Qualcomm Incorporated (NASDAQ: QCOM) today reported revenues for the first quarter ended December 31, 1995, of $146.6 million, an increase of $70.7 million, or 93 percent from the same quarter last year. First quarter's net income was $10.1 million or $.15 per share compared with $6.0 million or $.11 per share for the same period in fiscal 1995.
"Our business growth continues to be strong and earnings have increased even as we incur very large start-up and research and development costs associated with the ongoing manufacturing ramp-up of handsets and infrastructure equipment," said Dr. Irwin Mark Jacobs, Chairman and Chief Executive Officer of Qualcomm. "We continue to focus our efforts on the shipment of products to meet the requirements of CDMA systems that have begun commercial operation in Hong Kong and Korea, and of a number of carriers who have announced plans to deploy commercial CDMA systems in 1996."
Compared to the first quarter of fiscal 1995, communications systems revenues increased 76 percent to $88.7 million. This quarter, CDMA product sales contributed significantly to this growth in communications systems revenue. The gross profit dollars on communications systems were essentially flat largely because of start-up costs on CDMA products which are becoming an increasing share of communication systems revenue as commercial products are shipped to CDMA licensees and service operators.
License and development fees contributed $25.7 million of revenue in the first quarter, which is an $18.3 million increase from the first quarter of fiscal 1995, and included revenues from existing licensees as well as the Company's first ASIC licensee, DSP Communications and Globalstar's first subscriber handset licensee, Orbitel. During the quarter, Qualcomm signed a multi-million dollar license agreement with a North American company to manufacture CDMA handset and infrastructure equipment world-wide. Additionally, the Company recorded revenues from royalties associated with the sale of CDMA equipment by licensees. The Company will 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.
Contract Service revenues in the first quarter reached $32.2 million, a 78 percent increase over revenues of $18.1 million in last year's first quarter, due primarily to the continued ramp-up of the Globalstar development contract.
Research and development expenditures during the quarter were $32.3 million, or 22 percent of revenues, compared to $17.5 million or 23 percent of total revenues for the first quarter of fiscal 1995. The increased R&D spending reflects the Company's continued commitment to maintaining its leadership position in developing new products for the digital wireless telecommunications market.
Sales and marketing expenses were $15.5 million or 11 percent of revenues for the first quarter of fiscal 1996, compared with $7.1 million or 9 percent of revenues in the same period last year. General and administrative expenses were $11.1 million or 8 percent of revenues for the first quarter of fiscal 1996, compared with $7.2 million or 9 percent of revenue in the same period last year. The increase in selling and marketing expenses was due to increased CDMA marketing activity both domestically and internationally and to support sales growth in the OmniTRACS product line domestically and overseas. The increase in general and administrative expense was driven primarily by additional personnel and associated overhead costs necessary to support the overall growth in the Company's operations.
During the first quarter, CDMA handset production capacity continued to ramp up and over 10,000 CDMA QCP-800 phones were shipped to various operators, including Hutchison in Hong Kong. Qualcomm and Sony Electronics joined forces to market and sell CDMA phones to customers in the U.S. for cellular and PCS applications. Qualcomm continues to ship Application Specific Integrated Circuits (ASICs) based on CDMA technology to other CDMA licensees to be used in the building of cell sites and handsets throughout the world. Also, the Company shipped CDMA Wireless Local Loop (WLL) infrastructure equipment to India for certification and commercial deployment of basic telephone service.
Internationally, the Company has been actively supporting the introduction of new technologies for the Brazilian marketplace for more than five years, and through its Brazilian subsidiary, Qualcomm do Brazil, announced a teaming agreement with NEC do Brazil to offer next-generation digital wireless communications systems based on CDMA technology in Brazil. The two companies plan to jointly bid on tenders soon to be issued by Brazilian operators for the supply of digital wireless systems to thousands of people on waiting lists to receive service.
Hutchison Telecom in Hong Kong, and Korean Mobile Telecom in Seoul, initiated the first commercial CDMA systems. To assist in international sales and operations, Qualcomm opened offices in Singapore and Hong Kong. In the U.S., PCS PrimeCo announced the first commercial Personal Communications Service (PCS) telephone calls using CDMA digital technology with systems supplied by Motorola and AT&T as a step towards planned commercial service in late 1996.
Domestic and international OmniTRACS unit shipments reached over 10,000 during the first quarter compared to approximately 7,700 in the first quarter of fiscal 1995, a 30 percent increase. As of the end of the first quarter, over 147,000 units have been shipped to U.S. and worldwide markets. Domestically, the OmniTRACS business added several new customers during the quarter, including Silver Eagle Transport Inc., Consolidated Freightways, and Bulldog Hiway Express. International unit shipments showed strong growth and are becoming an increasingly significant factor in overall unit sales. In Mexico, Qualcomm's business partner, Corporation Nacional de Radiodeterminacion, installed a full-scale OmniTRACS Network Management Center (NMC) to support its growing OmniTRACS operations. Qualcomm also acquired an equity stake in AUTOTRAC Comércio eTelecommunicações, S.A., the operator and distributor of the OmniTRACS system in Brazil, signifying a continued commitment to the Brazilian market.
The OmniTRACS division also expanded its presence in the Information Technologies (IT) arena with the recent acquisition of McCormick & Associates, a major developer of software products for the transportation industry. IT products include software for trucking business applications as well as efficiency optimization models. The acquisition allows the OmniTRACS system to provide end-to-end business solutions and to meet the needs of trucking companies and others in the logistics industry. The first Enhanced Display Unit (EDU), incorporating features which facilitate IT advancements, was shipped during the quarter.
Significant milestones for the Globalstar program during the quarter included the 1995 World Radio Conference (WRC) allocation of feeder link frequencies, completing the spectrum requirements for the entire system, and the completion of a $250 million bank financing for Globalstar. Additionally, Qualcomm signed Orbitel Mobile Communications Limited as its first licensee to design and manufacture Globalstar/Global System for Mobile (GSM) phones, with initial pre-production quantities planned for availability in late 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, VLSI components, and communications equipment and systems for government and commercial customers worldwide.
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