Productivity Toolkit, an enhancement that solves e-mail's biggest challenges: security, virus protection, file compression and attachment viewing. In addition, the Company announced a PureVoice plug-in for voice enabled software applications. The PureVoice plug-in is also compatible with cdmaOne phones.
- The naming rights to the San Diego stadium where the SuperBowl game will be played in 1998. The Company secured these rights for a 20-year period as part of a brand name awareness effort for its CDMA products.
Communications systems revenues of $482 million for the fourth quarter of fiscal 1997 and over $1.7 billion for the fiscal year represent continued rapid growth in the sales of CDMA phones, Application Specific Integrated Circuits (ASICs) and infrastructure equipment.
Communications systems gross margin for the fourth quarter was 24 percent compared to 22 percent in the fourth quarter of fiscal 1996. This increase was due to overall increased margins on the sale of CDMA equipment due to efficiencies gained with high volume manufacturing of CDMA phones and sales of ASICs and infrastructure equipment. The gross margin for fiscal 1997 declined to 21 percent versus 24 percent for fiscal 1996 due to the changing product mix.
License, royalty and development fees were $50 million or 8 percent of total revenues for the fourth quarter of fiscal 1997, compared to $32 million or 11 percent of total revenues for the year ago period. License, royalty and development fees for the year contributed $152 million or 7 percent of total revenues for fiscal 1997 compared to $100 million, or 12 percent of total revenues for fiscal 1996, a 52 percent increase. Royalties during the quarter exceeded license and development fees. The Company continues to experience quarterly fluctuations in license, royalty and development fees due to the variability in the amount and timing of CDMA license fees and royalties.
Contract service revenues increased to $69 million for the quarter, a 92 percent increase over the fiscal 1996 fourth quarter revenue of $36 million. Revenues for the year increased to $212 million, an $81 million increase over fiscal 1996 revenues. The increase is attributable to the development agreement with Globalstar which began in 1994.
The Company continues to emphasize cost control during a period of rapid growth. Operating expenses, including research and development, selling and marketing and general and administrative, increased in absolute dollars in fiscal 1997, but decreased significantly as a percentage of revenues from 35 percent in fiscal 1996 to 23 percent. The Company continues to invest in the research and development of new CDMA infrastructure, ASICs and subscriber products. Selling and marketing expenses increased due to international marketing activities and a nationwide advertising campaign during fiscal 1997. These efforts will continue into future periods. General and administrative expenses increased in connection with legal fees associated with patent infringement litigation, staffing increases and associated overhead costs that are necessary to support the overall growth in the Company's operations.
Interest income increased 44 percent to $35 million for the fiscal year ended September 28, 1997 as a result of proceeds received from the Trust Convertible Preferred Securities offering during the second fiscal quarter of 1997. Interest expense increased to $11 million in fiscal 1997, compared to $3 million in fiscal 1996 as a result of increased bank borrowings to support the working capital needs of QPE. Distributions of $23 million for fiscal 1997 relate to Trust Convertible Preferred Securities issued during the second quarter of fiscal 1997.
Headquartered in San Diego, Qualcomm develops, manufactures, markets, licenses 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 Globalstar™ low-earth-orbit (LEO) satellite communications system. Other Company products include the Eudora Pro™ electronic mail software, ASIC products, and communications equipment and systems for government and commercial customers worldwide. For more information on Qualcomm products and technologies, please visit the Company's web site at www.qualcomm.com.
Except for the historical information contained herein, this news release contains forward-looking statements that are subject to risks and uncertainties, including the ability to develop and introduce cost effective new products in a timely manner, potential delays in the commercial implementation of the Company's CDMA technology, continued growth in the CDMA subscriber population and the scale-up and operations of CDMA systems, developments in current or future litigation, the Company's ability to effectively manage growth and the intense competition in the wireless communications industry, risks associated with vendor financing, timing and receipt of license fees and royalties, the Company's ability to successfully manufacture and sell significant quantities of CDMA handsets, ASICs and infrastructure equipment on a timely basis, failure to satisfy performance obligations, 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 28, 1997 and most recent Form 10-Qs.
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Qualcomm, OmniTRACS and Eudora are registered trademarks of Qualcomm Incorporated. The Q logo, Q phone, QCP-2700, Eudora Pro, Eudora Productivity Toolkit and PureVoice are trademarks of Qualcomm Incorporated. Globalstar is a trademark of Loral Qualcomm Satellite Services, Incorporated. cdmaOne is a trademark of the CDMA Development Group.
(In thousands, except per share data)
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| 1997 | 1996 | |
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| Current assets: | ||
| Cash and cash equivalents | $ 248,837 | $ 110,143 |
| Investments | 448,235 | 236,129 |
| Accounts receivable, net | 445,382 | 217,433 |
| Finance receivables | 111,501 | -- |
| Inventories | 225,156 | 171,511 |
| Other current assets | 70,484 | 15,974 |
| Total current assets | 1,549,595 | 751,190 |
| Property, plant and equipment, net | 425,090 | 352,699 |
| Investments | 111,786 | 8,009 |
| Other assets | 188,209 | 73,432 |
| Total assets | $ 2,274,680 | $ 1,185,330 |
| Current liabilities: | ||
| Accounts payable and accrued liabilities | $ 409,156 | $ 229,799 |
| Unearned revenue | 45,084 | 13,226 |
| Bank lines of credit | 110,000 | 80,700 |
| Current portion of long-term debt | 3,238 | 2,234 |
| Total current liabilities | 567,478 | 325,959 |
| Long-term debt | 7,729 | 10,908 |
| Other liabilities | 15,295 | 3,550 |
| Total liabilities | 590,502 | 340,417 |
| Company-obligated mandatorily redeemable trust convertible preferred securities of a subsidiary trust holding solely debt securities of the Company |
660,000 |
-- |
| Stockholders' equity: | ||
| Preferred stock, $0.0001 par value | -- | -- |
| Common stock, $0.0001 par value | 7 | 7 |
| Paid-in capital | 906,373 | 819,042 |
| Retained earnings | 117,798 | 25,864 |
| Total stockholders' equity | 1,024,178 | 844,913 |
| Total liabilities and stockholders' equity | $ 2,274,680 | $ 1,185,330 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
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| 1997 | 1996 | 1997 | 1996 | ||
| Revenues: | |||||
| Communications systems | $ 482,173 | $ 215,316 | $ 1,733,169 | $ 582,953 | |
| Contract services | 69,498 | 35,901 | 211,661 | 131,022 | |
| License, royalty and development fees | 49,748 |
31,887 |
151,535 |
99,875 |
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| Total revenues | 601,419 | 283,104 | 2,096,365 | 813,850 | |
| Operating expenses: | |||||
| Communications systems | 368,259 | 168,451 | 1,361,641 | 445,481 | |
| Contract services | 51,920 | 24,276 | 156,365 | 90,380 | |
| Research and development | 71,795 | 48,091 | 235,922 | 162,340 | |
| Selling and marketing | 48,532 | 23,177 | 147,040 | 74,114 | |
| General and administrative | 25,079 | 14,893 | 89,148 | 48,971 | |
| Other | -- | -- | 8,792 | -- | |
| Total operating expenses | 565,585 | 278,888 | 1,998,908 | 821,286 | |
| Operating income (loss) | 35,834 | 4,216 | 97,457 | (7,436) | |
| Interest income | 11,729 | 4,864 | 34,845 | 24,239 | |
| Interest expense | (2,814) | (1,290) | (11,012) | (3,354) | |
| Gain on sale of trading securities | -- | -- | 13,400 | -- | |
| Distributions on trust convertible preferred securities of subsidiary trust |
(9,692) | -- | (23,277) | -- | |
| Minority interest in loss (income) of consolidated subsidiary |
3,051 | 2,879 | (2,979) | 13,178 | |
| Income before income taxes | 38,108 | 10,669 | 108,434 | 26,627 | |
| Income tax expense | (7,990) | (2,727) | (16,500) | (5,600) | |
| Net income | $ 30,118 | $ 7,942 | $ 91,934 | $ 21,027 | |
| Net earnings per common share: | |||||
| Primary | $ 0.41 | $ 0.11 | $ 1.27 | $ 0.30 | |
| Fully diluted | $ 0.41 | $ 0.11 | $ 1.27 | $ 0.30 | |
| Shares used in per share calculation: | |||||
| Primary | 73,549 | 70,773 | 72,430 | 70,214 | |
| Fully diluted | 73,549 | 70,773 | 72,665 | 70,468 | |
