Qualcomm Incorporated (Nasdaq: QCOM) today updated its financial guidance for the second fiscal quarter ending March 27, 2005.
The following statements are forward looking and actual results may differ materially. Please see the description of certain risk factors in this release and Qualcomm's reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks.
Based on the current business outlook, we now anticipate second fiscal quarter revenues excluding the Qualcomm Strategic Initiatives (QSI) segment to be in the range of approximately $1.35 -$1.40 billion, an increase of approximately 14-18 percent year-over-year assuming application of the “New Method”1 of recording royalties for the second fiscal quarter of 2004. We now anticipate second fiscal quarter diluted earnings per share excluding the QSI segment to be approximately $0.26-$0.28, compared to $0.261 in the year ago quarter. This estimate is based on the shipment of approximately 36-37 million MSM phone chips during the quarter compared to 32 million in the year ago quarter. On January 19, 2005, we estimated second fiscal quarter revenues excluding the QSI segment would be in the range of approximately $1.35 to $1.45 billion. We had anticipated second fiscal quarter diluted earnings per share excluding QSI to be approximately $0.25-$0.27. We had estimated shipments of approximately 35 to 37 million MSM phone chips.
The majority of our licensees have reported royalties in the second fiscal quarter for products shipped in the December quarter. Based on these reports, and an estimate of the few licensees yet to report, we anticipate December quarter shipments of approximately 51-52 million new CDMA/WCDMA units at an average selling price of approximately $206 compared to our prior estimate of approximately 46-49 million units at an average selling price of approximately $214.
“Consumer demand for services enabled by 3G CDMA networks continues to grow worldwide at a rapid pace,” said Dr. Irwin Mark Jacobs, chairman and CEO of Qualcomm. “Exciting new CDMA2000® 1xEV-DO devices are assisting operators in realizing increasing revenue streams from their compelling offerings of high-speed multimedia services enabled by DO. Reports from our licensees for the December quarter indicate increasing WCDMA momentum, particularly in Europe. During the December quarter, WCDMA handset shipments in Europe appear to have outpaced Japan for the first time. Reports from our licensees also indicate strong CDMA handset shipments during the December quarter, primarily driven by increased volumes in the mid to low-tier regions. The mix of our Mobile Station Modem™ (MSM™) product shipments during the March quarter showed an increased demand for the value platform MSM6050™ chipset. Qualcomm remains committed to delivering highly integrated chipsets that enable our customers to develop compelling handsets. We believe this strategy addresses the critical issues facing handset manufacturers: the need for smaller form factors, longer battery life and faster time to market.”
On January 19, 2005, on a GAAP basis we estimated total Qualcomm revenues for the second fiscal quarter would be in the range of approximately $1.35-$1.45 billion, an increase of approximately 11 to 19 percent year-over year. We estimated total Qualcomm diluted earnings per share would be $0.24-$0.26, including an estimated $0.01 loss per share attributed to the QSI segment. Based on the current business outlook, we now anticipate total Qualcomm second fiscal quarter revenues to be in the range of approximately $1.35 -$1.40 billion, an increase of approximately 11 to 15 percent year-over-year. We now anticipate second fiscal quarter diluted earnings per share to be approximately $0.25-$0.27, including an estimate $0.01 loss per share attributable to the QSI segment.
Due to their nature, certain income and expense items such as realized gains and losses in QSI, gains and losses on derivative instruments or asset impairments cannot be accurately forecast. Accordingly, the Company excludes such items from its business outlook, and actual results may vary materially from the business outlook if the Company incurs any such income or expense items.
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 2004 FORTUNE 500® company traded on The Nasdaq Stock Market® under the ticker symbol QCOM.
Note Regarding Use of Non-GAAP Financial Measures
The Company presents financial information excluding the Qualcomm Strategic Initiatives (QSI) segment to facilitate evaluation by management, investors and analysts of its ongoing core operating businesses, including Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL) and Qualcomm Wireless & Internet (QWI). QSI results relate to strategic investments for which the Company has exit strategies of varying durations. Management believes that the information excluding QSI presents a more representative measure of the operating and liquidity performance of the Company because it excludes the effect of fluctuations in the value of investments that are unrelated to the Company's operational performance. The financial information excluding QSI should be considered in addition, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Reconciliations between total Qualcomm results and results excluding QSI are presented on the Company's Web site at www.qualcomm.com.
The Company presents financial results as though the New Method of recording royalties had been in effect for prior periods to facilitate evaluation by management, investors and analysts of the results for these periods on a comparable basis to the Company's current results, current guidance and future periods. The Company believes that this presentation is useful in evaluating performance on a consistent and comparable basis. Refer to the schedule included at the end of this release which reconciles results of the second quarter of fiscal 2004 as if the New Method of recording royalties was in effect for the entire 2004 fiscal year, to results reported in accordance with GAAP.
Note Regarding Forward-Looking Statements
In addition to the historical information contained herein, this news release contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks associated with: the rate of development, deployment and commercial acceptance of CDMA based networks and CDMA based technology, including CDMA2000 1X, 1xEV-DO and WCDMA, both domestically and internationally; our dependence on major customers and licensees; fluctuations in the demand for and price of CDMA based products, services or applications; foreign currency fluctuations; strategic loans, investments and transactions the Company has or may pursue; our dependence on third party manufacturers and suppliers; our ability to maintain and improve operational efficiencies and profitability; developments in current and future litigation, as well as the other risks detailed from time-to-time in the Company's SEC reports.
Qualcomm®, Mobile Station Modem™, MSM™, and MSM6050™ are trademarks and/or service marks of Qualcomm Incorporated. CDMA2000® is a registered trademark of the Telecommunications Industry Association. All other trademarks are the property of their respective owners.
1The New Method of recording royalties is based solely on reports received from licensees for royalty bearing sales of equipment in the prior quarter. The Company adopted this New Method during the fourth quarter of fiscal 2004 on a prospective basis. Under the Prior Method of recording royalties, the Company recorded an estimate of earned royalties in the quarter preceding its receipt of licensee reports. Comparisons with prior period results under the New Method are presented herein to assist investors with evaluating changes in financial performance on a comparable basis.
the "New Method" of Recording Royalties
for Prior Year Periods for Comparative Purposes
|($ in millions, except per share data)||Three months ended
March 28, 2005
|Prior Method of Recording Royalties|
|Estimate of estimated licensees for prior period||$||205|
|Royalties reported by estimated licensees for prior period||262|
|Prior period variance included in reporting period||57|
|Other royalties reported in reporting period||51|
|Estimate for estimated licensees for current period||237|
|Total QTL royalty revenues from external licensees||345|
|Total QTL revenue using Prior Method||$||390|
|New Method of Recording Royalties|
|Total royalties reported by external licensees (a)||$||313|
|Total QTL revenue using New Method||$||358|
|Difference between the methods||$||32|
|Total QCOM revenues as reported under GAAP||$||1,216|
|Less: Difference between the royalty methods||32|
|Total QCOM revenues using New Method||1,184|
|Total QCOM revenues, and QCOM revenues excluding QSI using New Method||$||1,184|
|TOTAL QCOM net income as reported under GAAP||$||488|
|Less: Net income attributed to difference between the royalty methods (b)||20|
|Total QCOM net income using New Method||468|
|Less: QSI net income (loss) (c)||40|
|QCOM net income excluding QSI using New Method (c)||$||428|
|QCOM diluted EPS as reported under GAAP||$||0.29|
|EPS attributed to difference between the royalty methods||$||0.01|
|Total QCOM diluted EPS using New Method||$||0.28|
|EPS attributed to QSI (c)||$||0.02|
|QCOM diluted EPS excluding QSI using New Method (c)||$||0.26|
|Shares previously used for diluted EPS||836|
|Adjusted for stock split||1,672|
|(a)||Represents royalty revenue that would have been reported during the period if the "New Method" had been adopted retroactively. Does not represent royalty revenue that will be recognized under GAAP due to the effect of the accounting change on this period.|
|(b)||QTL's rounded effective tax rate was 39% in fiscal 2004.|
|(c)||During the first quarter of 2005, the Company reorganized its MediaFLO USA business into the QSI segment. The operating expenses related to the MediaFLO USA business were included in reconciling items through the end of fiscal 2004. Prior period segment information was adjusted to conform to the new segment presentation.|
All EPS amounts have been adjusted to reflect the 2:1 stock split that was effected during the fourth quarter of fiscal 2004.
QTL revenues as reported under GAAP and using the New Method are presented to illustrate the difference between the Prior Method used for royalties prior to the fourth quarter of fiscal 2004 and the New Method implemented starting in the fourth quarter of fiscal 2004.
Sums may not equal totals due to rounding.
Revenues and earnings excluding the QSI segment, including forward looking periods, are calculated as total Qualcomm revenues and earnings less revenues and earnings attributed to the QSI segment. No other adjustments are made.