QUALCOMM Announces Record Third Quarter Fiscal 2007 Results
Revenues $2.33 Billion, Diluted EPS $0.47
Pro Forma Revenues $2.33 Billion, Diluted EPS $0.55
Financial Guidance Increased for Fiscal 2007
SAN DIEGO, July 25 -- QUALCOMM Incorporated today announced record results for the third quarter of fiscal 2007 ended July 1, 2007.
Total QUALCOMM (GAAP) Third Quarter Results
Total QUALCOMM results are reported in accordance with generally accepted accounting principles (GAAP).
* Revenues: $2.33 billion, up 19 percent year-over-year and 5 percent sequentially.
* Net income: $798 million, up 24 percent year-over-year and 10 percent sequentially.
* Diluted earnings per share: $0.47, up 27 percent year-over-year and 9 percent sequentially.
* Effective tax rate: 18 percent for the quarter. Fiscal 2007 estimated tax rate of approximately 19 percent.
* Estimated share-based compensation: $76 million, net of tax, down 8 percent year-over-year and 10 percent sequentially.
* Operating cash flow: $988 million, up 21 percent year-over-year; 42 percent of revenues.
* Return of capital to stockholders: $363 million in the third quarter, including $234 million of cash dividends, or $0.14 per share, and $129 million to repurchase 3.1 million shares of our common stock.
QUALCOMM Pro Forma Third Quarter Results
Pro forma results exclude the QUALCOMM Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process research and development (R&D) expense.
* Revenues: $2.33 billion, up 19 percent year-over-year and 5 percent sequentially.
* Net income: $934 million, up 29 percent year-over-year and 11 percent sequentially.
* Diluted earnings per share: $0.55, up 31 percent year-over-year and 10 percent sequentially; excludes $0.04 loss per share attributable to the QSI segment and $0.04 loss per share attributable to certain estimated share-based compensation.
* Effective tax rate: 21 percent for the quarter. Fiscal 2007 estimated tax rate of approximately 23 percent.
* Free cash flow: $977 million, up 23 percent year-over-year; 42 percent of revenues. (Defined as net cash from operating activities less capital expenditures).
Detailed reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results, and cash flow are included at the end of this news release. Prior period reconciliations are presented on our Investor Relations web page at www.qualcomm.com.
"We had another tremendous quarter, providing market validation for the innovative products and solutions delivered by our employees and partners worldwide," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "The fundamental drivers of our business remain very strong. Our record revenue and earnings this quarter reflect continued worldwide demand for innovative third-generation devices and services. We shipped a record 65 million CDMA-based MSM(TM) chipsets in the third quarter representing strong year-over-year growth in both 1xEV-DO and WCDMA. Strong March quarter handset shipments demonstrate the continued global adoption of CDMA-based technologies with over 30% growth from the year ago quarter."
"In addition to continued excellent business and financial performance, we also see traction for our initiatives to expand the wireless market. Multiple WCDMA operators have adopted the BREW platform, our MediaFLO(TM) system continues to grow as we expand our service footprint in the United States and conduct new trials around the world, and our Snapdragon(TM) processor is building momentum in the computing and consumer electronics markets."
"While we continue to execute well and the future of CDMA-based technology is very bright, we are also expending a great amount of time and resources defending our business model. In the most recent quarter, we have made progress in some of these battles, while losing ground in others. We were disappointed with the rulings on behalf of Broadcom, both in the California litigation and in front of the ITC. We continue to believe that the rulings were wrong and are pursuing all avenues to reverse and to mitigate the effect of those rulings, including working with our partners who may obtain a license from Broadcom. While we are increasing our guidance for the year, ITC and litigation outcomes are uncertain and could have a material impact on our business and results of operations."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $12.3 billion at the end of the third quarter of fiscal 2007, compared to $11.3 billion at the end of the second quarter of fiscal 2007 and $9.5 billion a year ago. As of July 1, 2007, $2.6 billion remains authorized for repurchases under our stock repurchase program, net of put options outstanding. On July 13, 2007, we announced a cash dividend of $0.14 per share payable on September 28, 2007 to stockholders of record at the close of business on August 31, 2007.
Estimated Share-Based Compensation
Total QUALCOMM (GAAP) net income for the third quarter of fiscal 2007 includes estimated share-based compensation, net of tax, of $76 million, or $0.04 per diluted share, compared to $83 million, or $0.05 per diluted share in the prior year quarter.
Pro forma R&D expenses increased 20 percent year-over-year, primarily due to additional engineering resources for the development of integrated circuit
products and other initiatives to support low-cost phones, multimedia applications, high-speed wireless Internet access and multi-mode, multi-band,
multi-network products and technologies. QSI R&D expenses are related to
MediaFLO USA.
Pro forma selling, general and administrative (SG&A) expenses increased 43 percent year-over-year, largely attributable to increases in costs related to litigation and other legal matters and employee related expenses. The year-over-year increase in QSI SG&A expenses is primarily related to MediaFLO USA cooperative marketing expenses.
Effective Income Tax Rate
Our fiscal 2007 effective income tax rate is estimated to be 19 percent for total QUALCOMM (GAAP) compared to our prior estimate of 21 percent. Our fiscal 2007 QUALCOMM pro forma effective income tax rate is estimated to be 23 percent, compared to our previous estimate of 24 percent. The third quarter QUALCOMM (GAAP) and pro forma effective tax rates of 18 percent and 21 percent, respectively, are lower than the expected annual effective tax rates primarily due to our estimate of additional foreign earnings taxed at less than the United States federal tax rate.
QUALCOMM Strategic Initiatives
The QSI segment includes our strategic investments, including our MediaFLO USA subsidiary, and related income and expenses. Total QUALCOMM (GAAP) results for the third quarter of fiscal 2007 include $0.04 loss per share for the QSI segment. The third quarter of fiscal 2007 QSI results include $95 million in operating expenses, primarily related to MediaFLO USA.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see "Note Regarding Forward-Looking Statements" at the end of this news release for a description of certain risk factors and QUALCOMM's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks. Due to their nature, certain income and expense items, such as realized investment gains or losses in QSI, gains and losses on certain derivative instruments, asset impairments or the impact of the resolution of income tax audits, cannot be accurately forecast. Accordingly, the Company excludes forecasts of 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.
In addition, our outlook provides for legal costs which are reasonably consistent with our experience over the past year but does not include any provision for the consequences of injunctions or significant damages or costs related to litigation matters, including support we may agree to provide to our customers. Although Verizon announced it has entered into a license agreement with Broadcom eliminating risk of not being able to import handsets using our chips for use in Verizon's network, a comprehensive settlement between us and Broadcom is unlikely given Broadcom's insistence on terms which could have a material impact on our licensing business. As a result, over the next few months, we will be defending ourselves from Broadcom's attempts to obtain an injunction precluding the sale of certain of our chips sold in handsets for use in the U.S. other than in Verizon's network.
We are engaged in multiple disputes with Nokia Corp., including litigation over Nokia's obligation to pay royalties for the use of certain of our patents. As a result, under generally accepted accounting principles, we do not expect to be able to record royalty revenue attributable to Nokia's sales starting in the fourth quarter of fiscal 2007 until an arbitrator (or court) awards damages or the disputes are otherwise resolved by agreement with Nokia. Our estimate of royalties which we believe will be owed by Nokia in the fourth quarter of fiscal year 2007 for June quarter shipments is approximately $0.05 diluted earnings per share, which we have excluded from our current fourth fiscal quarter and fiscal 2007 guidance, compared to our prior estimate of approximately $0.04 to $0.05 diluted earnings per share.
(Excerpt)