Qualcomm Incorporated (NASDAQ: QCOM) today announced increased revenues for the second fiscal quarter of 1996 of $149 million, up 66 percent from revenues of $90 million in the second fiscal quarter of 1995, but lower earnings of $.02 per share versus $.11 per share in the year ago quarter and $.15 per share in the first fiscal quarter of 1996. Net income was adversely affected by three principal factors: license and development fees which were $9 million less than the first quarter of fiscal 1996; research and development expenses of $35 million, and selling and marketing expenses of $17 million, both of which increased nearly 100 percent versus the year ago quarter; and lower OmniTRACS® unit shipments of 8,300 units versus 10,000 in the year ago quarter, due to softness in the U.S. trucking industry.
Qualcomm will hold a conference call to discuss second quarter results, hosted by Dr. Irwin Jacobs, Qualcomm's chairman and chief executive officer, from 8:30 a.m. to 9:30 a.m. (EDT). To participate in the conference call, please call (612) 235-1623 fifteen minutes prior to the time the call is scheduled to begin. The conference call will be recorded and available for rebroadcast. Domestic callers may listen to the rebroadcast by calling (800) 475-6701, and international callers (612) 365-3844, and enter access code 303968.
In the second quarter, Qualcomm continued to invest in its capability to deliver Code Division Multiple Access (CDMA) subscriber and network equipment in volume to meet increasing demand for CDMA equipment. Backlog and contracts subject to contingencies, including finalization of financing terms, totaled over $460 million for CDMA products. Certain contracts are subject to performance guarantees. The backlog includes orders from licensees for custom Application Specific Integrated Circuits (ASIC) chipsets, which when combined with earlier shipments, totaled 730,000 subscriber chipsets (excluding the Company's joint venture with Sony) and 470,000 infrastructure chipsets. "ASIC commitments are continuing to grow, demonstrating the breadth of CDMA equipment manufacturing underway today," said Irwin Mark Jacobs, chairman and chief executive officer of Qualcomm. "Cellular operators are bringing up systems around the world, and PCS operators are targeting deployment of commercial CDMA systems to span many major population areas of the U.S."
"We continue to invest heavily in advanced development and expanding manufacturing capabilities to further our goal of being a major supplier of CDMA products throughout the world. We are pleased by the demand that has resulted from this investment," continued Dr. Jacobs. "We are continuing to make substantial investments to achieve and extend our competitive position in this dynamic and rapidly growing wireless marketplace."
Second quarter 1996 versus second quarter 1995
Revenues in the second quarter were up 66 percent from the second quarter 1995 to $149 million. License and development fees increased $10 million to $17 million, although they declined $9 million versus the first quarter 1996. Communications systems revenues increased 84 percent to $104 million and contract services revenues increased from $26 million to $28 million from the year ago quarter.
License and development fees included a new CDMA subscriber licensee, NIPPONDENSO CO., LTD., as well as software licenses and other fees from existing licensees.
Communications systems gross margin was 24 percent in the quarter versus 43 percent in the second quarter of 1995. This decrease was attributable in part to the revenue growth that occurred in CDMA subscriber and ASIC products. These products have lower gross margins than the OmniTRACS business that contributed the majority of communications systems revenues in the year ago quarter. The margins on CDMA products 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. Also, reflecting a long term trend, the average price per OmniTRACS unit was somewhat lower in the second quarter of 1996 than the year ago period.
Research and development expenses rose to $35 million or 24 percent of sales from $18 million or 20 percent of sales in the year ago quarter, reflecting the major development efforts related to new CDMA infrastructure, subscriber and ASIC products, as well as continued support of the growth of the OmniTRACS product offerings.
Sales and marketing expenses nearly doubled to $17 million versus the year ago quarter as Qualcomm continued to expand its worldwide sales and marketing efforts domestically and internationally. Qualcomm is actively marketing CDMA products in many of the developing areas of the world including China, India, Brazil, Russia, Eastern Europe, Thailand and parts of Africa.
General and administrative expenses were slightly lower than the year ago quarter as a result of a one-time favorable settlement of outstanding litigation which had resulted in a previously disclosed accrual of $2.9 million which is no longer necessary.
Interest income, net of interest expense, increased to $6 million from $1 million as a result of the common equity raised in August of 1995.
Income taxes were a credit of $1 million versus a charge of $1 million in the year ago quarter, as a result of a reduced tax rate. The lower rate in 1996 resulted from attribution of tax losses of the Globalstar venture.
Outlook for the remainder of fiscal 1996
Our prime objective in 1996 is to ensure successful deployments of commercial CDMA equipment, together with a ramp-up of Qualcomm's manufacturing resources. The Company believes that the same factors that affected the results for the second quarter may affect the remainder of 1996. Also, while shipments to Sprint Spectrum LP are expected to start in the third fiscal quarter, 1996, significant revenue recognition on shipments of this CDMA infrastructure is not expected until commercial service is launched. This is currently planned to begin in the fourth quarter of calendar 1996 which is the Company's first quarter of fiscal 1997.
Business highlights for the quarter:
- Sprint Spectrum, the largest of the new PCS service providers, selected CDMA infrastructure equipment supplied by Northern Telecom (Nortel) and Qualcomm. Nortel's purchase of Qualcomm services and equipment for use in 17 of Sprint Spectrum's markets is valued at a minimum of $200 million, with the possibility of additional future orders, and firmly launches Qualcomm's CDMA infrastructure business. Also, Nortel and Qualcomm are successfully deploying a 13 Kbps CDMA system in Vancouver, B.C. for BCTel Mobility using infrastructure equipment supplied by Qualcomm. During the quarter, Qualcomm Personal Electronics (QPE) shipped nearly 40,000 subscriber units, primarily to Hong Kong and Korea and Qualcomm shipped the world's first production CDMA wireless local loop phones, the QCT-1000, to the Department of Telecommunications (DOT) in India to support certification of a Qualcomm CDMA wireless local loop system in New Delhi.
- Hutchison Telephone Co. Ltd. commenced commercial CDMA service in late 1995 in Hong Kong, and Korea Mobile Telecommunication Corp. (KMT) and Shinsegi Telecomm Inc. commenced commercial CDMA service in early 1996. Bell Atlantic NYNEX Mobile (BANM) announced the launch of its CDMA service in Trenton, NJ, using Lucent's CDMA infrastructure, making BANM the first U.S. operator to provide 13 Kbps CDMA digital service.
- At CTIA's (Cellular Telephone Industry Association) annual conference "Wireless `96" in March, a number of carriers and manufacturers announced significant progress in the deployment of CDMA systems throughout the world. The CDMA Development Group (CDG) reported deployment of CDMA technology in populous developing countries such as India, China, Brazil, Indonesia and Russia. AirTouch and its affiliate US WEST are currently deploying CDMA systems in Los Angeles, Seattle, Denver and Phoenix. Ameritech announced its intentions to deploy a CDMA system in Chicago using 13 Kbps service.
- Qualcomm's OmniTRACS business continues to be successful in the capture of orders, as has been seen in the recent announcements by R&J Trucking, G&P Trucking and J.B. Hunt Transport, Inc. "Over 8,300 OmniTRACS units were shipped worldwide during the quarter, and we believe the renewed five year commitment by J.B. Hunt reflects the continued acceptance of the OmniTRACS system, not only as a market leader but also as the technology leader in logistics management communication systems. However, the transportation industry as a whole has been soft in the U.S. and this has impacted the delivery of new units," said Harvey P. White, president. "Domestic messaging revenues continue to increase, and cumulative shipments have reached over 150,000 units worldwide."
- During the quarter, the OmniTRACS business introduced a new product, the OnTRACS(TM)/400 ETA/OoR (Estimated Time of Arrival/Out of Route) Tracking System, which adds to the Company's product line of highly integrated business solutions for the transportation industry. The Company also further expanded its OmniTRACS international business by signing an exclusive license and distribution agreement with Samsung to operate and distribute OmniTRACS service in Korea. When operational this will bring the total number of countries served by OmniTRACS service to 30, operating from seven network management facilities. Demonstrating the OmniTRACS system's reliability and performance, the U.S. Army began using the service to track and communicate with U.S. forces over the treacherous mountain roads in Bosnia.
- A study by Matrix Information and Directory Services (MIDS), a leading authority on the Internet and its growth, reported that Qualcomm Enterprise Software Technologies Group's Eudora electronic mail software has an estimated 10 million users worldwide and that it is the most popular e-mail software for Internet messaging. Also during the quarter Qualcomm signed an agreement with IBM to distribute Eudora Light software as part of an IBM Global Network total package of Internet-based service offerings.
- Effective April 15, 1996, Qualcomm Incorporated appointed Harris Trust Company of California as Transfer Agent and Registrar for the Company's common stock and as Rights Agent under the Rights Agreement. Shareholder inquiries, such as stock transfers, should be directed to Harris Trust and Savings Bank: P.O. Box A3504: Chicago, IL 60690-3504. All telephone inquiries should be directed to (800) 554-3406.
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.
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, variation of royalty, license and other revenues, difficulties in obtaining components needed for production of wireless equipment, 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.