Qualcomm Reports Record Sales and Improved Earnings for Second Quarter

SAN DIEGO  —  04-21-1997 — Qualcomm Incorporated (NASDAQ: QCOM) today reported revenues for the second quarter of fiscal year 1997 of $586 million, nearly four times the revenues of $149 million in the second fiscal quarter of 1996, and a 50 percent increase over revenues reported for the first quarter of 1997. Revenues for the six months ended March 30, 1997 were $975 million, more than three times the revenues of $296 million for the same period in fiscal 1996.

Net income for the second quarter increased to $16.7 million or $.23 per share compared with $1.5 million or $.02 per share for the same period in fiscal 1996. Net income for the six months ended March 30, 1997 was $25.9 million, or $.36 per share, compared to net income of $11.6 million, or $.17 per share for the same period in fiscal 1996.

The increase in revenues and earnings was due to the continued worldwide demand for Code Division Multiple Access (CDMA) handsets by carriers and Application Specific Integrated Circuits (ASICs) by licensed CDMA manufacturers. Additional factors were the recognition of revenues for a large portion of Qualcomm's CDMA infrastructure equipment that has been installed in major U.S. markets for Sprint PCS, increased Globalstar™ development contract revenues, higher CDMA license and royalty fees, and higher OmniTRACS® system domestic revenues during the second quarter.

"We are seeing stronger results to date in 1997 as CDMA networks roll out worldwide with high subscriber growth rates supporting demand for CDMA phones manufactured by Qualcomm Personal Electronics," said Dr. Irwin Mark Jacobs, chairman and chief executive officer of Qualcomm. "Commercial CDMA systems are now operating in over 50 U.S. cities and are serving approximately 2 million customers worldwide."

Business Highlights for the Quarter

CDMA
Qualcomm Personal Electronics (QPE), a joint venture of Qualcomm Incorporated and Sony Electronics, announced in February that it had shipped over one million CDMA digital portable phones to service providers in the U.S., Canada, Hong Kong and Korea. Today, with the capacity to produce up to 300,000 phones per month, QPE is the largest supplier of CDMA digital phones for the U.S. market.

In February, U S WEST Communications signed an agreement with Qualcomm Personal Electronics to purchase approximately $80 million of Qualcomm and Sony CDMA handsets in support of its plans to deploy CDMA service in its 53 U.S. markets.

In March, Qualcomm introduced a palm-sized CDMA phone called the Q™ phone. The new Personal Communications Services (PCS) 1900 MHz Q phone is the smallest and lightest CDMA phone in existence, weighing in at approximately 5 ounces (147 grams). Qualcomm also announced newer models of its QCP line of phones including the QCP-2700™, the first dual-band CDMA PCS 1900 MHz/ Analog 800 MHz phone, the QCP-820™ dual-mode cellular phone, and the QCP-1920™ PCS 1900 MHz phone. The Company also unveiled the 1900 MHz QCT-6200™, the first in a new series of CDMA fixed wireless telephones, and the QCM series of CDMA circuit board modules for ready-to-use installation in portable or mobile phones, meter reading devices, or other data and voice products made by other manufacturers.

International CDMA equipment contracts signed during the quarter include an agreement with Chilesat Telefonia Personal S.A., a subsidiary of Télex-Chile S.A., for Qualcomm to supply $94 million of PCS infrastructure, subscriber equipment and services and for Qualcomm to make an equity investment in Chilesat. Qualcomm signed a multi-year contract with JSC Personal Communications to supply CDMA wireless communications systems in the greater Moscow area which will initially serve 100,000 subscribers and could increase capacity to serve up 300,000 subscribers.

Hitachi, Ltd. and Qualcomm signed an agreement during the quarter to form a multi-million dollar strategic alliance to manufacture, market and sell CDMA wireless infrastructure equipment for use in cellular, PCS and wireless local loop applications. Qualcomm also announced the signing of a multi-million dollar, royalty-bearing license agreement with Kokusai Electric Co., Ltd. of Tokyo, Japan, which grants Kokusai a license to manufacture and sell CDMA subscriber products.

In March, the Japanese government announced its support of the cellular service providers' selection of IS-95 based CDMA technology. "CDMA will provide Japan's citizens with excellent voice quality and capacity for future growth," said Harvey White, president of Qualcomm. "Japan is the second largest cellular market in the world, and this important endorsement demonstrates the growing worldwide acceptance of CDMA."

To date, Sprint PCS has successfully launched CDMA service in 32 U.S. cities, including major markets such as Philadelphia, Kansas City, Denver, Pittsburgh, San Diego and Des Moines, as it moves towards completion of its nationwide CDMA network. Northern Telecom and Qualcomm together have provided and installed the infrastructure equipment for 16 of the 32 cities which have begun commercial service. Sprint PCS expects to launch service in a total of 65 U.S. cities by mid-year. In a recent analysis of technology choices made by A- through F-Block PCS licensees in the United States, CDMA has emerged as the premier choice for PCS carriers with the largest footprint of any digital technology in the U.S. market and with multiple CDMA operators in many markets.

OmniTRACS
OmniTRACS system shipments worldwide were over 8,300 terminals during the second quarter and over 17,400 for the first six months of fiscal 1997. This additional growth expands the number of OmniTRACS system units worldwide to 194,000 units in over 30 countries. Domestic OmniTRACS customers added during the second quarter included Federal Express, Atlas Van Lines and Melton Truck Lines.

Globalstar Satellite System
The Company's Globalstar development efforts continued during the second quarter. The gateway earth station in San Diego is under construction and on schedule, and site preparation has begun for gateways in Texas, France and Korea. In the second quarter, Globalstar's funding was further strengthened as Globalstar, L.P. announced a plan to raise approximately $140,000,000 of equity from the exercise of warrants and raised approximately $500,000,000 from a high yield securities offering. This brings the total capital raised by Globalstar to approximately $2.0 billion and underscores support for the project by strategic and financial investors.

Eudora
The Eudora Division announced the availability of French, German, Italian, Portuguese and Spanish language versions of Eudora Pro™ 3.0 Internet e-mail software for Macintosh® and Windows® platforms. The introduction of the five new versions expands the Eudora Division's reach into the worldwide Internet e-mail market, where its Eudora Pro and Eudora Light™ products have attained industry leadership with 18 million users across the globe. Sales of Eudora Pro continue to grow and contribute positively to earnings. Eudora also introduced a major expansion of its Eudora business with its first Internet e-mail server product: Eudora WorldMail™ Server software. Eudora added another prestigious award to its mantel, winning the outstanding consumer software product award for its Eudora Pro 3.0 Internete-mail software product.

Industry Recognition
Qualcomm's Vice Chairman Dr. Andrew Viterbi was appointed by President Clinton to the Advisory Committee on High Performance Computing and Communications, Information and Technology and the Next Generation Internet. The Advisory Committee will provide expertise to the White House, as the Clinton Administration develops policy affecting high performance computing, communications and networking.

Highlights of Financial Performance

Communication systems revenues were $508 million for the second quarter, an increase of $404 million over the second quarter of fiscal 1996. This growth in revenues was due to the significant increase in sales of CDMA handsets and ASICs, and the recognition of revenue related to Qualcomm's infrastructure equipment installed in major markets of Sprint PCS's growing nationwide CDMA network as of March 30, 1997. Infrastructure equipment revenues in the second quarter included a large portion of the equipment installed in Sprint PCS's network since August, 1996. Infrastructure equipment revenues in subsequent quarters are likely to be subject to fluctuations based on the timing of shipments for current contracts and the successful negotiation and completion of future contracts. Communication systems gross profit was 18 percent in the second quarter of fiscal 1997 compared to 24 percent for the same period last year. The lower gross profit was due to significantly increased sales volumes of CDMA subscriber and ASICs products which have lower gross profit margins than OmniTRACS revenues. Gross profit was also affected by the start-up costs relating to CDMA infrastructure equipment sales and aggressive expansion of production capacity for CDMA subscriber equipment.

Contract service revenues increased to $49 million, a 74 percent increase over the fiscal 1996 second quarter revenue of $28 million. The increase is primarily attributable to the development agreement with Globalstar which has continued to ramp-up since its inception in fiscal 1994.

License, royalty and development fees were $29 million, or 5 percent of total revenues for the second quarter of fiscal 1997 compared to $17 million or 11 percent of total revenues for the year ago period. Revenues from royalties associated with the sale of CDMA equipment by licensees for the current quarter nearly doubled compared to second quarter of fiscal 1996. The Company expects to continue 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.

Research and development (R&D) expenditures during the second quarter were $53 million, or 9 percent of revenues, compared to $35 million or 24 percent of total revenues for the second quarter of fiscal 1996. For the first six months of fiscal 1997, R&D expenses were $99 million, or 10 percent of total revenues, vs. $68 million, or 23 percent in the same period of 1996. Qualcomm continued to add to its engineering resources during the second quarter of fiscal 1997, and the R&D increase of $7 million, or 15 percent, from the first quarter of fiscal 1997 was a result of this growth as well as increased material and equipment purchases. Purchases of material and equipment for R&D will vary from quarter to quarter, but overall R&D expenditures in absolute dollars are expected to continue to increase in future quarters.

Selling and marketing expenses increased over the year ago quarter from $17 million to $31 million, but declined as a percent of sales from 11 percent to 5 percent. For the first six months of fiscal 1997, selling and marketing expenses were $58 million, or 6 percent of total revenues, vs. $32 million, or 11 percent for the same period in 1996. The dollar increase is related to the increased CDMA marketing activity both domestically and internationally.

General and administrative (G&A) expenses were $22 million or 4 percent of revenues for the second quarter of fiscal 1997, compared with $8 million or 6 percent of revenue in the same period last year. For the first six months of fiscal 1997, G&A expenses were $38 million, or 4 percent of total revenues, vs. $20 million, or 7 percent for the same period in 1996. The increase was driven primarily by additional personnel and associated overhead costs necessary to support the overall growth in the Company's operations and increased legal fees associated with patent infringement litigation. Although the Company is experiencing rapid growth, it continues to emphasize control of operating expenses and reduction of expenses as a percentage of revenue.

Other operating expense of $9 million for the second quarter of fiscal 1997 relates to one-time write-offs for the sale and disposal of certain inventories, assets, and purchased business software which have not contributed significant revenues to the Company's operations.

Qualcomm recognized nearly $10 million pre-tax during the second fiscal quarter in conjunction with a market value adjustment in the value of equity trading securities. The unrealized gain will be adjusted each quarter to reflect the market price until the shares are subsequently sold.

Interest expense increased to $3 million in the second quarter of fiscal 1997, compared to $1 million in the second quarter of fiscal 1996 as a result of increased bank borrowings to support the working capital needs of QPE.

Distributions accrued on convertible preferred securities of $4 million for the second quarter of fiscal 1997 relate to the private placement of $660,000,000 of 5 3/4% Trust Convertible Preferred Securities by Qualcomm in March 1997. The Securities are convertible into common stock of Qualcomm at a conversion price of $72.6563 per share of common stock. The net proceeds from the private placement will be used for working and fixed capital requirements related to the expansion of operations, financing of customers of Qualcomm's CDMA infrastructure equipment, and investments in joint ventures and/or other companies and assets to support the growth of each business division.

Litigation Update
The Company has been engaged in patent infringement and other litigation with companies including Ericsson and Motorola. The Ericsson lawsuits include Ericsson's claims of patent infringement against the Company in Marshall, Texas, Ericsson's claims of patent infringement against QPE in Dallas, Texas, the Company's claims of patent infringement against Ericsson in San Diego, and the Company's unfair competition and related claims against Ericsson which the San Diego court recently ruled should be heard in connection with the Marshall, Texas case. The Company is also seeking to intervene in an action filed by OKI America, Inc. against Ericsson in San Jose, California. OKI's lawsuit seeks a judicial declaration that OKI's IS-95 CDMA products do not infringe any of Ericsson's patents. Procedural motions are pending, and no trial dates have been set except in the Dallas case which is set for June 7, 1999.

The Company and Motorola have filed related lawsuits against each other pertaining to the Company's Q phone. All of these cases have been consolidated before a single judge in San Diego. The San Diego court has issued a temporary restraining order prohibiting Motorola from communicating to the Company's customers and suppliers that the Company unlawfully relied on Motorola's intellectual property in designing and producing the Q phone. The San Diego court subsequently issued a temporary restraining order against the Company's manufacture, sale, offering for sale, and distribution of the Q phone. Both parties' motions for preliminary injunction are set for hearing on April 23, 1997. The Company will aggressively defend itself and enforce its patent rights against any unlicensed use, and the Company believes the patent infringement claims made against it are without merit.

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 http://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 timely product development and commercial implementation of the Company's CDMA technology, continued growth in the CDMA subscriber population and the scale up and operations of CDMA systems, timing and receipt of license fees and royalties, the Company's ability to successfully manufacture significant quantities of CDMA or other equipment on a timely and profitable basis and those related to performance guarantees, change in economic conditions of the various markets the Company serves, outcome of litigation matters, 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 29, 1996 and most recent Form 10-Q's.

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Qualcomm, OmniTRACS and Eudora are registered trademarks and Eudora Pro, Eudora Light, Eudora WorldMail, Q, QCP-2700, QCP-820, QCP-1920, and QCT-6200 are trademarks of Qualcomm Incorporated. Globalstar is a trademark of Loral Qualcomm Satellite Services, Incorporated. Macintosh and Windows are trademarks of their respective owners.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share data)
(Unaudited)


ASSETS

		March 30, 1997	September 29, 1996
Current assets:
	Cash and cash equivalents	$ 406,300	$ 110,143
	Investments	468,732	236,129
	Accounts receivable, net	357,667	217,433
	Finance receivables	87,063	-
	Inventories	207,274	171,511
	Other current assets	16,009	15,974
Total current assets		1,543,045	751,190
Property, plant and equipment, net		362,072	352,699
Investments		3,006	8,009
Other assets		131,870	73,432
Total Assets		$ 2,039,993	$ 1,185,330
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities	$ 314,805	$ 229,799
	Unearned revenue	17,470	13,226
	Bank lines of credit	140,000	80,700
	Current portions of long-term debt	3,082	2,234
Total current liabilities		475,357	325,959
Long-term debt		9,283	10,908
Other liabilities		6,864	3,550
Total liabilities		491,504	340,417
Mandatorily redeemable convertible preferred securitites of a subsidiary		660,000	-
Stockholders' equity:
	Preferred stock, $0.0001 par value	-	-
	Common stock, $0.0001 par value	7	7
	Paid-in capital	836,747	819,042
	Retained earnings	51,735	25,864
Total stockholders' equity		888,489	844,913
Total Liabilities and stockholders' equity		$ 2,039,993	$ 1,185,330

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
(Unaudited)

		Three months ended		Six months ended
		March 30, 1997	March 31, 1996	March 30, 1997	March 31, 1996
Revenues:
	Communications systems	$ 507,780	$ 104,120	$ 832,360	$ 192,824
	Contract services	49,365	28,036	88,044	60,199
	License, royalties and development fees	28,601	17,107	54,282	42,843
Total revenues		585,746	149,263	974,686	295,866
Operating Expenses
	Communications systems	418,724	78,866	678,209	141,618
	Contract services	36,470	18,650	64,195	40,953
	Research and development	53,106	35,324	99,284	67,579
	Selling and Marketing	31,100	16,539	58,041	32,029
	General and administrative	22,012	8,464	37,604	19,720
	Other	8,792	-	8,792	-
Total operating expenses		570,204	157,843	946,125	301,899
Operating income		15,542	(8,580)	28,561	(6,033)
Interest income		6,548	6,651	11,001	14,527
Interest expense		(3,212)	(666)	(5,196)	(1,357)
Unrealized gain on trading securities		9,454	-	9,454	-
Distributions on convertible preferred securities of subsidiary		(3,895)	-	(3,895)	-
Minority interest in (income) loss of consolidated subsidiary		(2,110)	2,669	(5,430)	6,984
Income before income taxes		22,327	74	34,495	14,121
Income tax (expense) benefit		(5,582)	1,391	(8,624)	(2,542)
Net income		$ 16,745	$ 1,465	$ 25,871	$ 11,579
Net earnings per common share
	Primary	$ 0.23	$ 0.02	$ 0.36	$ 0.17
	Fully diluted	$ 0.23	$ 0.02	$ 0.36	$ 0.17
Shares used in per share calculation
	Primary	72,821	70,158	71,740	69,673
	Fully diluted	73,758	70,158	72,208	69,702