Qualcomm Incorporated (Nasdaq: QCOM) today announced that it has completed its previously announced royalty revenue review and has changed its method of estimating royalty revenue. The Company will begin recognizing royalty revenue based solely on reports received from licensees, and the change will be effective for the fourth fiscal quarter of 2004.
This decision was reached primarily due to escalating trends in the wireless industry which impact the Company’s ability to accurately estimate royalties, including the commercial launch and rapid global expansion of WCDMA networks, changes in market share among licensees due to increased global competition and increased variability in the chipset inventories of licensees. For financial reporting purposes, the change in estimate will be made prospectively and will have the initial one-time effect of significantly reducing royalty revenues in the fourth quarter of fiscal 2004. In effect, the GAAP results to be reported by the Company in fiscal 2004 will not reflect a full year of the economic performance of the Company’s licensing business because much of the royalty revenue that would have been recognized in the fourth quarter will now be recognized in the first fiscal quarter of 2005 when the actual royalty reports are received. This change will have no effect on operating cash flows in the quarter, nor will it impact the underlying economics of the Company’s licensing business.
On September 17, 2004, Qualcomm had announced an internal evaluation of its method for estimating royalty revenues. Since 1998, royalties from licensees for which estimates could be reasonably made have been accrued in the quarter when earned and then adjusted in the subsequent quarter to record the actual royalties reported.
To help investors make relevant comparisons, Qualcomm will provide two types of supplemental financial information when the Company reports its GAAP year end results on November 3, 2004. First, the Company will provide information for the fourth quarter and fiscal 2004 as though the Company had continued its practice of estimating royalty revenues in the fourth quarter (in advance of receiving licensee’s reports). Second, the Company will provide financial information as though the new method (waiting until licensees’ reports are received) had been in effect for fiscal years 2001 and 2002 and quarterly for fiscal 2003 and 2004. It is the Company’s hope that the presentation of this additional information will better enable investors to evaluate effectively the Company’s financial performance as the change is implemented.
Qualcomm Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company’s CDMA digital technology. Headquartered in San Diego, California, Qualcomm is included in the S&P 500 Index and is a 2003 FORTUNE 500® company traded on The Nasdaq Stock Market® under the ticker symbol QCOM.