UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
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þ☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 24, 201726, 2021
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o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 0-19528
QUALCOMM Incorporated
(Exact name of registrant as specified in its charter)
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| Delaware | | 95-3685934 |
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Delaware
(State or Other Jurisdiction of Incorporation or Organization) | | 95-3685934
(I.R.S. Employer
Identification No.)
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| 5775 Morehouse Dr. , San Diego, California | | 92121-1714 |
| (Address of Principal Executive Offices) | | 92121-1714
(Zip Code) |
(858) 587-1121
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common stock, $0.0001 par value | QCOM | NASDAQNasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | x☒ | Accelerated filer | o☐ | Non-accelerated filer (Do not check if a smaller reporting company)
| o☐ | Smaller reporting company | o☐ | Emerging growth company | o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at March 26, 20172021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $83,990,231,661,$149.9 billion, based upon the closing price of the registrant’s common stock on that date as reported on the NASDAQ Global Select Market.
The number of shares outstanding of the registrant’s common stock was 1,474,164,6391,120 million at October 30, 2017.November 1, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement in connection with the registrant’s 2018for its 2022 Annual Meeting of Stockholders, to be filed with the Commission subsequent to the date hereof, pursuant to Regulation 14A, are incorporated by reference into Part III of this Report.Report where indicated.
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QUALCOMM INCORPORATEDIncorporated |
| Form 10-K |
For the Fiscal Year Ended September 24, 201726, 2021 |
| Index |
Risk Factors Summary:
Our business is subject to numerous risks and uncertainties, including those described in “Part I, Item 1A, Risk Factors” of this Annual Report. These risks include, but are not limited to, the following:
RISKS RELATED TO THE CORONAVIRUS (COVID-19) PANDEMIC
•The coronavirus (COVID-19) pandemic had an adverse effect on our business and results of operations, and may continue to impact us in the future.
RISKS RELATED TO OUR OPERATING BUSINESSES
•We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected.
•Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).
•A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.
RISKS RELATED TO NEW INITIATIVES
•Our growth depends in part on our ability to extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets. Our research, development and other investments in these new and expanded product areas, industries and applications, and related technologies and products, as well as in our existing technologies and products, and new technologies, may not generate operating income or contribute to future results of operations that meet our expectations.
•We may engage in acquisitions and other strategic transactions or make investments, or be unable to consummate planned strategic acquisitions, which could adversely affect our results of operations or fail to enhance stockholder value.
RISKS RELATED TO SUPPLY AND MANUFACTURING
•We depend on a limited number of third-party suppliers for the procurement, manufacture, assembly and testing of our products manufactured in a fabless production model. If we fail to execute supply strategies that provide supply assurance, technology leadership and reasonable margins, our business and results of operations may be harmed. We are also subject to order and shipment uncertainties that could negatively impact our results of operations.
•There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues.
RISKS RELATED TO CYBERSECURITY OR MISAPPROPRIATION OF OUR CRITICAL INFORMATION
•Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.
RISKS RELATED TO HUMAN CAPITAL MANAGEMENT
•We may not be able to attract and retain qualified employees, and our attempts to fully reopen our offices and operate under a hybrid working environment may not be successful.
RISKS SPECIFIC TO OUR LICENSING BUSINESS
•The continued and future success of our licensing programs requires us to continue to evolve our patent portfolio and to renew or renegotiate license agreements that are expiring.
•Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business.
•Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations.
RISKS RELATED TO REGULATORY AND LEGAL CHALLENGES
•Our business may suffer as a result of adverse rulings in governmental investigations or proceedings.
RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION
•Our revenues depend on our customers’ and licensees’ sales of products and services based on CDMA, OFDMA and other communications technologies, including 5G, and customer demand for our products based on these technologies.
•Our industry is subject to intense competition in an environment of rapid technological change. Our success depends in part on our ability to adapt to such change and compete effectively; and such change and competition could result in decreased demand for our products and technologies or declining average selling prices for our products or those of our customers or licensees.
RISKS RELATED TO PRODUCT DEFECTS OR SECURITY VULNERABILITIES
•Failures in our products, or in the products of our customers or licensees, including those resulting from security vulnerabilities, defects or errors, could harm our business.
RISKS RELATED TO INTELLECTUAL PROPERTY
•The enforcement and protection of our intellectual property may be expensive, could fail to prevent misappropriation or unauthorized use of our intellectual property, could result in the loss of our ability to enforce one or more patents, and could be adversely affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property and by ineffective enforcement of laws in such jurisdictions.
•Claims by other companies that we infringe their intellectual property could adversely affect our business.
•Our use of open source software may harm our business.
GENERAL RISK FACTORS
•We operate in the highly cyclical semiconductor industry, which is subject to significant downturns. We are also susceptible to declines in global, regional and local economic conditions generally. Our stock price and financial results are subject to substantial quarterly and annual fluctuations due to these dynamics, among others.
•Our business may suffer due to the impact of, or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are subject.
•There are risks associated with our debt.
•Tax liabilities could adversely affect our results of operations.
TRADEMARKS
Qualcomm, Snapdragon, MSM,Hexagon, Adreno, Smart Transmit and Wireless Reach are trademarks or registered trademarks of Qualcomm Incorporated,Incorporated. Bluetooth is a registered in the United States and other countries.trademark of Bluetooth SIG, Inc.
Other products and brand names may be trademarks or registered trademarks of their respective owners.
In this document,Annual Report, the words “Qualcomm,” “we,” “our,” “ours” and “us” refer only to QUALCOMM Incorporated and its subsidiaries and not any other person or entity. This Annual Report (including but not limited to the section regarding Management’stitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations)Operations”) contains forward-looking statements regarding our business, investments, financial condition, results of operations and prospects.statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”“estimates,” “may,” “will,” “would” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, statements concerning future matters such as our future business, prospects, results of operations, financial condition or research and development or technology investments; new or enhanced products, services or technologies; emerging industries or business models; design wins or product launches; industry, market or technology trends, dynamics or transitions, such as the developmenttransition to 5G; potential impacts of new products, enhancementsthe COVID-19 pandemic, legal or technologies, industry and market trends, sales levels, expense levelsregulatory matters, U.S./China trade or national security tensions, vertical integration by our customers; competition; and other statements regarding matters that are not historical are also forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report.statements.
Although forward-looking statements in this Annual Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under “Part I, Item 1A. Risk Factors” below, as well as those discussed elsewhere in this Annual Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
PART I
Item 1. Business
We incorporated in California in 1985 and reincorporated in Delaware in 1991. We operate and report using a 52-53 week fiscal year ending on the last Sunday in September. Our 52-week fiscal years consist of four equal fiscal quarters of 13 weeks each, and our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter. The financial results for our 53-week fiscal years and our 14-week fiscal quarters will not be exactly comparable to our 52-week fiscal years and our 13-week fiscal quarters. The fiscal years ended September 24, 2017,26, 2021, September 25, 201627, 2020 and September 27, 201529, 2019 included 52 weeks.
Overview
We are a global leader in the development and commercialization of foundational technologies for the wireless industry. Our technologies and products are used in mobile devices and other wireless products, and are sold across industries and applications beyond mobile handsets, including network equipment, broadband gateway equipmentautomotive and the internet of things (IoT) (which includes the industries and applications of consumer, electronic devices.industrial and edge networking), among others. Our inventions have helped power the growth in smartphones, which have connected billions of people. We are a pioneerleader in 3G (third generation) and, 4G (fourth generation) wireless technologies, and are now a leader in 5G (fifth generation) wireless technologies to empower a new era of intelligent, connected devices. Our technologies and products are also used in industry segments beyond mobile, including automotive, IoT (Internet of Things), data center, networking, computing and machine learning, and allow millions of devices to connect with each other in new ways.technologies. We derive revenues principally from sales of integrated circuit products, including our Snapdragon® family of highly-integrated, system-based solutions, and licensing of our intellectual property, including patents software and other rights.
The foundational technologies we invent help power the modern mobile experience.experience, impacting how the world connects, computes and communicates. We share these inventions broadly through our licensing program, ensuringenabling wide ecosystem access to technologies at the core of mobile innovation, and through the sale of our wireless chipsetintegrated circuit platforms (also known as integrated circuit products, chips or chipsets) and other products, which accelerates consumer adoption of experiences empowered by these inventions. As a company, weproducts. We collaborate across the ecosystem, including manufacturers, operators, developers, system integrators, cloud providers, tool vendors, service providers, governments and industry standards organizations, to createenable a global environment that drivesto drive continued progress and growth.
We have a long history of driving innovation. We have played and continue to play a leading role in developing thesystem level inventions that serve as the foundation for 3G, and 4G wireless technologies, which are expected to serve as the basis forand 5G wireless technologies. This includes technologies such as the CDMA (Code Division Multiple Access) and OFDMA (Orthogonal Frequency Division Multiple Access) families of technologies, with the latter encompassing LTE (Long Term Evolution) and 5G NR (New Radio), which along with TDMA (Time Division Multiple Access), are the primary digital technologies currently used to transmit a wireless device user’s voice or data over radio waves using a public or private cellular wireless network.
We own significant intellectual property, including patents, patent applications and trade secrets, applicable to products that implement any version of CDMA andand/or OFDMA including patents, patent applications and trade secrets.technologies. Companies in the mobile communications industry generally recognize that any company seeking to develop, manufacture and/or sell
subscriber units devices or infrastructure equipment that use CDMA-based and/or OFDMA-based technologies will require a license or other rights to use our patents.
We also develop and commercialize numerous other key technologies used in handsetsmobile and other wireless devices, that contribute to end-user demand, and we own substantial intellectual property related to these technologies. Some of these inventions wereare contributed to and are being commercialized as industry standards, such as for certain video and audio codec, wireless LAN (local area network),codecs, Wi-Fi, GPS (global positioning system)(Global Positioning System) and positioning and Bluetooth. Other Bluetooth®. We have also developed other
technologies widelythat are used by wireless devices that we have developed are not related to any industry standards, such as operating systems, user interfaces, graphics and camera processing functionality, RF (radio frequency), RFFE (radio frequency front-end) and antenna designdesigns, artificial intelligence (AI) and machine learning techniques and application processor architectures. Our patents cover a wide range of technologies across the entire wireless system (including wireless devices and network infrastructure equipment) and, not just what is embodied inthe portion of such patented technologies incorporated into chipsets.
We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. QCT develops and supplies integrated circuits (also known as chips or chipsets) and system software based on CDMA, OFDMA3G/4G/5G and other technologies, including RFFE, for use in mobile devices, automotive systems for telematics, connectivity and digital cockpit (also known as infotainment) and IoT including wireless networks, devices used in the Internet of Things (IoT), broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems.industrial devices. QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our mobile health, data center, small cellcloud AI inference processing initiative and other wireless technology and service initiatives.
Industry Trends
The mobile industry has experienced tremendous growth for more than 20 years, growing from less than 60 million global connections in 1994 (WCIS+, October 2017) to approximately 7.8 billion global connections as of September 30, 2017 (GSMA Intelligence, October 2017). As the largest technology platform in the world, mobile has changed the way we work, the way we live andtransformed the way we connect, with each other. The scalecompute and pace of innovation in mobile, especially aroundcommunicate. Advanced connectivity and high-performance, low-power computing capabilities, istechnologies from mobile are also impacting industries beyond wireless.wireless, empowering new services, new business models and new ways to engage and interact with customers. Our business modelbreakthrough inventions, along with our flexible and inventionstransparent licensing program, have been integral to the growth and evolution of the mobile evolution, providing foundational technologies for this continued innovation and growth.industry.
Extending connectivity. 3G/4G multimode mobile broadbandAdvancing Connectivity. 3G technology has been a key growth driver of mobile, providing users with fast, reliable, always-on connectivity. As of September 30, 2017, there were approximately 4.7 billion 3G/4G connections globally (CDMA-based, OFDMA-based and CDMA/OFDMA multimode) representing nearly 60% of total mobile connections (GSMA Intelligence, October 2017). By 2020, global 3G/4G connections are projectedintroduced the world to reach 6.3 billion, with approximately 83% of these connections coming from emerging regions (GSMA Intelligence, October 2017).
3G/4G multimode mobile broadband has also emerged as an important platform for extending the reach and potential of the Internet. In 2010,mobile internet, and the numberability to access the internet virtually anytime and anywhere. 4G brought mobile broadband speeds that helped fuel the smartphone era, forever changing the way we work, live and connect with others. 4G has become the foundational technology to many of broadband connections usingthe applications and services used today, including e-commerce, video streaming, video calling, social media and gaming.
Building on foundational innovations developed for 3G and 4G, the mobile technology surpassed those using fixed technologies (GSMA Intelligence, October 2017), making mobile networks the primary method of accessindustry is quickly moving to the Internet for many people around the world. This is further amplified in emerging regions, where, as of September 30, 2017, 3G/4G connections are approximately six times the number of fixed Internet connections (GSMA Intelligence and WBIS, October 2017). In China, 3G/4G LTE multimode services have experienced strong adoption since being launched in the fourth quarter of calendar 2013, with more than 939 million connections reported as of September 30, 2017 (GSMA Intelligence, October 2017). In India, mobile operators continue to expand their 4G multimode services, providing consumers5G technology. Beginning with the benefits of advanced mobile broadband connectivity while creating new opportunities for device manufacturers and other members of the mobile ecosystem. 3G/4G mobile broadband may be the first and, in many cases, the only wayRelease 15 specification issued by 3GPP (3rd Generation Partnership Project), an organization that people in these regions access the Internet.
Looking ahead, Qualcomm and the wireless industry are actively developing and standardizingdevelops technical specifications, 5G technology, which is the next generation of wireless technology, expected to be commercially deployed starting in 2019. While the 5G New Radio (NR) standard is still being defined, it is expected to provide a unified connectivity network for all spectrum and service types based on OFDM technology. 5G is being designed to support fastermulti-gigabit data rates, lower networklow latency and wider bandwidthsgreater capacity than previous generations of spectrum. Incorporating many of the innovations developed for 4G, 5G is also expectedmobile technology to be scalable and adaptable across a variety of use cases, which include, among others: empowering new industries and services, such as autonomous vehicles and industrial applications, through ultra-reliable, ultra-low latency communication links; and connecting a significant number of “things” (also known as the Internet of Things or IoT, including the connected home, smart cities devices, wearables and voice and music devices), with connectivity designed to meet ultra-low power, complexity and cost requirements. 5G is also expected to enhanceenable enhanced mobile broadband services,experiences, including ultra-high definition (4K) video streaming and sharing, near-instantaneous access to cloud services, immersive cloud gaming and extended reality (XR), which includes augmented andreality (AR), virtual reality (VR) and mixed reality (MR). 5G’s performance and capacity improvements are also enabling operators to offer new consumer and enterprise services while also reducing their operating costs.
Although 5G networks are being deployed at a faster pace as compared to the transition from 3G to 4G technologies, as with multi-gigabit speeds.
previous generations of mobile networks, it will take time. Since the first commercial 5G networks were launched in April of 2019, 180 operators in more than 70 countries have commercially launched 5G, with more than 280 additional operators investing to deploy the technology as of September 30, 2021 (GSA, October 2021). Most 5G devices are expected to include multimode support for 3G, 4G and Wi-Fi technologies, enabling service continuity where 5G has yet to be deployed and simultaneous connectivity across 4G and Wi-Fi technologies, whiledeployed. They also allowingallow mobile operators to utilize currentexisting 3G and/or 4G network deployments. At the sameinfrastructure, enabling them to roll out 5G services over time, 4G is expectedwhile also helping to continuemaximize previous generation equipment investments. As of September 30, 2021, there were approximately 7.0 billion 3G/4G/5G connections globally, representing 85% of total mobile connections (GSMA Intelligence, November 2021). By 2025, global 3G/4G/5G connections are projected to evolvereach 8.4 billion, with approximately 86% of these connections in parallel with the development of 5Gemerging regions and become fundamentalChina (GSMA Intelligence, November 2021).
Consumer Demand in Smartphones. From October 2020 through September 2021, approximately 1.4 billion smartphones are estimated to many of the key 5G technologies, such as support for unlicensed spectrum, gigabit LTE user data rates and LTE IoT to meet the needs of ultra-low power, complexity and cost applications. The first phase of 5G networks are expected to support mobile broadband services for the smartphone form factor both in lower spectrum bands below 6 GHz as well as higher bands above 6 GHz, including millimeter wave (mmWave).
We continue to work closely with mobile operators and infrastructure companies around the world on 5G demonstrations and trials in preparation for commercial network launches.
Growth in smartphones. Smartphone adoption continues to expand globally, fueled by fast 3G/4G LTE multimode connectivity advanced multimedia features and enhanced location awareness capabilities, among others. In 2016, approximately 1.5 billion smartphoneshave shipped globally, representing a year-over-year increase of approximately 5%8%, with cumulativeprimarily driven by a recovery from the impacts of the coronavirus (COVID-19) pandemic, which negatively impacted consumer demand for smartphones (IDC, Mobile Phone Tracker, 2021Q2). Smartphone shipments in calendar 2022 are expected to increase by approximately 3% year-over-year (IDC, Mobile Phone Tracker, 2021Q2), reflecting modest growth in emerging regions. We estimate that 5G smartphone shipments will be between 2017500 and 550 million in calendar 2021, projectedmore than doubling compared to reach approximately 8.6 billion (Gartner, September 2017). Most of thisthe prior year. Looking beyond 2022, we expect modest smartphone growth is happening in emerging regions where smartphones accounted for approximately 75% of handset shipmentsto continue along with relatively flat demand in 2016 and are expected to reach approximately 92% in 2021 (Gartner, September 2017). Growth in smartphones has not only been driven by the success of premium-tier devices, but also by the number of affordable handsets that are fueling shipments in emerging regions and the variety of flexible and affordable data plans being offered by mobile operators.developed regions.
Consumer demand for new types of experiences, empowered by 3G/4G LTE connectivity, combined with the needs of mobile operators and device manufacturers to provide differentiated features and services, is driving continued innovation within the smartphone. We have been a leading contributor to this innovation that is happeningsmartphone across multiple technology dimensions, including connectivity, intelligence, camera,processing, AI, multimedia, imaging, audio video, sensors and security.more. As a result, the smartphone has becomecontinues to be the go-to device for social networking, music and video streaming, photography and video capture, e-commerce, gaming, email, and web browsing among others. Itand more. 5G enables these experiences to be more immersive, intuitive and interactive.
Transforming Other Industries: Automotive. The automotive industry continues to adopt advanced connectivity and compute technologies from mobile. According to analyst data, more than 70% of new vehicles sold in 2027 are projected to
have embedded cellular connectivity, as compared to 55% in 2020 (Strategy Analytics, October 2021), which includes growth in 5G connectivity.
Digitalization of the automotive cockpit continues to transform the in-vehicle experience, enabling greater personalization of content and settings for both drivers and passengers as automakers respond to growing interest from consumers to bring their digital lifestyles into the vehicle. Car-to-cloud platform solutions are helping automakers improve cost efficiencies, create new service opportunities throughout the lifecycle of a vehicle with over-the-air (OTA) update capabilities and receive valuable vehicle and usage analytics. High-performance, low-power computing technologies from mobile are being used to improve advanced driver assistance systems (ADAS) features and will continue progression towards supporting higher levels of automation and safety.
Transforming Other Industries: IoT. Demand for connected devices beyond smartphones continues to grow at a rapid pace across consumer, edge networking and industrial applications, in part due to the expanded use cases enabled by 5G technologies. The installed base of IoT devices, which includes everything from wearables to industrial handhelds to gateways, is projected to more than double between 2021 and 2025 to over 27 billion (IoT Analytics, October 2021). The growth in IoT devices is a catalyst in driving demand in edge networking platforms.
Trends such as remote working, distance learning and telehealth have also replacinghelped accelerate the adoption of fast, reliable wireless technologies and driven the demand for connected devices and networking equipment. We expect many traditionalof these trends to continue well into the future. According to survey data, 79% of executives plan to allow employees to continue to work remotely at least part time (WeWork/Workplace Intelligence, April 2021), and over 70% of employees want flexible remote work options to remain in place (Microsoft, March 2021). In the United States alone, the virtual care market is expected to grow at a compound annual growth rate of 40% through 2025 (Frost & Sullivan, March 2021), signaling projected demand for remote connectivity.
Consumer. Consumer IoT demand is being fueled by the adoption of the latest mobile technologies in consumer electronics products, including personal computing (e.g., tablets and personal computers), connected audio (e.g., wireless earbuds, speakers and soundbars), wearables (e.g., smart watches and XR) and others (e.g., camera and video collaboration, exercise equipment and home appliances). Connectivity brought to these devices dueenables new services, applications and experiences.
Edge Networking. Growth in demand for connected devices, along with advances in wireless technology, are driving increased demand for edge networking products (including mobile broadband and wireless access points). 5G brings a broadband connection to advanced capabilities, including digital cameras, video cameras, Global Positioning System (GPS) unitsthe home via wireless technologies that allows for the delivery of high-speed, low-latency connections, enabling operators to replace traditional “last-mile” wired broadband connections. Advances in Wi-Fi alongside 5G technologies are driving consumer and music players, combined with an always onenterprise demand for the latest Wi-Fi 6 access point technologies that leverage increased network speed, capacity and connected mobile platform.
Transforming other industries. With its significant scale, rapid development cycles and highly integrated solutions, aefficiency to support the increased number of connected devices at home and at work.
Industrial. The digital transformation happening across industries, beyondwhich is being driven by the adoption of mobile technologies, is fueling the growth of and new use cases for industrial IoT. Central to this transformation is the combination of connectivity, computing, on-device AI and big data that brings real time data and insights that are leveraging technology innovations foundhelping companies in smartphones. Our inventions that contribute to the formation of advanced cellular technologies,industries such as 3G/4G LTE connectivity, are helping transform industry segments outside of the traditional cellular industry, including automotiveretail, transportation, logistics and IoT, among others,asset tracking and empowering companies to createutilities gain new knowledge and insights about their products and services.services, manufacturing processes and more, which will help drive efficiencies and transform the way companies operate.
The proliferation of intelligent, connected things is also enabling new types of user experiences, as smartphones are able to interact with and control more of the objects around us. Through the addition of embedded sensors and on-device artificial intelligence processing, connected things are able to collect data and learn about their environment, providing users with contextually relevant information and further increasing the device’s utility and value.
Wireless Technologies Overview
The growthworldwide demand in the use of wireless devices worldwide and the demand for data services and applications requires continuous innovation to further improve the user experience,experiences, support new services, increase network capacity, make use of different frequency bands and allow for dense network deployments. To meet these requirements, different wireless communications technologies continue to evolve. For nearly three decades, weWe have investeda long history of investing heavily in research and development toand have developed foundational technologies that help drive the continued evolution of the wireless technologies,industry, including CDMA and OFDMA. As a result, we have developed and acquired (and continue to develop and acquire) significant related intellectual property. This intellectual property has been incorporated into the most widely accepted and deployed cellular wireless communications technology standards, and we have licensed it to several hundred licensees, including all the leading wireless device and infrastructurehandset manufacturers.
Cellular wireless technologies. Wireless Technologies.Relevant cellular wireless technologies can be grouped into the following categories.
TDMA-based. TDMA (Time Division Multiple Access)-based technologies are characterized by their access method allowing several users to share the same frequency channel by dividing the signal into different time slots. Most of these systems are classified as 2G (second generation) technology. The main examples of TDMA-based technologies are GSM (deployed worldwide), IS-136 (deployed in the Americas) and Personal Digital Cellular (PDC) (deployed in Japan).
Since CDMA technologies are the basis for all 3G wireless systems, GSM connections are declining. According to GSMA Intelligence estimates as of September 30, 2017, there were approximately 3.1 billion GSM connections worldwide, representing approximately 39% of total cellular connections, down from 46% as of September 30, 2016. The transition of
wireless devices from 2G to 3G/4G technologies continued around the world with 3G/4G connections up 16% year-over-year (GSMA Intelligence, October 2017).
CDMA-based. CDMA-based technologies are characterized by their access method allowing several users to share the same frequency and time by allocating different orthogonal codes to individual users. Most of the CDMA-based technologies are classified as 3G technology.
There are aA number of variants of CDMA-based technologies have been deployed around the world, in particular CDMA2000, EV-DO (Evolution Data Optimized), WCDMA (Wideband CDMA) and TD-SCDMA (Time Division-Synchronous CDMA) (deployedCDMA, which was deployed exclusively in China). CDMA-based technologies provide vastly improved capacity for voice and low-rate data services as compared to analog technologies and significant improvements over TDMA-basedearlier technologies such as GSM. To date, these technologies have seen many revisions, and they continue to evolve. New features continue to be defined in the 3rd Generation Partnership Project (3GPP)(e.g., an industry standards development organization.2G technology).
CDMA technologies ushered in a significant increase in broadband data services that continue to grow globally. According to GSMA Intelligence estimates as
As of September 30, 2017,2021, there were approximately 2.41.7 billion CDMA-based connections worldwide, representing approximately 30%21% of total cellular connections.connections, down from 23% as of September 30, 2020 as consumers migrate to OFDMA-based technologies (GSMA Intelligence, November 2021).
OFDMA-based. OFDMA-based technologies are characterized by their access method allowing several users to share the same frequency band and time by allocating different subcarriers to individual users. Most of the OFDMA-based technologies deployed prior to be deployed through 20172020 are classified as 4G technology. It is expected5G heavily leverages OFDMA-based technologies. 3GPP developed the 4G system through the specification of the radio component (LTE) and the core network component (Enhanced Packet Core or EPC). Similarly, 3GPP has developed the 5G system through the specification of the radio component (NR) and the core network component (5G Core or 5GC). Unlike 4G that has fixed Orthogonal Frequency Division Multiplexing (OFDM) parameterization, 5G will heavily leverage OFDM-based technologies.has multiple OFDM parameterizations to address a wide range of spectrum and use cases. We continue to play a significant role in the further development of LTELTE-based technologies, such as Narrowband IoT (NB-IoT), enhanced Machine Type Communications (eMTC) and LTE Advanced, which are the predominant 4G technologies currently in use, and their evolution to LTE Advanced Pro.Enhanced TV broadcast (EnTV).
LTE is incorporated in 3GPP specifications starting from releasebeginning with Release 8 and uses OFDMA in the downlink and single carrier FDMA (SC-FDMA)(Frequency Division Multiple Access) in the uplink. LTE has two modes, FDD (frequency division duplex)(Frequency Division Duplex) and TDD (time division duplex),(Time Division Duplex) to support paired and unpaired spectrum, respectively, and is being developed by 3GPP.continues to evolve as 3GPP defines new specifications. The principal benefit of LTE is its ability to leverage a wide range of spectrum (bandwidths of up to 20 MHz or more through aggregation). LTE is designed to seamlessly interwork with 3G technologies through 3G/4G multimode devices. Most LTE devices rely on 3G for voice services across the network, as well as for ubiquitous data services outside the LTE coverage area, and on 4G for data services inside the LTE coverage area. LTE’s voice solution, VoLTE (voice over LTE), is being commercially deployed in a growing number of networks.
Carrier aggregation, one of the significant improvements of LTE Advanced, was commercially launched in June 2013 and continues to evolve to aggregate additional carriers in the uplink as well as the downlink. Along with carrier aggregation, LTE Advanced brings many more enhancements, including carrier aggregation, advanced antennamulti-antenna techniques and optimizationoptimizations for small cells. Apart from improving the performance of existing networks, these releasesthere are also bring new enhancements under the umbrella of LTE Advanced Pro, to which we have been a significant contributor, including LTE Direct for proximity-based device-to-device discovery, cellular vehicle-to-everything (C-V2X) communication, improved LTE broadcast, optimizations of narrowband communications designed for IoT (known as eMTC and NB-IoT) and the ability to use LTE Advanced in unlicensed spectrum (LTE Unlicensed), as well as in emerging shared spectrum bands in various regions, (suchsuch as the Citizens Broadband Radio Service or CBRS(CBRS) in the United States).States. There will beare multiple options for deploying LTE Unlicensed for different deployment scenarios.
•LTE-U, which relies on an LTE control carrier based on 3GPP Release 12, uses carrier aggregation to combine unlicensed and licensed spectrum in the downlink and has been introduced in early mobile operator deployments in the United States and evolves to LicensedLAA (Licensed Assisted Access (LAA).
•LAA,Access), introduced as part of 3GPP Release 13, also aggregates unlicensed and licensed spectrum in both up andthe downlink and is being deployed globally by mobile operators. LAA is a key technology for many operators with limited licensed spectrum to deliver Gigabit LTE speeds.
•MulteFire can operateeLAA (enhanced LAA), introduced as part of 3GPP Release 14, is an evolution of LAA. eLAA enables aggregation of unlicensed and licensed spectrum in unlicensed spectrum without a licensed anchor control channel.the uplink.
There also have been ongoing efforts to make the interworking between LTE and Wi-Fi more seamless and completely transparent to the users. Further integration is achievedBeginning with LTE Wi-Fi Link Aggregation (LWA)Release 14, 3GPP specifications provide enhancements specifically for C-V2X (cellular vehicle-to-everything), which will utilize existingincludes both direct communication (vehicle-to-vehicle, vehicle-to-infrastructure and new carrier Wi-Fi deployments.vehicle-to-pedestrian) in dedicated spectrum that is independent of a cellular network and cellular communications with networks in traditional mobile broadband licensed spectrum.
According to GSMA Intelligence estimates asAs of September 30, 2017,2021, there were approximately 2.34.7 billion global LTE connections worldwide, representing approximately 30%58% of total cellular connections.
According to the Global mobile Suppliers Association (GSA),connections, up from 56% as of September 30, 2017, more than 810 wireless operators have commercially deployed or started testing LTE with 644 commercially launched in 200 countries. In addition, LTE Advanced standards featuring carrier aggregation have begun to be deployed, with 212 operators having commercially launched LTE Advanced networks in 105 countries (GSA, October 2017)2020 (GSMA Intelligence, November 2021).
As we look forward, theThe wireless industry is actively building the next generationdeveloping and commercializing 5G technologies. Commercial 5G network deployments and device launches began in calendar 2019, and we expect that additional deployments and device launches will occur as more operators and geographic regions launch 5G services. Many of cellular technologies under the name 5G in 3GPP. While 5G is still being defined, our inventions thatat the core of 3G and 4G serve as foundational technologies for 3G and 4G are expected to serve as the basis for 5G wireless technologies.5G. 5G is expecteddesigned to transform the role of wireless technologies and incorporatealready incorporates advancements on 3G/4G features available today, including further enhanced mobile broadband services, device-to-device capabilities and the use of all different types of spectrum (including licensed, unlicensed and shared spectrum) and connectivity of a significant number of things. 5G is also expected to include operation in emerging higher frequency bands, such as those in the millimeter wave range to significantly increase the data rate offered to users. Furthermore, 5G is expected to offer techniques that will allow cellular networks to expand into new vertical product segments, such as enabling automation-based platforms for industrial companies (known as Industrial IoT), and define a radio link with much higher levels of reliability for control of vehicles and machines. This development, which builds on the various 3G and 4G features addressing IoT, will further sustain the trend of enabling cellular connectivity to non-handset categories of devices.. We continue to play a significant role in driving advancements in 5G, from standardization to commercialization, including contributing to 3GPP standardization activities to definethat are defining the 5G New Radio (NR) and Next Generation Core (NGC) standard and collaborating with industry participants on 5G demonstrations and trials to prepare for commercial network launches. We continue to enhance and track the 3GPP standard in ourcontinued evolution of 5G NR prototypesand 5GC standards.
The first global set of 5G standards is incorporated in 3GPP specifications starting from Release 15, which was initially completed in March 2018. Release 15 enables different architecture deployment choices of 5G networks while sharing the same radio access technology. This is due to 5G’s ability to target diverse services with very different technical requirements (from enhanced mobile broadband to massive IoT to mission critical services), its utilization of diverse types of spectrum (from the low bands to millimeter wave (mmWave) bands) and its ability to support diverse types of deployment scenarios. Predominant technological components of 5G include the ability to address ultra-reliable, low-latency communication, new channel coding schemes to efficiently support large data blocks, MIMO (multiple input, multiple output) to increase coverage and network capacity and mobile mmWave to increase the data rate offered to users. 5G uses OFDMA in the downlink and either OFDMA or single carrier FDMA in the uplink depending on the use case. Like 3G and 4G, 5G supports carrier aggregation across spectrum bands, across FDD and TDD and across licensed and unlicensed spectrum (starting with Release 16), and 5G also supports dual connectivity across 4G and 5G. A key benefit of 5G is its ability to take advantage of very wide channel bandwidth (i.e., up to 100 MHz per component carrier for sub-6 and up to 400MHz per component carrier for mmWave), compared to LTE’s 20 MHz maximum bandwidth, which requires carrier aggregation to combine spectrum
beyond 20 MHz. As with previous cellular generations, 5G is designed to support seamless compatibility with 3G/4G technologies through multimode devices.
5G is the first generation of cellular wireless communication systems to use transmissions at mmWave bands, which creates certain challenges including coverage limitations and blockages, heightened costs and power constraints. In order to address these challenges, we have been a leader in designing RFFE modules and RF filter products which, when paired with our modems, provide a comprehensive 5G modem-to-antenna solution. Our RFFE modules and RF filter products use adaptive beamforming (which spatially concentrates radio energy in a given beam direction to extend the range) and enable the efficient tracking and switching of beams in accordance with varying radio conditions. mmWave deployments rely on small cells (low-powered cellular base stations typically used for increased system capacity and which may have already incorporated Gigabit LTE) to allow for faster, more reliable mobile service with transmissions at mmWave bands. 3GPP has so far defined six mmWave bands. Furthermore, mmWave beam management enhancements were defined in Release 16 with more anticipated in Release 17 (expected to be initially completed in 2022).
Release 16 not only introduced enhancements to 5G mobile broadband experiences (e.g., more capacity, improved coverage, mobility and better device power efficiency), but also expanded 5G technologies into new use cases and industries. For example, to better enable new industrial IoT use cases, such as factory automation, Release 16 added support for private 5G networks, efficient wireless Ethernet over 5G, 5G Time-Sensitive Networking (TSN) and further enhanced ultra-reliable, low latency communications. Release 16 also supports different spectrum belowtypes by expanding 5G into unlicensed spectrum with 5G NR Unlicensed (NR-U). Release 16 NR-U focused on sub-7GHz operation (commonly referred to as sub-6, sub-7 or Frequency Range 1), specifically 5GHz and 6GHz bands, and mmWave spectrum,Release 17 will expand NR-U to support higher bands such as 60GHz. High-precision positioning was another focus area in Release 16. Accurate device positioning is a key enabler for many applications, such as public safety and indoor navigation. Release 16 added new capabilities for 5G positioning, supporting techniques such as multi-cell roundtrip time, angle of arrival/departure and time difference of arrival. Release 16 addressed the growing needs of low-power, wide-area IoT use cases by allowing in-band deployments of NB-IoT and eMTC in 5G carriers, as well as supporting these low-complexity IoT technologies with the new 5G core network. Additionally, to make mmWave densification more cost efficient, Release 16 introduced integrated access and backhaul that allows a base station to provide both wireless access for shareddevices and unlicensed spectrum. These prototypes will be usedwireless backhaul connectivity, thereby eliminating the need for interoperability device testing starting in late 2017 with infrastructure partners as well as for early trial activities with mobile operators.a wired backhaul.
Other (non-cellular) wireless technologies.(Non-Cellular) Wireless Technologies. There are other, non-cellular wireless technologies that have also been broadly adopted.
Wireless Local Area Networks. Wireless local area networksLocal Area Networks (WLAN), such as Wi-Fi, link two or more nearby devices wirelessly and usually provide connectivity through an access point. We are actively involved in innovative programs developed in the context of the Wi-Fi Alliance, a non-profit organization that drives global Wi-Fi adoption and evolution. Wi-Fi systems are based primarily on standards developed by the Institute of Electrical and Electronics Engineers (IEEE) in802.11 Working Group. Amendments of the 802.11 family of standards.standard are commonly referred to by the names made popular by the Wi-Fi Alliance (for example, 802.11ax the latest standard,is known as Wi-Fi 6). Wi-Fi 6 adds advanced features such as downlink and uplink OFDMA and uplink multiple user multiple in/multiple out (UL MU MIMO) to the 802.11 baseline standard.multiple-user MIMO. This technology primarily targets broadband connectivity for mobile devices, tablets, laptops and other consumer electronicselectronic devices using 2.4 GHzthe 2.4GHz and 5 GHz spectrum.5GHz spectrum bands. 1200MHz of new spectrum has been added in the 6GHz band in the United States, Brazil, Canada, South Korea, Saudi Arabia and other countries, which triples the available spectrum for unlicensed technologies, such as Wi-Fi, which can be used by new Wi-Fi 6E devices. Europe has added 480 MHz of spectrum in the 6GHz band for unlicensed operation. For 60GHz mmWave technology, 802.11ay adds wider channel bandwidth and the use of MIMO to the existing 802.11ad (also known as Gigabit Wi-Fi or WiGig) standard. 802.11ah was finalized in early 2017 and targets sub-1 GHz spectrum and is expected to be a solution for “connected home” applications that require long battery life.spectrum. We played a leading role in the development of 802.11ac, 802.11ax, 802.11ay, 802.11ah and 802.11p,802.11ad, and we are actively involved in innovative programs developedcontinue to play a leading role in the contextevolution of the 802.11 family of standards with the development of the new 802.11be standard, which is expected to be known as Wi-Fi Alliance.7. The 802.11be specification is expected to standardize technologies such as Multi-Link Operation, 4K QAM (quadrature amplitude modulation), wider channel bandwidth modes (up to 320 MHz) and low latency enhancements.
Bluetooth. Bluetooth is a wireless personal area network that provides wireless connectivity between devices over short distances ranging from a few centimeters to a fewapproximately one hundred meters. Bluetooth technology provides wireless connectivity to a wide range of fixed or mobile consumer electronicselectronic devices. Bluetooth functionalities are standardized by the Bluetooth Special Interest Group in various versions of the specification (from 1.0 to 5.0)5.3), which include different functionalities, such as enhanced data rate, low energy and mesh technologies. In August 2015, we acquired CSR plc,We are a leading contributor to Bluetooth evolutiontechnologies in the areas of mobile devices HID (human interface device), A/V (audio/video)and audio and mesh technologies.
Location Positioning Technologies. Location positioning technologies have evolved rapidly in the industry over the past few yearscontinue to evolve in order to deliver an enhanced commercial location experience.experience and comply with new mandates on location for E911 (enhanced 911) calls. We wereare a key developer of the Assisted-GPS (A-GPS), Assisted Global Navigation Satellite System (A-GNSS) and WLAN positioning technologytechnologies used in most cellular handsets today. For uses requiring the best reliability and accuracy for E911 services and navigational based services, A-GPS, provided aA-GNSS and WLAN provide leading-edge solution.solutions. We continue to invest in the standardization and productization of many 4G- and 5G-based positioning capabilities, including in 3GPP Release 16.
The industry has now evolvedcontinues to evolve to support additional inputs for improving the location experience. Our products and intellectual property now support multiple constellations for A-GNSS, including: GPS, GLONASS, Galileo, NavIC and BeiDou; terrestrial-basedWi-Fi-based and Bluetooth-based positioning using WWAN (Wireless Wide Area Network) and Wi-Fi-based inputs;for WLAN, including Wi-Fi RSSI (received signal strength
indication) and Wi-Fi RTT (round-trip time) signals for indoor location; observed time difference of arrival positioning for LTE access (e.g., in rural and indoor areas); and third-party sensors combined with GNSS (Global Navigation Satellite System) measurementsinertial sensors. The combination of these different location solutions is used to provide interim support for location-based servicesensure accurate location availability in rural areas and indoors where other signal inputs may not be available.all areas.
Other Significant Technologies used in Cellular and Certain Consumer Electronic Devices and Networks
. We have played and continue to play a leading role in developing and/or have acquired many of the other technologies used across the wireless system, such asincluding in cellular handsets and certain other consumer electronic devices and not just what is embodied innetworks:
•on-device AI features, including machine learning platforms and the chipsets,application of AI and networks, including:machine learning techniques to edge computing and other use cases;
•graphics and display processing functionality;
•video coding based on the HEVC (high efficiency video codec)(High Efficiency Video Coding) standard, which is being deployed to support 4K video and immersive media content;content, the next generation VVC (Versatile Video Coding) and the MPEG-5 EVC (Essential Video Coding) standard, which is designed to power the creation and consumption of rich digital media experiences;
•audio coding, including EVS (enhanced voice services) and MPEG-H 3D Audio;
•the latest version of 3GPP’s codec for multimedia use and for voice/speech use, which is being deployed commercially;use;
multimedia transport, including MPEG-DASH (Dynamic Adaptive Streaming over HTTP) enabling advanced multimedia experiences;•camera functions;
•camera and camcorder functions;
•operating system and user interface features;
•machine learning platforms;
•augmented reality (AR)XR platform features such as 6DoF (six-degrees of freedom) head tracking and virtual reality (VR) features enablingcontroller capabilities, 3D Reconstruction, 3D audio and video pass-through, and embedded cellular connectivity for new types of user experiences;
•security and content protection systems for enhanced device security without compromising the user experience;experience and ultrasonic fingerprint readers for single touch authentication;
•volatile (LP-DDR2, 3, 4)(LP-DDR4, 5) and non-volatile (eMMC) memory and related controllers;
•fast charging features, enabling devices to charge quickly, safely and efficiently;
•Qualcomm® Smart Transmit™ technology, a modem-to-antenna technology that optimizes data speeds while complying with RF transmit power limits;
•power management systems for improved battery life and device charging; and
RFFE (radio frequency front-end) system products for improved signal•System on Chip (SoC) architecture with heterogeneous computing features, which uses different types of specialized engines (Graphics Processing Unit (GPU)) to enable high performance and reduced power consumption, while simplifyinglow-power computing and other optimization techniques.
Acquisitions
We make strategic investments and acquisitions to: open new opportunities for our technologies, supporting the design for manufacturers to develop LTE multimode, multiband devices.
Acquisitions
RF360 Holdings. On February 3, 2017, we completed the formationand introduction of a joint venture with TDK Corporation (TDK), under the name RF360 Holdings Singapore Pte. Ltd. (RF360 Holdings), to enable deliverynew products and services (or enhancing existing products or services); obtain development resources; grow our patent portfolio; or pursue new businesses as part of radio frequency front-end (RFFE) modules and radio frequency (RF) filters into fully integrated products for mobile devices and Internet of Things (IoT) applications, among others. The joint ventureour strategic plan. Information regarding acquisitions is owned 51% by Qualcomm Global Trading Pte. Ltd. (Qualcomm Global Trading), a Singapore corporation and wholly-owned subsidiary of ours, and 49% by EPCOS AG (EPCOS), a German wholly-owned subsidiary of TDK. Certain intellectual property, patents and filter and module design and manufacturing assets were carved out of existing TDK businesses and are owned by the joint venture, and certain assets were acquired directly by affiliates of ours. Qualcomm Global Trading has the option to acquire (and EPCOS has an option to sell) EPCOS’s interestprovided in the joint venture for $1.15 billion 30 months after the Closing Date. The total purchase price was $3.1 billion. RF360 Holdings, which is includedthis Annual Report in our QCT segment, is a Singapore corporation with research and development and manufacturing and/or sales locations in the United States, Europe and Asia and its headquarters in Munich, Germany.
NXP Semiconductors N.V. On October 27, 2016, we announced a definitive agreement under which Qualcomm River Holdings, B.V. (Qualcomm River Holdings), an indirect, wholly owned subsidiary of QUALCOMM Incorporated, will acquire NXP Semiconductors N.V. (NXP). Pursuant to the definitive agreement, Qualcomm River Holdings has commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, for estimated total cash consideration to be paid to NXP’s shareholders of $38 billion. NXP is a leader in high-performance, mixed-signal semiconductor electronics in automotive, broad-based microcontrollers, secure identification, network processing and RF power products.
The transaction is subject to receipt of regulatory approvals in various jurisdictions and other closing conditions, including the tender of at least 80% of the issued and outstanding common shares of NXP in the offer (provided that the minimum tender threshold may be reduced to a percentage not less than 70% with the prior written consent of NXP). While we continue to work to close by the end of calendar 2017, the transaction may close in early 2018. At an Extraordinary General Meeting of NXP’s shareholders held on January 27, 2017, NXP’s shareholders approved certain matters relating to the transaction, including the appointment of designees of Qualcomm River Holdings to NXP’s board of directors (effective upon the closing of the transaction) and certain transactions that are intended to be consummated after the completion of the tender offer.
In May 2017, we issued an aggregate principal amount of $11.0 billion of unsecured floating- and fixed-rate notes with varying maturities, of which a portion will be used to fund the purchase price and other related transactions. In addition, we have secured $4.0 billion in committed financing through a Term Loan Facility, which is expected to be drawn on at the close of the NXP transaction (See “Notes to Consolidated Financial Statements, Note 6. Debt.9. Acquisitions” and “Notes to Consolidated Financial Statements, Note 12. Subsequent Events.”). The remaining amount will be funded with cash held by our foreign entities.
Qualcomm River Holdings and NXP may terminate the definitive agreement under certain circumstances. If the definitive agreement is terminated by NXP in certain circumstances, NXP will be required to pay Qualcomm River Holdings a termination fee of $1.25 billion. If the definitive agreement is terminated by Qualcomm River Holdings under certain circumstances involving the failure to obtain the required regulatory approvals or the failure of NXP to complete certain pre-closing reorganization steps in all material respects, Qualcomm River Holdings will be required to pay NXP a termination fee of $2.0 billion.
Operating Segments
We have three reportable segments. We conduct business primarily through QCT (Qualcomm CDMA Technologies) and QTL, (Qualcomm Technology Licensing), andwhile QSI (Qualcomm Strategic Initiatives) makes strategic investments. RevenuesAdditional information regarding our operating segments is provided in fiscal 2017, 2016 and 2015 for our reportable segments were as follows (in millions, except percentage data):this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| QCT | $ | 16,479 |
| | $ | 15,409 |
| | $ | 17,154 |
|
| As a percent of total | 74 | % | | 65 | % | | 68 | % |
| QTL | $ | 6,445 |
| | $ | 7,664 |
| | $ | 7,947 |
|
| As a percent of total | 29 | % | | 33 | % | | 31 | % |
| QSI | $ | 113 |
| | $ | 47 |
| | $ | 4 |
|
| As a percent of total | 1 | % | | — |
| | — |
|
QCT Segment. QCT is a leading developer and supplier of integrated circuits and system software based on CDMA, OFDMA3G/4G/5G and other technologies for use in wireless voice and data communications, networking, application processing,computing, multimedia and global positioning systemGPS products. QCT’s integrated circuit products are sold and its system software is licensed to manufacturers that use our products in a broad range of devices, from low-tier, entry-level devices primarily for emerging regions to premium-tier devices, including but not limited to mobile devices (primarily smartphones), tablets, laptops, XR headsets, data modules, handheld wireless computers and gaming devices, voice and music devices, wearable devices, wireless access points and routers, broadband gateway equipment, data cards and infrastructure equipment, sensor hubs and other consumer electronicsindustrial equipment and automotive systems for telematics, connectivity and infotainment systems. Our Mobile Station Modem (MSM) integrated circuits, which include the Mobile Data Modem, Qualcomm® Single Chip and Qualcomm® Snapdragon™ mobile platforms and processors and LTE modems, perform the core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global positioning functions. In addition, our Snapdragon mobile platforms and processors provide advanced application and graphics processing capabilities. Because of our experience in designing and developing CDMA- and OFDMA-based products, we design both the baseband integrated circuit and the supporting system, including the RF (Radio Frequency), PM (Power Management) and wireless connectivity integrated circuits. This approach enables us to optimize the performance of the wireless device with improved product features and integration with the network system. QCT’s system software helps enable the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. We also provide support, including reference designs and tools, to assist our customers in reducing the time required to design their products and bring their products to market.
QCT offers a broad portfolio of products, including both wireless device and infrastructure integrated circuits, in support of CDMA2000 1X and 1xEV-DO, as well as the EV-DO Revision A/B evolutions of CDMA 2000 technology. Leveraging our expertise in CDMA, we also develop and offer integrated circuits supporting the WCDMA version of 3G for manufacturers of wireless devices. Device manufacturers have widely adopted our WCDMA products that support GSM/GPRS, WCDMA, HSDPA (High-Speed Downlink Packet Access), HSUPA (High-Speed Uplink Packet Access) and HSPA+ for their devices. QCT also sells multimode products for the LTE standard, which are designed to support seamless backward compatibility to existing 3G technologies. Our integrated circuit products are included in a broad range of devices, from low-tier, entry-level devices for emerging regions, which may use our Qualcomm Reference Design (QRD) products, to premium-tier devices. In fiscal 2017, QCT shipped approximately 804 million MSM™ integrated circuits for wireless devices worldwide, compared to approximately 842 million and 932 million in fiscal 2016 and 2015, respectively.
Our modems are built to work with increasingly complex networks. They support the latest communication technologies and adapt to network conditions and user needs in real time to enable delivery of faster, smoother data and voice connections.digital cockpit. Our 3G/4G4G/5G modem roadmap delivers the latest network technologies across multiple product tiers and devices. This roadmap is the result of extensive collaboration with manufacturers, operators, developers, systems integrators, cloud providers, tool vendors, service providers, governments and industry standards organizations, as well as our years of research into emerging network standards and the development of chipsetsintegrated circuits, that taketakes advantage of these new standards, while maintaining backward compatibility with existing standards. We have leveraged and expect to continue to leverage the foundational technologies initially developed and commercialized for use in mobile handset devices, such as our core baseband modem and processor technologies and our other wireless connectivity products in Wi-Fi, Bluetooth and precise positioning technologies, to extend into new product categories, industries and applications beyond mobile handsets, such as automotive and IoT (which includes the industries and applications of consumer, industrial and edge networking).
EachThe Snapdragon family of highly integrated, system-based solutions include the Snapdragon mobile, compute, sound and automotive platforms. Each platform consists of application processors and wireless connectivity capabilities, including our cellular modem that provides core baseband modem functionality for voice and data communications, non-cellular wireless
connectivity (such as Wi-Fi and Bluetooth) and global positioning functions. Our Snapdragon application processor is a highly integrated, mobile optimized systemfunctions include CPU, security, graphics, display, audio, video, camera and AI. Our CPUs are designed based on a chip incorporating our advanced technologies, including a Snapdragon modem for fast reliable mobile broadband connectivity, a high performance central processing unit (CPU), digital signal processor (DSP), graphics processing unit (GPU), image signal processor, multimedia subsystems, including high fidelity audio, high-definition videothe ARM architecture and advanced imaging capabilities, our mobile security technology, and accurate location positioning engines. Our CPU cores are designed to deliver high levels of compute performance at lowwith optimized power allowing manufacturersconsumption. Our Qualcomm® Hexagon™ processors are designed to design powerful, slimsupport a variety of signal processing applications, including AI, audio and power-efficient devices.sensor processing. Our Qualcomm®Qualcomm® Adreno™ GPUsgraphics processing units are also designed to deliver high quality graphics performance for visually rich 3D gaming and
user interfaces. In addition to the highly integrated core SoC, we also design and supply supporting components, including the RF transceiver, PM (power management), audio, codecs, speaker amps and additional wireless connectivity integrated circuits. These supporting components, in addition to our cellular modems and application processors comprising our core SoC, are also sold as individual components. The heterogeneous compute architecturecombination of ourthe Snapdragon mobile platformsSoC, system software and processors is designed to help ensure that the CPU, DSP and GPU work efficiently together, each being utilized only when needed, which enhances the processing capacity, speedsupporting components provide an overall platform with optimized performance and efficiency, of our Snapdragon mobile platformsenabling manufacturers to design and processorsdeliver powerful, slim and power-efficient devices ready for integration with the battery life of devices using our processors.complex cellular networks worldwide.
Our portfolio of RF products includes QFE (Qualcomm Front End) radio frequency front-end (RFFE)Qualcomm® RFFE components that are designed to simplify the RF design for 5G front-end, LTE multimode and multiband mobile devices, including sub-6 GHz and mmWave devices, to reduce power consumption and to improve radio performance. Through our RF360 Holdings joint venture, QCT offers an expanded portfolio of RFFE products for mobile devices and IoT applications. Our technologiesWe provide comprehensive RFFE product offerings with system level performance from the modem and transceiver to the antenna tuner that include complex 4G/5G transmit and receive modules, power tracking, tuning systems, switching, multimode-multiband power amplification, low noise amplifiers complex transmit and receive modules,mmWave antenna solutions, in addition to discrete filtering products, for devices and applications across cellular, infrastructurethe mobile handsets, automotive and automotive markets.IoT industries. We have also integrated our Snapdragon platform with our RFFE components to create our Snapdragon 5G modem-RF products, the world’s first commercial modem-to-antenna 5G solution designed to maximize data speeds and performance, support superior call connectivity and coverage and extend battery life.
Our wireless connectivity products also consist of integrated circuits and system software for WLAN,Wi-Fi, Bluetooth Bluetooth Smart,and frequency modulation (FM) and near field communications,, as well as technologies that support location data and services, including GPS, GLONASS, Galileo, NavIC and BeiDou. Our WLAN, Bluetooth and FMwireless connectivity products have been integrated with the Snapdragon mobile platforms and processors to provide additional connectivity for mobile devices, tablets, laptops, consumer electronicsXR headsets, voice and music devices, wearable devices, automotive telematics, digital cockpit, utility meters, logistic trackers and infotainment systems.industrial sensors, in addition to other IoT devices and applications. QCT also offers standalone WLAN,Wi-Fi, Bluetooth, Bluetooth Smart,fingerprint sensor, applications processor and Ethernet products for mobileutilized within these devices consumer electronics, computers, IoT applications, other connected devices and automotive telematics and infotainment systems. Our networking products include WLAN,Wi-Fi, Ethernet and Powerline and Ethernet chips, network processors, wireless access points and routers, broadband gateway equipment and software. These products help enable home and business networks to support the growing number of connected devices, digital media and data servicesservices.
Other than for certain of our RFFE modules and other smart home applications.
RF filter products, QCT primarily utilizes a fabless production model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Therefore, we primarily rely on third parties to perform the manufacturing and assembly, and most of the testing, of our integrated circuits based primarily on our proprietary designs and test programs. Our suppliers also are responsible for the procurement of most of the raw materials used in the production of our integrated circuits. Integrated circuits are die cut from silicon wafers that have completed the package assembly and test manufacturing processes. The semiconductor package supports the electrical contacts that connect the integrated circuit to a circuit board. Die cut from silicon wafers are the essential components of all of our integrated circuits and a significant portion of the total integrated circuit cost. We employ both turnkey and two-stage manufacturing models to purchase our integrated circuits. Under the turnkey model, our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. Under the two-stage manufacturing model, we purchase die in singular or wafer form from semiconductor manufacturing foundries and contract with separate third-party suppliersthird parties for manufacturing services such as wafer bump, probe, assembly and the majority of our final test requirements. RF360 Holdings uses certain internal fabrication facilities to manufacture RFFE modules and RF filter acoustic products, and its manufacturing operations consist of front-end and back-end processes. The front-end processes primarily take place at manufacturing facilities located in Germany and Singapore and involve the imprinting of substrate silicon wafers with the circuitry required for semiconductors to function (also known as wafer fabrication). The back-end processes involve the assembly, packaging and test of semiconductors to prepare RFFE modules and RF filter acoustic products for distribution. The back-end manufacturing facilities are located in China, Germany and Singapore.
Other than RF360 Holdings, we primarily rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits based primarily on our proprietary designs and test programs. Our suppliers also are responsible for the procurement of most of the raw materials used in the production of our integrated circuits. The primary foundry suppliers for our various digital, analog/mixed-signal, RF and PM integrated circuits are Global Foundries, Inc., Samsung Electronics, Co. Ltd., Semiconductor Manufacturing International Corporation (SMIC), Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation.Microelectronics. The primary semiconductor assembly and test suppliers are Advanced Semiconductor Engineering, Amkor Technology, Siliconware Precision Industries and STATSChipPAC. The majority of our foundry and semiconductor assembly and test suppliers are located in the Asia-Pacific region.
QCT primarily uses internal fabrication facilities to manufacture certain RFFE modules and RF filter products, and its manufacturing operations consist of front-end and back-end processes. The front-end processes primarily take place at manufacturing facilities located in Germany and Singapore and involve the imprinting of substrate wafers with the structure and circuitry required for the products to function (also known as wafer fabrication). The back-end processes include the assembly, packaging and test of RFFE modules and RF filter products and their preparation for distribution. The back-end manufacturing facilities are located in China and Singapore.
QCT’s sales are primarily made through standarda purchase ordersorder and order confirmation process for delivery of products. QCT generally allows customers to reschedule delivery dates within a defined time frame and to cancel orders prior to shipment with or without payment of a penalty, depending on when the order is canceled. The industry in which QCT operates is intensely competitive. QCT competes worldwide with a number of United StatesU.S. and international designers and manufacturers of semiconductors. As a result of global expansion by foreign and domestic competitors, technological changes, device manufacturer concentrations, limited global supply capacity, vertical integration and the potential for further industry consolidation, we anticipate the industry to remain very competitive. We believe that the principal competitive factors for our products include performance, level of integration, quality, compliance with industry standards, price, time-to-market, system cost, design and engineering capabilities, new product innovation, growth and scaling of distribution channels, desire by
certain customers to use multiple suppliers and customer support. QCT also competes in both single-single-mode and multi-modemultimode environments against alternative communications technologies including, but not limited to, GSM/GPRS/EDGE and TDMA. Further,technologies. Additional competitive factors exist for QCT is expanding its product offerings to
adjacent industry segments outside traditional cellularthat have expanded into industries and applications beyond mobile handsets, including automotive whichand IoT. The automotive industry is subject to long design-in time frames, long product life cycles and a high degree of regulatory and safety requirements, necessitating suppliers to the industry to comply with stringent qualification processes, very low defect rates and high reliability standards, all of which results in a significant barrier to entry and may result in increased costs.
QCT’s current competitors include, but are not limited to, companies such as Broadcom, Limited, Cirrus Logic, Cypress Semiconductor Corporation, HiSilicon Technologies, Intel, Marvell Technology, Maxim Integrated Products, MediaTek, Microchip Technology Inc., Murata Manufacturing Co., Ltd., Nordic Semiconductor, Nvidia, NXP Semiconductors, Qorvo, Inc., Realtek Semiconductor, Renesas Electronics Corporation, Samsung, Electronics, Sequans Communications S.A., Skyworks, Solutions Inc., Sony CorporationTexas Instruments and Spreadtrum Communications (which is controlled by Tsinghua Unigroup).UNISOC. QCT alsocurrently faces competition, which may intensify in the future, from products internally developed by our customers, including some of our largest customers, and from some early-stage companies. Our competitors devote significant amounts of their financial, technical and other resources to develop and market competitive products and, in some cases, to develop and adopt competitive digital communication or signal processing technologies, and those efforts may materially and adversely affect us. Although we have attained a significant position in the wireless industry, many of our current and potential competitors may have advantages over us that include, among others: motivation byus. These and other risks related to competition are more fully described in the Risk Factors entitled “Our industry is subject to intense competition in an environment of rapid technological change. Our success depends in part on our ability to adapt to such change and compete effectively; and such change and competition could result in decreased demand for our products and technologies or declining average selling prices for our products or those of our customers in certain circumstances to utilizeor licensees” and “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own internally-developed integrated circuit products, to use our competitors’ integrated circuit products and/or sell such products to others, including by bundling with other products, or to choose alternative technologies; lower cost structures and/or a willingness and ability to accept lower prices and lower or negative margins for their products, particularly in China; foreign government support of other technologies or competitors; better known brand names; ownership and control of manufacturing facilities and greater expertise in manufacturing processes; more extensive relationships with local distribution companies and original equipment manufacturers in certain geographic regions (such as China) and/or experience in adjacent industry segments outside traditional cellular industries (such as automotive and IoT); and/or a more established presence in certain regions.products).”
QTL Segment. QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, and sale and/or use of certain wireless products, including, without limitation, products implementing CDMA2000, WCDMA, CDMA TDDLTE and/or LTEOFDMA-based 5G standards and their derivatives. We have historically licensedgrant licenses or otherwise provide rights to use our cellular standard-essential patents (including 3G, 4G and 5G) for both single-mode and multimode devices on a worldwide basis. We also offer licenses to our cellular standard-essential patents together with other Qualcomm patents that may be useful to such licensed products becausefor licensees typically have desiredthat desire to obtain the commercial benefits of receiving such broad patent rights from us. However,While we alsooffer license rights to patents that we do not have licensed onlya duty or obligation to grant, those rights may be negotiated at our discretion. A significant portion of QTL’s licensing revenues is derived from licensees that have entered into license agreements that grant licenses under Qualcomm’s cellular standard-essential patents to certain licensees who have requested such licenses. In addition, our practice in China since 2015 is to offer licenses to our 3G and 4G standard-essential Chinese patents for devices sold for use in China separately from licenses to our other patents. Our licensees manufacture wireless cellular products includingsuch as mobile devices (also known as subscriber units, which include(including handsets), other consumer devices (e.g., tablets and laptops), machine-to-machine devices (e.g., telematics devices, meter reading devices), plug-in end user data modem cards certainand embedded modules for incorporation into machine-to-machine devices and certain end user products (excluding handsets, tablets and laptops), connected vehicle units and connected vehicle modules used in automobiles, wireless access points, small cell wireless products, infrastructure equipment required to establish and operate a cellular network and equipment to test wireless networks and subscriber units.cellular devices.
Since our founding in 1985, we have focused heavily on technology development and innovation. These efforts have resulted in a leading intellectual property portfolio related to among other things,foundational, system level technologies for the wireless technology.industry. We have an extensive portfolio of United States and foreign patents, and we continue to pursue patent applications around the world. Our patents have broad coverage in many countries, including Brazil, China, India, Japan, South Korea, Taiwan, the United States and countries in Europe and elsewhere.Europe. A substantial portion of our patents and patent applications relate to digital wireless communications technologies, including patents that are essential or may be important to the commercial implementation of CDMA2000, WCDMA (UMTS), TD-SCDMA, TD-CDMA (Time Division CDMA) and OFDMA/LTE and/or OFDMA-based 5G products. Our patent portfolio is the most widely and extensively licensed in the industry, with several hundred licensees.including more than 150 5G license agreements to date. Additionally, we have a substantial patent portfolio related to key technologies used in communications and other devices and/or related services, some of which were developed in industry standards development bodies.organizations. These include certain video codec,codecs, audio codec, WLAN,codecs, Wi-Fi, memory interfaces, wireless power, GPS and positioning, broadcast and streaming protocols, and short rangeshort-range communication functionalities, including NFC and Bluetooth. Our patents cover a wide range of technologies across the entire wireless system including the device (handsets(including wireless devices and other wireless devices) andnetwork infrastructure equipment), not just what is embodied in the portion of such patented technologies incorporated into chipsets. Over the years, a number of companies have challenged our patent position, but companies in the mobile communications industry generally recognize that any company seeking to develop, manufacture and/or sell subscriber units or infrastructure equipmentcertain wireless products that use CDMA-based and/or OFDMA-based technologies will require a license or other rights to use our patents.
We have licensed or otherwise provided rights to use our patents to hundreds of companies on industry-accepted terms. Unlike some other companies in our industry that hold back certain key technologies, we offer companies substantially our entire patent portfolio for use in cellular subscriber devices and cell site infrastructure equipment. Our strategy to make our
patented technologies broadly available has been a catalyst for industry growth, helping to enable a wide range of companies offering a broad array of wireless products and features while increasing the capabilities of and/or driving down average and low-end selling prices for 3G handsets and other wireless devices. By licensing or otherwise providing rights to use our patents to a wide range of equipment manufacturers, encouraging innovative applications, supporting equipment manufacturers with integrated chipset and software products and focusing on improving the efficiency of the airlink for wireless operators, we have helped 3G CDMAmultimode device capabilities evolve, grow demand and growreduce device pricing. 5G network deployments and reducedcommercial 3G/4G/5G multimode device pricing, all atsales began in 2019 and have continued. By licensing or otherwise providing rights to use our patents to a faster pace thanwide range of equipment manufacturers, we are supporting the 2G (second generation) technologies such as GSMglobal rollout and availability of 5G technology. We believe that preceded it.5G will continue to encourage innovative applications through enhanced mobile broadband services with lower latency and multi-gigabit user data speeds and bring more capacity and efficiency to wireless networks.
Upon the initial deployment of OFDMA-based networks, the products implementing such technologies generally have been multimode and implement OFDMA-based and CDMA-based technologies. The licenses granted under our existing CDMA license agreements generally cover multimode CDMA/OFDMA (3G/4G)4G/5G) devices, and our licensees are obligated to pay royalties under their CDMA license agreements for their sales of such devices. Further, the majority of the leading handset and other wireless device companies (including Huawei, LG, Microsoft, Oppo, Samsung, Sony, vivo, Xiaomi and ZTE) have royalty-bearing licenses under our patent portfolio for use in LTE or other OFDMA-based products that do not implement any CDMA-based standards.
Standards bodies have been informed that we hold patents that might be essential for all 3G standards that are based on CDMA.CDMA; patents and pending patent applications that are potentially essential for LTE standards, including FDD and TDD versions; and patents and pending patent applications that are potentially essential for 5G technologies. We have committed to such standards bodies that we will offer to license our essential patents for these CDMA standards consistent with our commitments to those bodies. We have also informed standards bodies that we hold patents and pending patent applications that are potentially essential for certain standards that are based on OFDM/OFDMA technology (e.g., LTE, including FDD and TDD versions) and have committed to offer to license our essential patents for these OFDMA standards consistent with our commitments to those bodies. We have made similar commitments with respect to certain other technologies implemented in industry standards.
QTL licensing revenues include royalties and, to a lesser extent, license fees andfees. Licensees pay quarterly royalties based on their sales by licensees of products incorporating or using our licensed intellectual property. License fees areproperty and may also pay a fixed amounts paidlicense fee in one or more installments. License fees are recognized over the estimated period of benefit of the license to the licensee, typically 5 to 15 years. RoyaltiesSales-based royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of complete licensed products, net of certain permissible deductions (including transportation, insurance, packing costs and other items). We broadly provide per unit running royalty caps that apply to certain categories of complete wireless devices, namely smartphones, tablets, laptops and laptops,smartwatches, and which effectively provide for a maximum runningroyalty amount payable per device. For certain non-handset product categories, including automotive, we charge a fixed royalty amount per device (i.e., the royalty caps limit the running royalties due on a per unit basis). QTL recognizes royalty revenues based on royalties reported by licensees and when other revenue recognition criteria are met. Licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter, which is generally the following quarter.unit. Revenues generated from royalties are subject to quarterly and annual fluctuations.
The vast majority of QTL revenues have been generated through our licensees’ sales of CDMA2000-based, WCDMA-basedCDMA-based (including, but not limited to WCDMA-based) and LTE-basedOFDMA-based products (including 3G, 3G/4G and 4G multi-mode3G/4G/5G multimode devices), such as feature phonessmartphones and smartphones.other devices. We have invested and continue to invest in both the acquisition and development of OFDMA technology and intellectual property and have generated the industry leading patent portfolio applicable to LTE, LTE Advanced, and LTE Advanced Pro. Additionally, wePro and 5G-NR. Some of our inventions that serve as foundational technologies for 3G and 4G also serve as foundational technologies for 5G. We have invested and continue to invest in the development of 5G which while still being defined, is expectedand continue to heavily leverage OFDMA-based technologies.play a significant role in driving advancements of 5G. Nevertheless, we face competition in the development of intellectual property for future generations of digital wireless communications technologies and services.
Separate and apart from licensing manufacturers of wireless devices and network equipment, we have entered into certain arrangements with competitors of our QCT segment, such as Broadcom Limited.segment. A principal purpose of these arrangements is to provide our QCT segment and the counterparties certain freedom of operation with respect to each party’s integrated circuits business. In every case, these agreements expressly reserve the right for QTL to seek royalties from the customers of such integrated circuit suppliers with respect to such suppliers’ customers’ sales of CDMA-, WCDMA-CDMA-based (including, but not limited to WCDMA-based) and OFDMA-based wireless devices into which such suppliers’ integrated circuits are incorporated.
Our license agreements also may provide us with rights to use certain of our licensees’ technology and intellectual property to manufacture, and sell and/or use certain components (e.g., Application-Specific Integrated Circuits)application-specific integrated circuits) and related software, subscriber unitscellular devices and/or infrastructure equipment.
We have been in the past and are currently subject to various governmental investigations and privatecertain legal proceedings challenging our patent licensing practices, including those described in this Annual Report under the heading “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies,” which may require us to change our patent licensing practices as described more fully in this Annual Reportherein in “Part I, Item 1A. Risk Factors” under the heading “If we are required to change“Changes in our patent licensing practices, whether due to governmental investigations, and/legal challenges or private legal proceedings challenging those practices,otherwise, could adversely impact our business and results of operations could be adversely impacted” and in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.operations.”
QSI Segment. QSI makes strategic investments primarily through our Qualcomm Ventures arm that are focused on expanding or opening new or expanding opportunities for our technologies andas well as supporting the design and introduction of new products and services (or enhancing existing products or services) for voice and data communications and new industry segments.. Many of these strategic investments are in early-stage companies in a variety of industries and applications, including, but not limited to, 5G, AI, automotive, IoT, mobile, data centerconsumer, enterprise, cloud and healthcare.IoT. Investments primarily include non-marketable equity instruments,securities and, to a lesser extent, marketable equity securities (the majority of which generally are recorded using the cost method or theresulted from initial public offerings of certain non-marketable equity method,investments) and convertible debt instruments, which are recorded at fair value.instruments. In addition, QSI segment results include revenues and related costs associated with license and development contracts with one of our equity method investees. As part of our strategic investment activities, we generally intend to pursue various exit strategies for each of our QSI investments in the foreseeable future.
Other Businesses. Nonreportable segments include our mobile health, data center, small cellQualcomm Government Technologies or QGOV business, our cloud AI inference processing initiative and other wireless technology and service initiatives. Our nonreportable segments developQGOV provides development and sell products and services that include, but are not limited to: products and services for mobile health; license of chipset technology and products and services for use in data centers; products designed for implementation of small cells to address the challenge of meeting the increased demand for data; development, other services and sells related products to U.S. government agencies and their contractors; and software products and content and push-to-talk enablement services to wireless operators.contractors.
Additional information regarding our operating segments is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.” Seasonality. Information regarding seasonality is provided in this Annual Report in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the “Our Business and Operating Segments” section under the heading “Seasonality.”
Strategic Realignment Plan
In the fourth quarter of fiscal 2015, we announced a Strategic Realignment Plan designed to improve execution, enhance financial performance and drive profitable growth as we worked to create sustainable long-term value for stockholders. As part of this Strategic Realignment Plan, among other actions, we implemented a cost reduction plan, which included a series of targeted reductions across our businesses, particularly in QCT, and a reduction to annual share-based compensation grants. The cost reduction initiatives were achieved by the end of fiscal 2016 and other activities under the plan were completed by the end of fiscal 2017. Additional information regarding our Strategic Realignment Plan is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 10. Strategic Realignment Plan.”
Corporate Structure
We operate our businesses through our parent company, QUALCOMM Incorporated, and multiple direct and indirect subsidiaries. We have developed our corporate structure in order to address various legal, regulatory, tax, contractual compliance, operationsoperational and other matters. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering, research and development functions, are operated by QUALCOMMQualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.
Revenue Concentrations and Significant Customers and Geographical Information
Revenues in fiscal 2017 were negatively impacted by the actions of Apple Inc. and Hon Hai Precision Industry Co., Ltd./Foxconn, its affiliates and other suppliers to Apple, as well as the previously disclosed dispute with another licensee, who underpaid royalties due in the second quarter of fiscal 2017 and did not report or pay royalties due in the third or fourth quarter of fiscal 2017. A small number of customers/licensees historically have accounted for a significant portion of our consolidated revenues.
In fiscal 2017, 2016 and 2015,2021, revenues from suppliers to Apple, Inc.Samsung and from Samsung ElectronicsXiaomi each comprised 10% or more than 10% of our consolidated revenues. Combined revenues from GuangDong OPPO Mobile Telecommunications Corp. Ltd. and vivo Communication Technology Co., Ltd., and their respective affiliates, also comprised more than 10% of consolidated revenues in fiscal 2017.
Consolidated revenues from international customers and licensees as a percentage of total revenues were 98%, 98% and 99% in fiscal 2017, 2016 and 2015, respectively. During fiscal 2017, 65% and 16% of our revenues were from customers and licensees based in China (including Hong Kong) and South Korea, respectively, compared to 57% and 17% during fiscal 2016, respectively, and 53% and 16% during fiscal 2015, respectively. We report revenues from external customers by country based on the location to which our products or services are delivered, which for QCT is generally the country in which our customers manufacture their products, or for licensing revenues, the invoiced addresses of our licensees. As a result, the revenues by country presented herein are not necessarily indicative of either the country in which the devices
containing our products and/or intellectual property are ultimately sold to consumers or the country in which the companies that sell the devices are headquartered. For example, China revenues could include revenues related to shipments of integrated circuits to a company that is headquartered in South Korea but that manufactures devices in China, which devices are then sold to consumers in Europe and/or the United States. Additional geographic information regarding revenue concentrations is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. Significant Accounting Policies” and “Notes to Consolidated Financial Statements, Note 8. Segment Information.”
Research and Development
The wireless communications industry is characterized by rapid technological change, evolving industry standards, and frequent new product introductions and, with the use of 5G, the expansion into new industries or applications such as automotive and IoT, requiring a continuous effort to enhance existing products and technologies and to develop new products and technologies. We have significant engineering resources, including engineers with substantial expertise in CDMA, OFDMAmodem technologies, radio-frequency integrated circuit (RFIC), RFFE, multimedia (camera, video, display, computer vision), advanced SoC, which includes specialized engines, such as CPU and GPU, to enable high performance and low-power computing and other optimization techniques, AI, packaging, and a broad range of other technologies. Using these engineering resources, weWe expect to continue to invest in research and development in a variety of ways in an effort to extend the demand for our products and technologies and to utilize that research and development in industries and applications beyond mobile handsets (such as automotive and IoT), including continuing the development of CDMA, OFDMAnew modem and multimedia technologies and other technologies (such as ADAS and XR), developing alternative technologies for certain specialized applications, participating in the formulation of new voice and data communication standards and technologies and assisting in deploying digital voice and data communications networks around the world and leveraging our existing technology in new and expanded product areas, such as RFFE, and adjacent industry segments outside of traditional cellular industries, such as automotive, IoT and networking.world. Our research and development team has a demonstrated track record of innovation in voice and data communication technologies and application processor technology, among others. Our research and development expenditures in fiscal 2017, 2016 and 2015 totaled approximately $5.5 billion, $5.2 billion and $5.5 billion, respectively.
We continue to invest significant resources towards advancements in 4G OFDMA-based technologies and products (including LTE)LTE and 5G-based technologies.5G). We also engage in acquisitions and other transactions, such as joint ventures, to meet certain technology needs, to obtain development resources or open or expand opportunities for our technologies and supportingto support the design and introduction of new products and services (or enhancing existing products and services) for voice and data communications and new industry segments outside of the traditional cellular industry. Recent transactions include our acquisition of CSR plc, our RF360 Holdings joint venture with TDK Corporation industriesand our proposed acquisition of NXP.
applications beyond mobile handsets. We make investments to provide our integrated circuit customers with chipsets designed on leading-edge technology nodes that combine multiple technologies for use in consumer electronic devices (e.g., smartphones, tablets, laptops, voice and laptops), consumer electronicsmusic devices, wearable devices, XR devices) and other products (e.g., access points and routers, data cards and infrastructure equipment). In addition to 3G, 4G and 4G LTE5G technologies, our chipsets support other wireless and wired connectivity technologies, including WLAN,Wi-Fi, Bluetooth, Ethernet, GPS, GLONASS, BeiDoulocation positioning and Powerline communication. Our integrated chipsets often include multiple technologies, including advanced multimode modems, application processors and graphics engines, as well as the tools to connect these diverse technologies. We continue to support Android, Windows and other mobile client software environments in our chipsets.
We develop on our own, and with our partners, innovations that are integrated into our product portfolio to further expand the opportunity for wireless communications and enhance the value of our products and services. These innovations are expected to enable our customers to improve the performance or value of their existing services, offer these services more affordably and introduce revenue-generating broadband data services ahead of their competition.
We have research and development centers in various locations throughout the world that support our global development activities and ongoing efforts to develop and/or advance 4G, OFDMA, 5G, RFFE and a broad range of other technologies. We continue to use our substantial engineering resources and expertise to develop new technologies, applications and services and make them available to licensees to help grow the communications industry and generate new or expanded licensing opportunities.
Environmental, Social and Governance (ESG) and Human Capital
For decades, our innovations have helped transform industries, enhance people’s lives and address some of society’s biggest challenges. With the world becoming increasingly connected, we have a tremendous opportunity to shape a better future. We believe in the power of technology. As such, our corporate responsibility vision is to be a facilitator of innovation for a sustainable world, connected wirelessly.
We have integrated corporate responsibility throughout our business, from our daily operations to our executive leadership and our Board of Directors (Board). The Governance Committee of our Board provides oversight on corporate
responsibility matters, including ESG policies, programs and initiatives, and the HR and Compensation Committee of our Board provides oversight on our workforce diversity and inclusion programs and initiatives. Our Corporate Responsibility Leadership Committee, composed of executives and senior management, provides guidance on global corporate responsibility issues. Our Corporate Responsibility Governance Committee implements directives from the Corporate Responsibility Leadership Committee, measures progress on achieving our goals, and reports to management on accomplishments and challenges.
ESG
Our sustained investment in R&D has helped revolutionize the way people connect; our approach to innovation is strategic and purposeful. We understand that the success of our business is fundamentally connected to the well-being of our world. We focus our efforts in four key areas where we believe we can have the biggest impact:
•Purposeful Innovation.We invent breakthrough technologies by building on our legacy of technology leadership with 5G, which we believe will serve as the technological foundation for connected cars, industrial IoT, smart homes and cities, networking and mobility, among others. Our 5G technology advancements are helping transform industries, like telemedicine and remote education, and driving efficiencies with always-connected devices. We believe that 5G can also make investmentshelp manage and improve the sustainability trajectory of our planet in opportunities that leverage our existing technical and business expertise to deploy new and expanded productkey areas such as RFFE,greenhouse gas (GHG) emissions, water use, reduction of pesticides and enter into adjacent industry segments, such as products for automotive, IoT (includingenergy efficiency, while providing an inherently lower CO2 footprint than previous network deployments. Through our Qualcomm® Wireless Reach™ program (Wireless Reach), we work to broaden our impact by bringing advanced wireless technologies to underserved communities around the connected home, smart cities, wearables, voiceworld. Further, through the Qualcomm Small Business Accelerator Program, we have provided technology and musicsupport to U.S.-based small businesses in various industries to help them transition to a mobile-first remote work environment.
•Our People. We strive to make Qualcomm an inspiring and robotics), data center, networking, computinginclusive workplace to advance the development of leading-edge technologies. Our success is only possible with the hard work and machine learning, among others.
Sales and Marketing
Sales and marketing activitiesdedication of our operating segmentsemployees. We celebrate diversity among our workforce and recognize that our varied backgrounds, experiences and ideas are discussed under Operating Segments. Other marketing activities include public relations, advertising, digital marketingcritical to innovation. We seek to foster inclusive teams and social media, participationeducate and train employees and leaders on the importance of driving diversity. We also engage our global workforce through giving and outreach efforts to support and enrich the communities where we live and work.
•STEM Education.Science, technology, engineering, and mathematics (STEM) is the foundation for everything we do. It supports the brainpower behind the breakthrough technologies and inventions we bring to life. As technology leaders and a company of inventors, we are committed to providing tomorrow’s workforce with the skills and knowledge to solve global challenges.Our initiatives are designed to promote and improve STEM education and to expand opportunities for underrepresented students.
•Responsible Business. We strive to integrate responsible and sustainable practices throughout our organization. We continually look for ways to conserve water, minimize energy consumption, lower emissions and reduce waste. We prioritize transparency in technical conferencesour actions and trade shows, development of business cases and white papers, competitive analyses, industry intelligence and other marketing programs, such as marketing development funds with our customers. Our Corporate Marketing department provides company informationreporting, including reporting on our Internet siteESG risks and through other channels regardingopportunities using the TCFD (Task Force on Climate-related Financial Disclosures), SASB (Sustainability Accounting Standards Board) and GRI (Global Reporting Initiative) frameworks in our products, strategiesQualcomm Corporate Responsibility Report (located on our website). Because privacy and technology to industry analysts and media.
Competition
Competition faced by our operating segments is discussed under Operating Segments. Competition in the communications industry throughout the world continues to increase at a rapid pace as consumers, businesses and governments realize the potential of wireless communications products and services. We have facilitated competitioncybersecurity are critical for success in the wireless communications industry, we seek to promote data protection across the mobile ecosystem. Further, we are committed to respecting all internationally recognized human rights and avoiding complicity in any human rights abuse, upholding adherence to our Supplier Code of Conduct in our extended supply chain, being a global leader in ethical business conduct and engaging in discussions to advocate for policies that promote innovation as well as protect and foster new ideas in mobile communications.
2025 Goals. In addition to the human capital goals discussed below, our 2025 Goals related to corporate responsibility include, among others:
•Reduce our absolute Scope 1 and Scope 2 GHG emissions by licensing our technologies30% from global operations, compared to a large number of manufacturers. Although we have attained a significant position2014 baseline.
•Reduce power consumption by 10% every year in the traditional cellular industry, manyour flagship Snapdragon Mobile Platform products (given equivalent features).
•Ensure 100% of our currentprimary semiconductor manufacturing suppliers are audited every 2-years for conformance to our Supplier Code of Conduct.
Net-Zero Global GHG Emissions Commitment. In addition to our 2025 Goals, in November 2021, we announced plans to: (1) reduce absolute Scope 1 and potential competitors2 global GHG emissions by 50% by 2030 from 2020 base year; (2) reduce absolute Scope 3 global GHG emissions by 25% by 2030 from 2020 base year; and (3) reach net-zero global GHG emissions for Scopes 1, 2 and 3 by 2040.
The foregoing discussion includes information regarding ESG matters that we believe may have advantages over usbe of interest to our stockholders generally. We recognize that include, among others: motivation by our customers in certain circumstances to utilize their own internally-developed integrated circuit products, to use our competitors’ integrated circuit products and/or sell such products to others, including by bundling with other products, or to choose alternative technologies; lower cost structures and/or a willingness and ability to accept lower prices and lower or negative margins for their products, particularly in China; foreign government support of other technologies or competitors; better known brand names; ownership and control of manufacturing facilities and greater expertise in manufacturing processes; more extensive relationships with local distribution companies and original equipment manufacturers in certain geographic regionsstakeholders (such as China) and/or experiencecustomers, employees and non-governmental organizations), as well as certain of our stockholders, may be interested in adjacent industry segments outside traditional cellular industries (such as automotivemore detailed information on these topics. We encourage you to review our most recent Qualcomm Corporate Responsibility Report (located on our website) for more
detailed information regarding our Corporate Responsibility and IoT); and/orESG governance, goals, priorities, accomplishments and initiatives; a 5G and sustainability report, Environmental Sustainability and a Greener Economy: The Transformative Role of 5G (also located on our website) for additional information regarding our views on climate change, environmental sustainability and the role of 5G in enabling a more established presence in certain regions. These relationships may affect customers’ decisions to purchase productssustainable future; as well as the Corporate Governance section of our most recent Proxy Statement, and our Corporate Governance Principles and Practices (located on our website), for additional information regarding governance matters, including Board and Committee leadership, oversight, roles and responsibilities, and Director independence, tenure, refreshment and diversity. Nothing on our website, including the aforementioned reports, documents or license technology from us. Accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market positions to our detriment.sections thereof, shall be deemed incorporated by reference into this Annual Report.
We expect competition to increase as our current competitors expand their product offerings and introduce new technologies and services in the future and as additional companies compete with our products or services based on 3G, 4G or other technologies. Although we intend
Human Capital
In order to continue to produce the innovative, breakthrough technologies for which we are known, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make substantial investments in developing new productsQualcomm a diverse, inclusive and technologies and improving existing products and technologies, our competitors may introduce alternative products, services or technologies that threaten our business. It is also possible that the prices we chargesafe workplace, with opportunities for our productsemployees to grow and services may continue to decline as competition continues to intensify. See also the Risk Factor entitled “Our industry is subject to competitiondevelop in an environment of rapid technological change that could result in decreased demand and/or declining average selling prices for our products and/or those of our customers and/or licensees.”
Corporate Responsibilitytheir careers, supported by strong compensation, benefits and Sustainability
We strive to better our localhealth and global communities through ethical business practices, socially empowering technology applications, educational and environmentalwellness programs and employee diversity and volunteerism.
Our Governance. We aim to demonstrate accountability, transparency, integrity and ethical business practices throughout our operations and interactions with our stakeholders.
Our Products. We strive to meet or exceed industry standards for product responsibility and supplier management.
Our Workplace. We endeavor to provide a safe and healthy work environment where diversity is embraced and various opportunities for training, growth and advancement are encouraged for all employees.
Our Community. We have strategic relationships with a wide range of local organizations andby programs that developbuild connections between our employees and strengthen communities worldwide.
Our Environment. We aim to expand our operations while minimizing our carbon footprint, conserving water and reducing waste.
Qualcomm® Wireless Reach™. We invest in strategic programs that foster entrepreneurship, aid in public safety, enhance delivery of health care, enrich teaching and learning and improve environmental sustainability through the use of advanced wireless technologies.
Employeestheir communities.
At September 24, 2017,26, 2021, we employedhad approximately 33,80045,000 full-time, part-time and temporary employees, the overwhelming majority of which were full-time employees. During fiscal 2017,2021, the number of employees increased by approximately 3,3004,000, primarily due to increases in engineering resourcesresources. Our employees are represented by more than 100 self-identified nationalities working in over 150 locations in 33 different countries around the world. Collectively, we speak more than 90 different languages. Our global workforce is highly educated, with the substantial majority of our employees working in engineering or technical roles (many of whom help develop foundational technologies for both our QCT semiconductor business and our QTL licensing business). During fiscal 2021, our voluntary turnover rate was less than 7%, below the technology industry benchmark, which is comprised of certain of our key competitors (Aon, 2021 Salary Increase and Turnover Study - Second Edition, September 2021).
Diversity and Inclusion. We believe that a diverse workforce is critical to our success, and we continue to focus on the hiring, retention and advancement of women and underrepresented populations. Our recent efforts have been focused in three areas: inspiring innovation through an inclusive and diverse culture; expanding our efforts to recruit and hire world-class diverse talent; and identifying strategic partners to accelerate our inclusion and diversity programs.
We have employee networks that enhance our inclusive and diverse culture, including global network groups focused on supporting women, LGBTQ+ employees and employees with disabilities, in addition to U.S.-based employee networks that focus on Black and African American employees, Hispanic and Latinx employees and U.S. military members and veterans.
We continue to recruit technical talent in diverse communities, including by engaging as a high-level sponsor of professional conferences, such as the Grace Hopper Celebration, the Society of Hispanic Professional Engineers National Convention and the formationNational Society of Black Engineers National Convention. We also continue to recruit from a variety of colleges including Hispanic-Serving Institutions, Historically Black Colleges and Universities and Women’s Colleges.
Our continued engagement with organizations that work with diverse communities has been vital to our efforts to increase women and minority representation in our workforce. For example, we partner with AnitaB.org to benchmark our progress and identify promising practices for recruiting, retaining and advancing women technologists and support its research initiatives related to attracting and retaining women and underrepresented minority students in computing majors. We, alongside other top technology companies, helped form the Reboot Representation Tech Coalition, which aims to double the number of Black, Latinx and Native American women receiving computing degrees by 2025. In collaboration with the National Foundation for Autism Research, we started an internship program to welcome those with autism into our Company. Through our collaboration with Disability:IN’s Inclusion Works program, we have increased our ability to address the needs of individuals with disabilities.
We publish our most recent Consolidated EEO-1 reports on our website to provide additional transparency into our efforts to increase underrepresented populations in our workforce.
From a governance perspective, the HR and Compensation Committee of our consolidated RF360 Holdings joint ventureBoard, through its charter, provides oversight of our policies, programs and initiatives focusing on workforce diversity and inclusion.
Health, Safety and Wellness. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with TDK.access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that provide protection and security concerning events that may require time away from work or that impact their financial well-being; that support their physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
In response to the COVID-19 pandemic, in 2020, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This included having the vast majority of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work. We introduced our Live+Well, Work+Well program, designed to
help cultivate a productive work environment, while also focusing on our employees’ wellbeing. We have commenced a phased approach to returning our employees onsite, which included modifications to certain of our existing office locations as we adapt to a hybrid work environment that provides flexibility, while maintaining our strong culture of innovation, collaboration, openness and camaraderie, in addition to a safe working environment for our employees. We continue to monitor the state of the pandemic and gather additional feedback during the reopening of our offices to ensure the continued health, safety and wellness of our employees working onsite.
Compensation and Benefits. We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs (which vary by country/region) include annual bonuses, stock awards, an employee stock purchase plan, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption and surrogacy assistance, employee assistance programs, tuition assistance and on-site services, such as health centers and fitness centers, among many others. In addition to our broad-based equity award programs, we have used targeted equity-based grants with vesting conditions to facilitate retention of personnel, particularly those with critical engineering skills and experience.
Talent Development. We invest significant resources to develop the talent needed to remain a world-leading wireless innovator. We deliver numerous training opportunities, provide rotational assignment opportunities, have expanded our focus on continuous learning and development, and implemented “industry-leading” methodologies to manage performance, provide feedback and develop talent.
Our talent development programs provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations. We provide a series of employee workshops around the globe that support professional growth and development. Additionally, our manager and employee forum programs provide an ongoing opportunity for employees to practice and apply learning around conversations aligned with our annual review process. We also have an employee development website that provides quick access to learning resources that are personalized to the individual’s development needs.
Building Connections - With Each Other and our Communities. We believe that building connections between our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace. Through our engagement programs, our employees can pursue their interests and hobbies, connect to volunteering and giving opportunities and enjoy unique recreational experiences with family members. Leveraging our partnerships with various local arts and culture organizations, we have created numerous unique experiences for employees and their families around the world.
Since our employees are passionate about many causes, our corporate giving and volunteering programs support and encourage employees by engaging with those causes. In our offices around the world, our employee-led Giving Committees select local organizations to support, often in the form of grants that are primarily funded by the Qualcomm Foundation (which was established in 2011 to support charitable giving and volunteerism). We also frequently collaborate with these organizations on volunteer activities for our employees. Additionally, during fiscal 2021, thousands of our employees around the world utilized our charitable match program, benefiting more than 1,600 charitable organizations.
2025 Goals. We set the following 2025 Goals related to human capital, with a focus on diversity and inclusion:
•Increase women in leadership by 15% (defined as individuals at the principal and above level in technical roles, and director and above in non-technical roles).
•Increase underrepresented minorities (URM) in leadership by 15% (for technical positions, “URM” includes Black, Latinx, Native Hawaiian or other Pacific Islander, and American Indian or Native American; for non-technical positions, URM also includes Asian).
•Increase overall URM representation by 20%.
Human Capital Advancements Added to our Executive Compensation. As previously disclosed in our 2021 Proxy Statement, and in response to stockholder feedback, our HR and Compensation Committee allocated 10% of our executives’ fiscal 2021 bonus to be based upon human capital advancements. The HR and Compensation Committee then adopted a framework for human capital advancements to include advancement of our 2025 diversity and inclusion goals, workforce stability and responsiveness to COVID-19.
The foregoing discussion includes information regarding Human Capital matters that we believe may be of interest to stockholders generally. We recognize that certain other stakeholders (such as customers, employees and non-governmental organizations), as well as certain of our stockholders, may be interested in more detailed information on these topics. We encourage you to review the “Our People” section of our most recent Qualcomm Corporate Responsibility Report (located on our website) for more detailed information regarding our Human Capital goals, programs and initiatives. Nothing on our website, including our Consolidated EEO-1 reports, our Qualcomm Corporate Responsibility Report or sections thereof, shall be deemed incorporated by reference into this Annual Report.
Available Information
Our Internet address is www.qualcomm.com. There we make available, free of charge, our annual reportAnnual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports (among others), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). We also make available on our Internet sitewebsite public financial information for which a report is not required to be filed with or furnished to the SEC. Our SEC reports and such other financial information can be accessed through the investor relations section
of our Internet site.website (https://investor.qualcomm.com/). The information found on our Internet sitewebsite is not part of this or any other report we file with or furnish to the SEC.
Information about our Executive Officers
Our executive officers (and their ages at September 24, 2017)as of November 1, 2021) are as follows:
Paul E. Jacobs,Cristiano R. Amon, age 54,51, has served as President and Chief Executive Chairman since March 2014, as Chairman of the Board of Directors since March 2009Officer and as a director since June 2005.2021. He served as Chief Executive Officer from July 2005 to March 2014. In addition, he served as an Executive Vice President from February 2000 to June 2005. Dr. Jacobs joined Qualcomm as an intern in 1986 and full-time in 1990 as an engineer and throughout his tenure at Qualcomm has held several other leadership positions. Dr. Jacobs holds a B.S. degree in Electrical Engineering and Computer Science, an M.S. degree in Electrical Engineering and a Ph.D. degree in Electrical Engineering and Computer Science from the University of California, Berkeley.
Steve Mollenkopf, age 48, has served as Chief Executive Officer since March 2014 and as a director since December 2013. He served as Chief Executive Officer-elect and President from December 2013 to March 2014 and as President and Chief Operating OfficerExecutive Officer-elect from November 2011January 2021 to December 2013. In addition, he servedJune 2021 and as Executive Vice President and Group President from September 2010January 2018 to November 2011 and as Executive Vice President and President, QCT from August 2008 to September 2010. Mr. Mollenkopf joined Qualcomm in 1994 as an engineer and throughout his tenure at Qualcomm has held several other technical and leadership positions. Mr. Mollenkopf has been a director of General Electric Company since November 2016. Mr. Mollenkopf holds a B.S. degree in Electrical Engineering from Virginia Tech and an M.S. degree in Electrical Engineering from the University of Michigan.
Derek K. Aberle, age 47, has served as President since March 2014.January 2021. He served as Executive Vice President and Group President from November 2011 to March 2014 and as Executive Vice President and President, QTL from September 2008 to November 2011. Mr. Aberle joined Qualcomm in December 2000 as an attorney and throughout his tenure at Qualcomm has held several other legal and leadership positions. Mr. Aberle holds a B.A. degree in Business Economics from the University of California, Santa Barbara and a J.D. degree from the University of San Diego. Mr. Aberle will be leaving Qualcomm effective January 4, 2018.
Cristiano R. Amon, age 47, has served as Executive Vice President, Qualcomm Technologies, Inc. (QTI,, a subsidiary of Qualcomm Incorporated)Incorporated (QTI), and President, Qualcomm CDMA Technologies (QCT) sinceQCT, from November 2015.2015 to January 2018. He served as Executive Vice President, QTI and Co-President, QCT from October 2012 to November 2015, Senior Vice President Qualcomm Incorporated and Co-President, QCT from June 2012 to October 2012 and as Senior Vice President, QCT Product Management from October 2007 to June 2012.2012, with responsibility for our product roadmap, including the Qualcomm Snapdragon platforms. Mr. Amon joined Qualcomm in 1995 as an engineer and throughout his tenure at Qualcomm has held several other technical and leadership positions. Mr. Amon holds a B.S. degree in Electrical Engineering and an honorary doctorate from UNICAMP, the State University of Campinas, Brazil.
George S. Davis,Heather Ace, age 59,51, has served as Chief Human Resources Officer since March 2020. Prior to joining Qualcomm, Ms. Ace was Senior Vice President, Human Resources at DexCom, Inc., a provider of continuous glucose monitoring, from July 2016 to March 2020. Prior to DexCom, she was Executive Vice President, Human Resources at Orexigen Therapeutics, Inc., a developer of treatments for obesity, from January 2016 to July 2016. Ms. Ace was Integration Leader for Royal Philips, leading the cross-functional integration of Philips Healthcare’s acquisition of Volcano Corporation, from January 2015 to January 2016. She was Executive Vice President, Human Resources at Volcano Corporation from May 2012 to January 2015. Prior to May 2012, Ms. Ace served in various senior executive roles in human resources, post-acquisition/merger integration and employment law at Life Technologies Corporation. She began her career at Gray Cary Ware & Freidenrich (now DLA Piper) as a litigation and transactional employment attorney, specializing in mergers and acquisitions. Ms. Ace holds a B.A. in Law & Society from the University of California, Santa Barbara and a J.D. from Santa Clara School of Law.
Ann Cathcart Chaplin, age 48, has served as General Counsel and Corporate Secretary since November 2021. Prior to joining Qualcomm, Ms. Chaplin served at General Motors Company as Corporate Secretary and Deputy General Counsel, U.S., Transformation Initiatives and Corporate Securities from February 2021 to November 2021, Deputy General Counsel and Chief Compliance Officer, North America, Transformation Projects and Compliance from April 2019 to February 2021, Deputy General Counsel, Commercial, Transportation as a Service, Litigation and Regulation from January 2018 to April 2019, Deputy General Counsel, Intellectual Property, Regulation and Litigation from June 2017 to January 2018 and Deputy General Counsel, Litigation from December 2015 to June 2017. Prior to General Motors, Ms. Chaplin was Litigation Practice Group Leader/Litigation Equity Principal at the law firm of Fish & Richardson P.C. from February 2001 to December 2015. She began her career as an intellectual property litigation associate at the law firm of Robins, Kaplan, Miller & Ciresi LLP. Ms. Chaplin holds a B.A in Sociology of Law from the University of Minnesota and a J.D. from Harvard Law School.
Akash Palkhiwala, age 46, has served as Chief Financial Officer since November 2019. He served as Senior Vice President and Interim Chief Financial Officer from August 2019 to November 2019. He served as Senior Vice President, QCT Finance, QTI from December 2015 to August 2019 and Senior Vice President and Treasurer from October 2014 to December 2015. Mr. Palkhiwala served as Vice President, QCT Finance from October 2012 to October 2014 and Vice President, QCT Finance, QTI from October 2009 to October 2012. He served in various other finance roles since joining Qualcomm in March 2013. Mr. Davis is responsible for leading Finance, Information Technology and Investor Relations.2001. Prior to joining Qualcomm, Mr. DavisPalkhiwala was Chief Financial Officer of Applied Materials, Inc., a provider of manufacturing equipment, services and software to the semiconductor, flat panel display, solar photovoltaic and related industries, from November 2006 to March 2013.an Analyst at KeyBank. Mr. Davis held several other leadership positions at Applied Materials from November 1999 to November 2006. Prior to joining Applied Materials, Mr. Davis served 19 years with Atlantic Richfield Company in a number of finance and other corporate positions. Mr. Davis holds a B.A.Palkhiwala has an undergraduate degree in Economics and Political ScienceMechanical Engineering from Claremont McKennaL.D. College of Engineering in India and an M.B.A. degreeM.B.A from the University of California, Los Angeles.
Matthew S. Grob, age 51, has served as Executive Vice President, Qualcomm Technologies, Inc. (QTI) since March 2017. He served as Executive Vice President, QTI and Chief Technology Officer from October 2012 to March 2017. He served as Executive Vice President, Qualcomm Incorporated and Chief Technology Officer from July 2011 to October 2012. Mr. Grob joined Qualcomm in August 1991 as an engineer and throughout his tenure at Qualcomm held several other technical and leadership positions. Mr. Grob holds a B.S. degree in Electrical Engineering from Bradley University and an M.S. degree in Electrical Engineering from Stanford University.
Brian T. Modoff, age 58, has served as Executive Vice President, Strategy and Mergers & Acquisitions since October 2015. Prior to joining Qualcomm, Mr. Modoff was a Managing Director in Equity Research at Deutsche Bank Securities Inc. (Deutsche Bank), a provider of financial services, from March 1999 to October 2015. Prior to joining Deutsche Bank, Mr. Modoff was a research analyst at several financial institutions from November 1993 to March 1999. Mr. Modoff holds a B.A. degree in Economics from California State University, Fullerton and a Master of International Management from the Thunderbird School of Global Management.
Maryland.
Alexander H. Rogers, age 60,64, has served as Executive Vice President and President, QTL and Global Affairs since June 2021. He served as President, QTL from October 2016.2016 to June 2021. He served as Senior Vice President and President, QTL from September 2016 to October 2016, Senior Vice President, Deputy General Counsel and General Manager, QTL from March 2016 to September 2016, Senior Vice President and Deputy General Counsel from October 2015 to March 2016 and Senior Vice President and Legal Counsel from April 2007 to October 2015. Prior to transitioning to QTL, Mr. Rogers led Qualcomm’s litigation group. Mr. Rogers joined Qualcomm in January 2001 as an attorney and throughout his tenure at Qualcomm held several other leadership positions in the legal department.attorney. Prior to joining Qualcomm, Mr. Rogershe was a partner at the law firm of Gray, Cary, Ware & FriedenrichFreidenrich (now DLA Piper)., specializing in intellectual property and commercial litigation. Mr. Rogers holds a B.A. and an M.A. degrees in English Literature from Georgetown University and a J.D. degree from Georgetown University Law Center.
Donald J. Rosenberg, age 66, has served as Executive Vice President, General Counsel and Corporate Secretary since October 2007. He served as Senior Vice President, General Counsel and Corporate Secretary of Apple Inc. from December 2006 to October 2007. From May 1975 to November 2006, Mr. Rosenberg held numerous positions at IBM Corporation, including Senior Vice President and General Counsel. Mr. Rosenberg has served as a member of the board of directors of NuVasive, Inc. since February 2016. Mr. Rosenberg holds a B.S. degree in Mathematics from the State University of New York at Stony Brook and a J.D. degree from St. John’s University School of Law.
Michelle Sterling, age 50, has served as Executive Vice President, Human Resources since May 2015. She served as Senior Vice President, Human Resources from October 2007 to April 2015. Ms. Sterling joined Qualcomm in 1994 and throughout her tenure at Qualcomm has held several other human resources and leadership positions. Ms. Sterling holds a B.S. degree in Business Management from the University of Redlands.
James H. Thompson, age 53,57, has served as Executive Vice President, Engineering, Qualcomm Technologies, Inc. and Chief Technology Officer, QTI since March 2017. He served as Executive Vice President, Engineering, Qualcomm Technologies, Inc.QTI from October 2012 to March 2017 and as Senior Vice President, Engineering Qualcomm Incorporated from July 1998 to October 2012. Dr. Thompson joined Qualcomm in 1992 as a senior engineer and throughout his tenure at Qualcomm
has held several other technical and leadership positions. Dr. Thompson holds a B.S., an M.S. and a Ph.D. degrees in Electrical Engineering from the University of Wisconsin.
Item 1A. Risk Factors
You should consider each of the following factors in evaluating our business and our prospects. TheHowever, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also negatively impact our business, and results of operations, cash flows and financial condition, and require significant management time and attention. In that case, the trading price of our common stock could decline. You should also consider the other information set forth in this Annual Report in evaluating our business and our prospects, including but not limited to our financial statements and the related notes, and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” References to “and,” “or” and “and/or” should be read to include the others, as appropriate.
Risks Related to Our BusinessesRISKS RELATED TO THE CORONAVIRUS (COVID-19) PANDEMIC
Our proposed acquisition of NXP Semiconductors N.V. involves a number of risks, including, among others, the risk that we fail to complete the acquisition, in a timely manner or at all, regulatory risks, risks associated with our use of a significant portion of our cash and our taking on significant indebtedness, other financial risks, integration risks, and risk associated with the reactions of customers, suppliers and employees.
Our and NXP’s obligations to consummate the proposed transaction are subject to the satisfaction or waiver of certain conditions, including, among others: (i) the tender of a minimum number of NXP’s outstanding common shares in the tender offer commenced by a subsidiary of QUALCOMM Incorporated; (ii) the receipt of regulatory clearance under European Union and certain other foreign antitrust laws; (iii) the absence of any law or order prohibiting the proposed transaction; (iv) there being no event that would have a materialThe coronavirus (COVID-19) pandemic had an adverse effect on NXP; (v) the accuracy of the representations and warranties of NXP, subject to certain exceptions, and NXP’s material compliance with its covenants, in the definitive agreement; and (vi) the completion of certain internal reorganization steps with respect to NXP and the disposition of certain non-core assets of NXP. We cannot provide assurance that the conditions to the completion of the proposed transaction will be satisfied in a timely manner or at all, and if the proposed transaction is not completed, we would not realize any of the expected benefits.
The regulatory approvals required in connection with the proposed transaction may not be obtained or may contain materially burdensome conditions. If any conditions or changes to the structure of the proposed transaction are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the proposed transaction or reducing our anticipated benefits. If we agree to any material conditions in order to obtain any approvals required to complete the proposed transaction, our business and results of operations, and may be adversely affected.continue to impact us in the future.
In addition,The rapid, global spread of COVID-19 and the usefear it created resulted in significant economic uncertainty, significant declines in business and consumer confidence and global demand in the wireless industry (among others) and a global economic slowdown, which resulted in a global recession. Specifically, throughout most of calendar 2020 and into early calendar 2021, the decline in demand for smartphones and other consumer devices sold by our customers or licensees resulted in decreased demand for our integrated circuit products (which are incorporated into such devices) and a significant portiondecrease in the royalties we earned on the licensing of our cash andintellectual property (which is dependent upon the incurrencenumber of substantial indebtedness in connection with the financing of the proposed transaction will reducesuch devices sold that utilize our liquidity, and may limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions. See the Risk Factor entitled “There are risks associated with our indebtednessintellectual property).”
If the proposed transaction is not completed, our stock price The COVID-19 pandemic could fall to the extent that our current price reflects an assumption that we will complete it. Furthermore, if the proposed transaction is not completed and the purchase agreement is terminated, we would not realize any of the expected benefits of the proposed transaction, and we may suffer other consequences that could adversely affectimpact our business, results of operations and stock price, including, among others:financial condition in the future through delayed, reduced or cancelled customer orders; disruptions or delays in our supply chain; the inability of our customers or licensees to purchase or pay for our products or technologies; the insolvency of key suppliers, customers or licensees; delays in reporting or payments from our customers or licensees; or failures by other counterparties. Additionally, federal, state or foreign governments may in the future increase corporate tax rates, increase employer payroll tax obligations and/or otherwise change tax laws to pay for stimulus and other actions that have been and may in the future be taken as a result of the COVID-19 pandemic.
weThe COVID-19 pandemic also caused us to modify our workforce practices, such as having the vast majority of our employees working from home. We could be requirednegatively affected in the future if, among others, a significant number of our employees, or employees who perform critical functions, become ill and/or are quarantined as the result of exposure to pay a termination feeCOVID-19, or if government policies restrict the ability of those employees to NXP of $2.0 billion;
we will have incurredperform their critical functions. Further, our efforts to reopen our offices safely may not be successful, could expose our employees, customers, licensees and may continuepartners to incur costs relatinghealth risks and us to the proposed transaction, many of which are payable by us whether or not the proposed transaction is completed;
matters relating to the proposed transaction (including integration planning) require substantial commitments of timeassociated liability, and resources by our management team and numerous others throughout our organization, which could otherwise have been devoted to other opportunities;
we may be subject to legal proceedings related to the proposed transaction or the failure to complete the proposed transaction;
the failure to consummate the proposed transaction may result in negative publicity and a negative perception of us in the investment community; and
any disruptions toamong our business resulting from the announcement and pendency of the proposed transaction, including any adverse changes in our relationships with our customers, suppliers, partners or employees, may continue or intensify in the event the proposed transaction is not consummated.
The proposed transaction will be our largest acquisition to date, by a significant margin. The benefits we expect to realize from the proposed transaction will depend, in part, on our ability to integrate the businesses successfully and efficiently.employees. See also the Risk Factor entitledtitled “We may engage in strategic acquisitions, transactions or make investments that could adversely affectnot be able to attract and retain qualified employees, and our attempts to fully reopen our offices and operate under a hybrid working environment may not be successful.”
The degree to which the COVID-19 pandemic impacts our future business, results of operations or failand financial condition will depend on future developments, which are uncertain, including but not limited to enhance stockholder value.”
Furthermore, uncertainties about the proposed transaction may cause our and/or NXP’s currentduration, spread and prospective employees to experience uncertainty about their futures. These uncertainties may impair our and/or NXP’s ability to retain, recruit or motivate key management, engineering, technicalseverity of the pandemic; the availability, adoption and efficacy of vaccines; the emergence, spread and severity of new variants of COVID-19, and the protection afforded by vaccines against such variants; government responses and other personnel. Similarly,actions to mitigate the spread of and to treat COVID-19; and when and to what extent normal business, economic and social activity and conditions resume. We are similarly unable to predict the extent to which the pandemic impacts our and/or NXP’s existing or prospective customers, licensees, suppliers and/orand other partners may delay, defer or cease purchasing products or services from or providing products or services to us or NXP; delay or defer other decisions concerning us or NXP; or otherwise seek to change the termsand their financial conditions, but adverse effects on which they do business with us or NXP. Any of the abovethese parties could harm us and/or NXP, and thus decrease the benefits we expect to receive from the proposed transaction.
The proposed transaction may also result in significant charges or other liabilities that could adversely affect us. Finally, the COVID-19 pandemic may make it harder for management to estimate the future performance of our results of operations, such as cash expenses and non-cash accounting charges incurred in connection with our acquisition and/or integration ofbusiness. To the business and operations of NXP. Further, our failure to identify or accurately assessextent the magnitude of certain liabilities we are assuming in the proposed transaction could result in unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects onCOVID-19 pandemic adversely affects our business, results of operations and financial condition, or cash flows.
Our revenues depend on commercial network deployments, expansions and upgrades of CDMA, OFDMA and other communications technologies; our customers’ and licensees’ sales of products and services based on these technologies; and customers’ demand for our products and services.
We develop, patent and commercialize technology and products based on CDMA, OFDMA and other communications technologies, which are primarily wireless. We depend on operators of wireless networks and our customers and licensees to adopt and/or implement the latest generation of these technologies for use in their networks, devices and services. We also depend on our customers and licensees to develop devices and services based on these technologies with value-added features to drive consumer demand for new 3G, 3G/4G multimode and 4G devices, and in the future 5G devices, as well as establishing the selling prices for such devices. Further, we depend on the timing of our customers’ and licensees’ deployments of new devices and services based on these technologies. Increasingly, we also depend on operators of wireless networks, our customers and licensees and other third parties to incorporate these technologies into new device types and into industries beyond traditional cellular communications, such as automotive, the internet of things (IoT) (including the connected home, smart cities, wearables, voice and music and robotics), data center, networking, computing, and machine
learning, among others. We are also impacted by consumers’ rates of replacement of smartphones and other computing devices.
Our revenues and/or growth in revenues could be negatively impacted, our business may be harmed and our substantial investments in these technologies may not provide us an adequate return, if:
wireless operators and industries beyond traditional cellular communications deploy alternative technologies;
wireless operators delay next-generation network deployments, expansions or upgrades and/or delay moving 2G customers to 3G, 3G/4G multimode or 4G wireless devices;
LTE, an OFDMA-based 4G wireless technology, is not more widely deployed or further commercial deployment is delayed;
government regulators delay making sufficient spectrum available for 3G, 4G, new unlicensed technologies that we are developing in conjunction with 3G and 4G, as well as for 5G, thereby restricting the ability of wireless operators to deploy or expand the use of these technologies;
wireless operators delay or do not drive improvements in 3G, 4G or 3G/4G multimode network performance and/or capacity;
our customers’ and licensees’ revenues and sales of products, particularly premium-tier products, and services using these technologies do not grow or do not grow as quickly as anticipated due to, for example, the maturity of smartphone penetration in developed regions;
our intellectual property and technical leadership included in the 5G standardization effort is different than in 3G and 4G standards;
the standardization and/or deployment of 5G technology is delayed; and/or
we are unable to drive the adoption of our products and services into networks and devices, including devices beyond traditional cellular applications, based on CDMA, OFDMA and other communications technologies.
Our industry is subject to competition in an environment of rapid technological change that could result in decreased demand and/or declining average selling prices for our products and/or those of our customers and/or licensees.
Our products, services and technologies face significant competition. We expect competition to increase as our current competitors expand their product offerings or reduce the prices of their products as part of a strategy to attract new business and/or customers, as new opportunities develop and as new competitors enter the industry. Competition in wireless communications is affected by various factors that include, among others: device manufacturer concentrations and vertical integration; growth in demand, consumption and competition in certain geographic regions; government intervention and/or support of national industries and/or competitors; evolving industry standards and business models; evolving methods of transmission of voice and data communications; increasing data traffic and densification of wireless networks; convergence and aggregation of connectivity technologies (including Wi-Fi and LTE) in both devices and access points; consolidation of wireless technologies and infrastructure at the network edge; networking and connectivity trends (including cloud services); use of both licensed and unlicensed spectrum; the evolving nature of computing (including demand for always on, always connected capabilities); the speed of technological change (including the transition to smaller geometry process technologies); value-added features that drive selling prices as well as consumer demand for new 3G, 3G/4G multimode and 4G devices; turnkey, integrated products that incorporate hardware, software, user interface, applications and reference designs; scalability; and the ability of the system technology to meet customers’ immediate and future network requirements. We anticipate that additional competitors will introduce products as a result of growth opportunities in wireless communications, the trend toward global expansion by foreign and domestic competitors, technological and public policy changes and relatively low barriers to entry in certain segments of the industry. Additionally, the semiconductor industry has experienced and may continue to experience consolidation, which could result in significant changes to the competitive landscape.
We expect that our future success will depend on, among other factors, our ability to:
differentiate our integrated circuit products with innovative technologies across multiple products and features (e.g., modem, radio frequency front-end (RFFE), graphics and/or other processors, camera and connectivity) and with smaller geometry process technologies that drive performance;
develop and offer integrated circuit products at competitive cost and price points to effectively cover both emerging and developed geographic regions and all device tiers;
continue to drive the adoption of our integrated circuit products into the most popular device models and across a broad spectrum of devices, such as smartphones, tablets, laptops, other computing devices, automobiles, wearables and voice and music and other connected devices and infrastructure products;
maintain and/or accelerate demand for our integrated circuit products at the premium device tier, while increasing the adoption of our products in mid- and low-tier devices, in part by strengthening our integrated circuit product roadmap for, and developing channel relationships in, emerging geographic regions, such as China and India, and by providing turnkey products, which incorporate our integrated circuits, for low- and mid-tier smartphones, tablets and laptops;
continue to be a leader in 4G technology evolution, including expansion of our LTE-based single mode licensing program in areas where single-mode products are commercialized, and continue to innovate and introduce 4G turnkey, integrated products and services that differentiate us from our competition;
be a leader serving original equipment manufacturers, high level operating systems (HLOS) providers, operators, cloud providers and other industry participants as competitors, new industry entrants and other factors continue to affect the industry landscape;
be a preferred partner (and sustain preferred relationships) providing integrated circuit products that support multiple operating system and infrastructure platforms to industry participants that effectively commercialize new devices using these platforms;
increase and/or accelerate demand for our semiconductor component products, including RFFE, and our wired and wireless connectivity products, including networking products for consumers, carriers and enterprise equipment and connected devices;
identify potential acquisition targets that will grow or sustain our business or address strategic needs, reach agreement on terms acceptable to us and effectively integrate these new businesses and/or technologies;
create standalone value and/or contribute to the success of our existing businesses through acquisitions, joint ventures and other transactions (and/or by developing customer, licensee and/or vendor relationships) in new industry segments and/or disruptive technologies, products and/or services (such as products for automotive, IoT (including the connected home, smart cities, wearables, voice and music and robotics), data center, networking, computing, and machine learning, among others);
become a leading supplier of RFFE products, which are designed to address cellular radio frequency band fragmentation while improving radio frequency performance and assist original equipment manufacturers in developing multiband, multimode mobile devices;
be a leader in 5G technology development, standardization, intellectual property creation and licensing and develop and commercialize 5G integrated circuit products and services; and/or
continue to develop brand recognition to effectively compete against better known companies in computing and other consumer driven segments and to deepen our presence in significant emerging geographic regions.
Competition in any or all product tiers may result in the loss of certain business or customers, which would negatively impact our revenues, results of operations and cash flows. Such competitionit may also reduce average selling prices for our chipset products and/orhave the productseffect of our customers and licensees. Certain of these dynamics are particularly pronouncedexacerbating the other risks discussed in emerging geographic regions where competitors may have lower cost structures and/or may have a willingness and ability to accept lower prices and/or lower or negative margins on their products (particularly in China). Reductions in the average selling prices of our chipset products, without a corresponding increase in volumes, would negatively impact our revenues, and without corresponding decreases in average unit costs, would negatively impact our margins. In addition, reductions in the average selling prices of our licensees’ products, unless offset by an increase in volumes, would generally decrease total royalties payable to us, negatively impacting our licensing revenues.this “Risk Factors” section.
Companies that promote standards that are neither CDMA- nor OFDMA-based (e.g., GSM) as well as companies that design integrated circuits based on CDMA, OFDMA, Wi-Fi or their derivatives are generally competitors or potential competitors. Examples (some of which are strategic partners of ours in other areas) include Broadcom Limited, Cirrus Logic, Cypress Semiconductor Corporation, HiSilicon Technologies, Intel, Marvell Technology, Maxim Integrated Products, MediaTek, Microchip Technology Inc., Murata Manufacturing Co., Ltd., Nordic Semiconductor, Nvidia, Qorvo Inc., Realtek Semiconductor, Renesas Electronics Corporation, Samsung Electronics, Sequans Communications S.A., Skyworks Solutions Inc., Sony Corporation and Spreadtrum Communications (which is controlled by Tsinghua Unigroup). Some of these current and potential competitors may have advantages over us that include, among others: motivation by our customers in certain
circumstances to utilize their own internally-developed integrated circuit products, to use our competitors’ integrated circuit products and/or sell such products to others, including by bundling with other products, or to choose alternative technologies; lower cost structures and/or a willingness and ability to accept lower prices and lower or negative margins for their products, particularly in China; foreign government support of other technologies or competitors; better known brand names; ownership and control of manufacturing facilities and greater expertise in manufacturing processes; more extensive relationships with local distribution companies and original equipment manufacturers in certain geographic regions (such as China) and/or experience in adjacent industry segments outside traditional cellular industries (such as automotive and IoT); and/or a more established presence in certain regions.RISKS RELATED TO OUR OPERATING BUSINESSES
We derive a significant portion of our consolidated revenues from a small number of customers and licensees.licensees, and particularly from their sale of premium tier devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected.
Our QCT segment derivesWe derive a significant portion of itsour revenues from a small number of customers and licensees, and particularly from their sale of premium tier devices, and we expect this trend to continue in the foreseeable future. Our industry is experiencing and may continue to experience concentration of device share among a few companies, particularly at the premium tier, contributing to this trend. Certain Chinese OEMs continue to grow their device share in China and are increasing their device share in regions outside of China, and we derive a significant portion of our revenues from a small number of these OEMs as well. See also “Notes to Consolidated Financial Statements, Note 1. Significant Accounting Policies - Concentrations.”
In addition, certaina number of our largest integrated circuit customers have developed, are developing or may develop their own integrated circuit products, or may choose our competitors’ integrated circuit products, which they have in the past chosen,utilized, currently utilize and may in the future choose, to utilize in certainsome (or all) of their devices, rather than our products, which could
significantly reduce the revenues we derive from these customers. See also the Risk Factor titled “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products (and/products).”
Further, political actions, including trade and/or sell their integrated circuit products to third partiesnational security protection policies, or other actions by governments, particularly the U.S. and Chinese governments, have in competitionthe past, currently are and could in the future limit or prevent us from transacting business with us). Also, onecertain of our largest integrated circuit customers, has utilized productslimit, prevent or discourage those customers from transacting business with us, or make it more expensive to do so, any of onewhich could also significantly reduce the revenues we derive from these customers. See also the Risk Factor titled “A significant portion of our competitorsbusiness is concentrated in certainChina, and the risks of their devices rathersuch concentration are exacerbated by U.S./China trade and national security tensions.”
In addition, we spend a significant amount of engineering and development time, funds and resources in understanding our key customers’ feedback and/or specifications and attempt to incorporate such input into our product launches and technologies. These efforts may not require or result in purchase commitments from such customers or we may have lower purchases from such customers than our products.expected, and consequently, we may not achieve the anticipated revenues from these efforts, or these efforts may result in non-recoverable costs.
The loss of any one of our significant customers, a reduction in the purchases of our products by such customers or the cancelationcancellation of significant purchases by any of these customers, whether due to the use of their own integrated circuit products or our competitors’ integrated circuit products, government restrictions, the COVID-19 pandemic or otherwise, would reduce our revenues and could harm our ability to achieve or sustain expected results of operations, and a delay of significant purchases, even if only temporary, would reduce our revenues in the period of the delay. Any such reduction in revenues would also impact our cash resources available for other purposes, such as research and development.
Further, the concentration of device share among a few companies, and the corresponding purchasing power of these companies, may result in lower prices for our products which, if not accompanied by a sufficient increase in the volume of purchases of our products, could have an adverse effect on our revenues and margins. In addition, the timing and size of purchases by our significant customers may be impacted by the timing of such customers’ new or next generation product introductions, over which we have no control, and the timing and success of such introductions may cause our revenues and results of operations to fluctuate. Accordingly, if current industry dynamics and concentrations continue, our QCT segment’s revenues will continue to depend largely upon, and be impacted by, future purchases, and the timing and size of any such future purchases, by these significant customers.
One of our largest customersApple purchases our Mobile Data Modem (MDM)MDM (or thin modem) products, which do not include our integrated application processor technology, and which have lower revenue and margin contributions than our combined modem and application processor products. ToConsequently, to the extent such customerApple takes device share from our other customers who purchase our integrated modem and application processor products, our revenues and margins may be negatively impacted.
Further, companies that develop HLOS forOur industry has also experienced slowing growth in the premium-tier device segment due to, among other factors, a maturing premium-tier smartphone industry in which demand is increasingly driven by new product launches and innovation cycles.
A reduction in sales of premium-tier devices, including leading technology companies, now sell their own devices. If we fail to effectively partner or continue partnering with these companies, or with their partners or customers, they may decide not to purchase (either directly or through their contract manufacturers)a reduction in sales of our premium-tier integrated circuit products (which have a higher revenue and margin contribution than our lower-tier integrated circuit products), or a shift in share away from OEMs that utilize our premium-tier products, would reduce our revenues and margins and may harm our ability to reduceachieve or discontinue their purchasessustain expected financial results. Any such reduction in revenues would also impact our cash resources available for other purposes, such as research and development.
Further, while our product and revenue diversification strategies have resulted in an increasing portion of our integrated circuit products.
In addition, there has beenrevenues coming from outside of mobile handsets, e.g., from industries such as automotive and continuesIoT, certain product categories within those industries may in themselves be subject to be litigation among certainhigh levels of our customers and other industry participants, and the potential outcomes of such litigation, including but not limited to injunctions against devices that incorporate our products and/or intellectual property, or rulings on certain patent law or patent licensing issues that create new legal precedent, could impact our business, particularly if such action impacts one of our larger customers.customer concentration.
Although we have several hundredmore than 300 licensees, our QTL segment deriveswe derive a significant portion of itsour licensing revenues from a limited number of licensees.licensees, which includes a number of Chinese OEMs. In the event that one or more of our significant licensees fail to meet their reporting and/orand payment obligations, or we are unable to renew or modify one or more of suchtheir license agreements under similar terms as their existing agreements, our revenues, results of operations and cash flows would be adversely impacted. Moreover, the future growth and success of our core licensing business will depend in part on the ability of our licensees to develop, introduce and deliver high-volume products that achieve and sustain customer acceptance. We do not have no control over the product development, sales efforts or pricing of products by our licensees, and our licensees might not be successful. Reductions in sales of our licensees’ products, or reductions in the average selling prices of wireless devices sold by our significant licensees without a sufficient increase in the volumes of such devices sold, would generally have an adverse effect on our licensing revenues.
Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).
Certain of our largest integrated circuit customers (for example, Samsung) develop their own integrated circuit products, which they have in the past utilized, and currently utilize, in certain of their devices and may in the future utilize in some (or all) of their devices, rather than our products (and they have and may continue to sell their integrated circuit products to third parties, discretely or together with certain of their other products, in competition with us).
Apple has utilized modem products of one of our competitors in some of its devices rather than our products, and solely utilized one of our competitors’ products in several of its prior device launches. In April 2019, we entered into a multi-year chipset supply agreement with Apple and began shipping modems under this agreement in the third quarter of fiscal 2020. In December 2019, Apple acquired Intel’s modem assets and is developing its own modem products using these assets. Accordingly, Apple is expected to use its own modem products, rather than our products, in some (or all) of its future devices.
Similarly, we derive a significant portion of our revenues from Chinese OEMs. Certain of our customers in China have developed, and others may in the future develop, their own integrated circuit products and use such integrated circuit products in their devices rather than our integrated circuit products, including due to pressure from or policies of the Chinese government (whose Made in China 2025 campaign targets 70% semiconductor self-sufficiency by 2025), concerns over losing access to our integrated circuit products as a result of actual, threatened or potential U.S. or Chinese government actions or policies, including trade protection or national security policies, or other reasons.
In addition, supply/capacity constraints within the semiconductor industry may further incentivize our integrated circuit customers to vertically integrate in an effort to secure additional control over their supply chains.
If some or all of our largest customers and/or the largest smartphone OEMs utilize their own integrated circuit/modem products in some (or all) of their devices rather than our products, our business, revenues, results of operations, cash flows and financial position could be materially adversely impacted. See also the Risk Factor titled “We derive a significant portion of our consolidated revenues from a small number of customers and licensees, and particularly from their sale of premium tier devices. If revenues derived from these customers or licensees decrease or the premium-tier device segment. If salestiming of premium-tier devices decrease, and/or sales ofsuch revenues fluctuates, our premium-tier integrated circuit products decrease, ourbusiness and results of operations could be negatively affected.affected.”
A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.
We derive a significant portion of our revenues from the premium-tier device segment,Chinese OEMs, and we expect this trend to continue in the foreseeable future. We have experienced, and expect to continue to experience, slowing growth in the premium-tier device segment due to, among other factors, lengthening replacement cycles in developed regions, where premium-tier smartphones are common; increasing consumer demand in emerging regions, particularly China and India, where premium-tier smartphones are less common and replacement cycles are on average longer than in developed regions; and/or a maturing premium-tier smartphone industry in which demand is increasingly driven by new product launches and/or innovation cycles.
In addition, as discussed in the prior risk factor,from non-Chinese OEMs that utilize our industry is experiencing concentration of device share among a few companies at the premium tier, which gives them significant supply chain leverage. Further, those companies may utilize their own internally-developed integrated circuit products in their devices and sell those devices into China, which has the largest number of smartphone users in the world. We also source certain critical integrated circuit products from suppliers in China.
Due to various factors, including pressure, encouragement or incentives from, or policies of, the Chinese government (including its Made in China 2025 campaign), concerns over losing access to our integrated circuit products as a result of actual, threatened or potential U.S. or Chinese government actions or policies, including trade protection or national security policies, or other reasons, some of our Chinese integrated circuit customers have developed, and others may in the future develop, their own integrated circuit products and use such integrated circuit products in their devices, or use our competitors’ integrated circuit products in their devices, rather than our products.
Political actions, including trade protection and national security policies of the U.S. and Chinese governments, such as tariffs, bans or placing companies on restricted entity lists, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our Chinese customers or suppliers, limit, prevent or discourage certain of our Chinese customers or suppliers from transacting business with us, or make it more expensive to do so. Given our revenue concentration in China, if, due to actual, threatened or potential U.S. or Chinese government actions or policies: we were further limited in, or prohibited from, selling our integrated circuit products to Chinese OEMs; if our non-Chinese OEM customers were limited in, or prohibited from, selling devices into China that incorporate our integrated circuit products; if Chinese OEMs develop and use their own integrated circuit products or use our competitors’ integrated circuit products in a portionsome (or all) of their devices. These dynamicsdevices rather than our integrated circuit products; if Chinese tariffs on our integrated circuit products or on devices which incorporate our integrated circuit products made purchasing such products or devices more expensive to Chinese OEMs or Chinese consumers; or if our Chinese licensees delay or cease making payments of license fees they owe us, our business, revenues, results of operations, cash flows and financial position could be materially harmed. Similarly, if, due to U.S. or Chinese government actions or policies, we were limited in or prohibited from obtaining critical integrated circuit products from our suppliers in China, our business, revenues, results of operations, cash flows and financial position could be materially harmed.
Finally, government policies in China that regulate the amount and timing of funds that may flow out of the country have impacted and may continue to impact the timing of our receipt of, and/or ability to receive, payments from our customers and licensees in China, which may negatively impact our cash flows.
RISKS RELATED TO NEW INITIATIVES
Our growth depends in part on our ability to extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets. Our research, development and other investments in these new and expanded product areas, industries and applications, and related technologies and products, as well as in our existing technologies and products, and new technologies, may not generate operating income or contribute to future results of operations that meet our expectations.
While we continue to invest significant resources toward advancements primarily in support of 4G- and 5G-based technologies, we also invest in new and expanded product areas, and industries and applications beyond mobile handsets, by utilizing our existing technical and business expertise and through acquisitions or other strategic transactions.
In particular, our future growth depends in part on new and expanded product areas, such as RFFE, and industries and applications beyond mobile handsets, such as automotive and IoT; our ability to develop leading and cost-effective technologies and products for these new and expanded product areas, industries and applications; and third parties incorporating our technologies and products into devices used in these product areas, industries and applications. Accordingly, we intend to continue to make substantial investments in these new and expanded product areas, industries and applications, and in developing new products and technologies for these product areas, industries and applications. Our growth also depends significantly on our ability to develop and patent 5G technologies, and to develop and commercialize products using 5G technologies.
However, our research, development and other investments in these new and expanded product areas, industries and applications, and corresponding technologies and products, as well as in our existing, technologies and products and new technologies, such as 5G, use of licensed, shared and unlicensed spectrum and convergence of cellular and Wi-Fi, may not succeed because, among other reasons: we may not be issued patents on the technologies we develop; the technologies we develop may not be incorporated into relevant standards; new and expanded product areas, industries and applications beyond mobile handsets, and consumer demand therein, may not develop or grow as anticipated; we may be unable to attract or retain employees with the necessary skills in such new and expanded product areas, industries and applications; our strategies or the strategies of our customers, licensees or partners may not be successful; alternate technologies may be better or may reduce the advantages we anticipate from our investments; competitors’ technologies or products may be more cost effective, have more capabilities or fewer limitations or be brought to market faster than our new technologies or products; we may not be able to develop, or our competitors may have more established and/or stronger, customer, vendor, distributor or other channel relationships; and competitors may have longer operating histories in industries and applications that are new to us. We may also underestimate the costs of or overestimate the future revenues or margins that could result from these investments, and these investments may not, or may take many years to, generate material returns.
Further, the automotive industry is subject to long design-in time frames, long product life cycles and a high degree of regulatory and safety requirements, necessitating suppliers to the industry to comply with stringent qualification processes, very low defect rates and high reliability standards, all of which results in significant barriers to entry and increased costs.
In addition, in order to successfully extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets, we may need to transition to new business models and transform aspects of our organization, and we may not be successful in doing so.
If our new technologies and products are not successful, or are not successful in the time frames we anticipate, we may incur significant costs and asset impairments, our business and revenues may not grow or grow as anticipated, our revenues and margins may be negatively impacted, our stock price may decline and our reputation may be harmed.
We may engage in acquisitions and other strategic transactions or make investments, or be unable to consummate planned strategic acquisitions, which could adversely affect our results of operations or fail to enhance stockholder value.
We engage in acquisitions and other strategic transactions, including joint ventures, and make investments, which we believe are important to the future of our business, with the goal of maximizing stockholder value. From time to time, we acquire businesses and other assets, including patents, technology and other intangible assets, enter into joint ventures or other strategic transactions and purchase minority equity interests in or make loans to companies, including those that may be private and early-stage. Our strategic activities are generally focused on opening or expanding opportunities for our products and technologies and supporting the design and introduction of new products (or enhancing existing products) for mobile handsets, and for new industries and applications beyond mobile handsets. Many of our strategic activities entail a high degree of risk and require the use of significant amounts of capital, and investments may not become liquid for several years after the date of the investment, if at all. Our strategic activities may not generate financial returns or result in lower prices for and/increased adoption or reduced salescontinued use of our premium-tiertechnologies or products. We may underestimate the costs or overestimate the benefits, including product, revenue, cost and other synergies and growth opportunities that we expect to realize, and we may not achieve those benefits. In some cases, we may be required to consolidate or record our share of the earnings or losses of companies in which we have acquired ownership interests. In addition, we have in the past recorded, and may in the future record, impairment or other charges related to our strategic activities. Any losses or impairment charges that we incur related to strategic activities will have a negative impact on our results of operations and financial condition, and we may continue to incur new or additional losses related to strategic assets or investments that we have not fully impaired or exited.
Achieving the anticipated benefits of business acquisitions depends in part upon our ability to integrate the businesses in an efficient and effective manner and achieve anticipated synergies, and we may not be successful in these efforts. Such integration is complex and time consuming and involves significant challenges, including, among others: retaining key employees; successfully integrating new employees, facilities, technology, products, processes, operations (including supply and manufacturing operations), sales and distribution channels, business models and business systems; retaining customers and suppliers of the businesses; consolidating research and development operations; minimizing the diversion of management’s attention from ongoing business matters; consolidating corporate and administrative infrastructures; and managing the increased scale, complexity and globalization of our business, operations and employee base. We may not derive any commercial value from associated technologies or products or from future technologies or products based on these technologies, and we may be subject to liabilities that are not covered by indemnification protection that we may obtain, and we may become subject to litigation. Additionally, we may not be successful in entering or expanding into new sales or
distribution channels, business or operational models, geographic regions, industries and applications served by or adjacent to the associated businesses or in addressing potential new opportunities that may arise out of our strategic acquisitions.
If we do not achieve the anticipated benefits of business acquisitions or other strategic activities, our business and results of operations may be adversely affected, and we may not enhance stockholder value by engaging in these transactions.
Many of our acquisitions and other strategic investments require approval by the United States and/or foreign government agencies. Certain agencies in the past have, and may in the future, deny the transaction or fail to approve in a timely manner, resulting in us not realizing the anticipated benefits of the proposed transaction. Future acquisitions or other strategic investments may be more difficult, complex or expensive to the extent that our reputation for our ability to consummate acquisitions has been harmed. Further, if U.S./China relations remain strained, our ability to consummate any transaction that would require approval from the relevant regulatory agency(ies) in China may be severely impacted.
RISKS RELATED TO SUPPLY AND MANUFACTURING
We depend on a limited number of third-party suppliers for the procurement, manufacture, assembly and testing of our products manufactured in a fabless production model. If we fail to execute supply strategies that provide supply assurance, technology leadership and reasonable margins, our business and results of operations may be harmed. We are also subject to order and shipment uncertainties that could negatively impact our results of operations.
We primarily utilize a fabless production model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Other than the facilities we own that manufacture certain of our RFFE modules and RF (radio frequency) filter products, we rely on third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. There are a limited number of such third-party suppliers, and even fewer who are capable of manufacturing at the leading process technology nodes or who are willing to operate at older process technology nodes. The semiconductor manufacturing foundries that supply our products are primarily located in Asia, as are our primary warehouses where we store finished goods for fulfillment of customer orders.
The following issues related to our third-party suppliers could have an adverse effect on our ability to meet customer demand and negatively impact our revenues, business operations, profitability and cash flows:
•a reduction, interruption, delay or limitation in our product supply sources;
•a failure by our suppliers to procure raw materials or allocate adequate raw materials for our products;
•an inability to procure or utilize raw materials, components or products from our suppliers due to government prohibitions or restrictions on transactions with certain countries and/or companies, and alternative suppliers, raw material sources or raw materials are not available or not available in acceptable time frames or upon acceptable terms;
•a failure by our suppliers to allocate adequate manufacturing, assembly or test capacity for our products;
•our suppliers’ inability to react to shifts in product demand or an increase in raw material or component prices;
•our suppliers’ inability to develop or maintain, or a delay in developing or building out, manufacturing capacity for leading process technologies, including transitions to smaller geometry process technologies;
•the loss of a supplier or the inability of a supplier to meet performance, quality or yield specifications or delivery schedules;
•additional expense or production delays as a result of qualifying a new supplier and commencing volume production or testing in the event of a loss of, or a decision to add or change, a supplier;
•natural disasters, the effects of climate change or geopolitical conflicts impacting our suppliers;
•health crises, including epidemics or pandemics, such as the COVID-19 pandemic, and government and business responses thereto, which impact our suppliers, including as a result of quarantines or closures;
•cyber-attacks on our suppliers’ information technology (IT) systems, including those related to their manufacturing foundries or assembly, test or other facilities; and
•trade or national security protection policies, particularly U.S. or Chinese government policies, that limit or prevent us from transacting business with suppliers of critical integrated circuit products, or that limit or prevent such suppliers from transacting business with us or from procuring materials, machinery or technology necessary to manufacture goods for us.
While we have established alternate suppliers for certain technologies, there are a limited number of such suppliers, and even fewer who are capable of operating at the leading process technology nodes or who are willing to operate at older process technology nodes. We rely on sole- or limited-source suppliers for certain products, which may exacerbate the risks identified above, and subject us to other significant risks, including poor product performance and reduced control over delivery schedules, manufacturing capability and yields, quality assurance, quantity and costs. To the extent we have established or in the future establish alternate suppliers, these suppliers may require significant amounts of time and levels of
support to bring such technologies to production, both of which may increase for complex or leading process technologies. As a result, we may invest a significant amount of effort and resources and incur higher costs to support and maintain such alternate suppliers. Further, the elimination or limitation of a foundry supplier’s ability to manufacture components or products for us due to trade or national security protection policies could increase our vulnerability to sole- or limited-source arrangements and limit or prevent us from procuring critical components or products from those suppliers. Future consolidation of foundry suppliers could also increase our vulnerability to sole- or limited-source arrangements and reduce our suppliers’ willingness to negotiate pricing, which could negatively impact our ability to achieve cost reductions, increase our manufacturing costs and limit the amount of capacity available to us. Our arrangements with our suppliers may obligate us to incur costs to manufacture, assemble and test our products that do not decrease at the same rate as decreases in pricing to our customers. Our ability, and that of our suppliers, to develop or maintain leading process technologies, including transitions to smaller geometry process technologies (which adds risk to manufacturing yields and reliability), and to effectively compete with the manufacturing processes and performance of our competitors, could impact our ability to introduce new products and meet customer demand, could increase our costs (possibly decreasing our margins) and could subject us to the risk of excess inventories. Any of the above could negatively impact our business, results of operations and cash flows.
Although we have long-term contracts with our suppliers, some of these contracts do not provide for long-term capacity commitments. To the extent we do not have firm commitments from our suppliers over a specific time period or for any specific quantity, our suppliers may allocate, and in the past have allocated, capacity to the manufacture, assembly and testing of products for their other customers (including our competitors) while reducing or limiting capacity to manufacture, assemble or test our products, and such capacity may be limited based on our suppliers’ ability and willingness to invest in the capital required to manufacture in the leading process technologies. Our suppliers or potential alternate suppliers may also manufacture their own integrated circuits that compete with our products. Such suppliers have in the past and could again elect to allocate raw materials and manufacturing capacity to their own products and reduce or limit the production of our products. Accordingly, capacity for our products may not be available when we need it. To the extent we do obtain long-term capacity commitments, we may incur additional costs related to those commitments or make non-refundable payments for capacity commitments that are not used. In addition, we may not receive reasonable pricing, manufacturing or delivery terms from our suppliers, and our ability to obtain favorable terms may be diminished during times of high demand and/or limited manufacturing capacity for integrated circuit products.
A reduction in sales of premium-tier devices, or a reduction in salesWe cannot guarantee that the actions of our premium-tier integrated circuit products (which have a higher revenue and margin contribution thansuppliers will not cause disruptions in our lower-tier integrated circuit products), may reduce our revenues and margins and mayoperations that could harm our ability to achievemeet our delivery obligations to our customers or sustainincrease our cost of sales. To the extent we are unable to obtain adequate supply to meet our delivery obligations, we may be obligated to make payments to our customers for such shortfalls. Currently, the global semiconductor industry is experiencing demand for integrated circuits that exceeds the industry’s capacity to meet that demand. Our ability to meet increased demand for our products has been and may continue to be limited due to the inability to obtain the additional manufacturing, assembly and test capacity necessary to fully meet such demand. If we are unable to fully meet customer demand, this could result in lost sales opportunities, reduced revenue growth and harm to our customer relationships. These issues may be exacerbated if customers overstate their expected financial results. Any such reductiondemand requirements in revenues would alsoorder to procure additional supply, which could negatively impact our cash resources availableability to forecast and to allocate supply appropriately among our customers. These issues may also be exacerbated with respect to our platform solutions, which already entail a great deal of complexity due to differing lead-times, technologies and suppliers for each integrated circuit product included in such solutions.
Additionally, we place orders with our suppliers using our and our customers’ forecasts of demand for our products, which are based on a number of assumptions and estimates. As we move to smaller geometry process technologies, the manufacturing lead-time increases. As a result, the orders we place with our suppliers are generally only partially covered by commitments from our customers. If we, or our customers, overestimate demand, or if demand is impacted by factors outside of our or our customers’ control, and such demand is not covered by a binding commitment from our customers, we may experience increased excess or obsolete inventory, which would negatively impact our results of operations.
See also the Risk Factor below titled “There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues” as similar risks, as well as additional risks, may be applicable to our third-party suppliers’ manufacturing facilities, which could result in disruptions to our business or additional costs to us, and negatively impact our results of operations.
There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues.
We own and operate various facilities that manufacture certain of our RFFE modules and RF filter products. Manufacturing facilities are characterized by a higher portion of fixed costs relative to a fabless model. We may be faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products, including in less favorable industry environments, or due to our failure to win and/or retain designs with OEMs. During such periods, our
manufacturing facilities could operate at lower capacity levels, while the fixed costs associated with such facilities would continue to be incurred, resulting in lower gross profit.
We are subject to many complex environmental, health and safety laws, regulations and rules in each jurisdiction in which we operate our R&D and manufacturing facilities. The regulatory landscape in these areas continues to evolve, and we anticipate additional laws, regulations and rules in the future. In particular, new, or changes in, environmental and climate change laws, regulations or rules, including relating to GHG emissions, could lead to new or additional investments in production processes and could increase environmental compliance expenditures. In addition, certain environmental laws impose strict, and in certain circumstances joint and several, liability on current or previous owners or operators of real property, or parties who arranged for hazardous substances to be sent to disposal or treatment facilities, for the cost of investigation, removal or remediation of hazardous substances. As a result, we may incur clean-up costs in connection with any such removal or remediation efforts, as well as other purposes,third-party claims in connection with contaminated sites. In addition, we could be held liable for consequences arising out of human exposure to hazardous substances or other environmental damage. If we, or companies or facilities we acquire or have acquired, in the past failed or in the future fail to comply with any such laws and regulations, then we could incur regulatory penalties, fines, and legal liabilities; suspension of production; significant compliance requirements; alteration of our manufacturing, assembly or test processes; restriction on our ability to modify or expand our facilities; damage to our reputation; and restrictions on our operations or sales. We are also required to obtain and maintain environmental permits from governmental authorities for certain of our operations. We cannot make assurances that we will at all times be in compliance with such laws, regulations, rules and permits. See also the risk factor titled “Our business may suffer due to the impact of, or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are subject.”
Climate change concerns and the potential resulting environmental impact may result in new environmental, health and safety laws and regulations that may affect us, our suppliers and our customers. Such laws or regulations could cause us to incur additional direct costs for compliance, including costs associated with changes to manufacturing processes or the procurement of raw materials used in manufacturing processes, as well as increased indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that are passed on to us. These costs may adversely impact our results of operations and financial condition. In addition, climate change could cause certain natural disasters, such as drought, wildfires, storms, flooding or rising sea levels, to occur more frequently or with greater intensity, which could pose physical risks to our manufacturing facilities or our suppliers’ facilities, could disrupt the availability of water necessary for the operation of our manufacturing facilities or our suppliers’ facilities, and could increase or decrease temperatures resulting in increased operating costs and/or business disruption.
We have manufacturing facilities in Asia and Europe. If tsunamis, flooding, earthquakes, volcanic eruptions, drought or other natural disasters, effects of climate change or geopolitical conflicts, were to damage, destroy or disrupt our manufacturing facilities, it could disrupt our operations, delay production and shipments of inventory and result in costly repairs, replacements or other costs. In addition, natural disasters, effects of climate change or geopolitical conflicts may result in disruptions in transportation, distribution channels and supply chains, and significant increases in the prices of raw materials. Further, health crises, including epidemics or pandemics, such as the COVID-19 pandemic, and government and business responses thereto, could affect our manufacturing facilities, including by resulting in quarantines and/or closures, which would result in disruptions to and potential closures of our manufacturing operations. Our manufacturing operations could also be disrupted by cyber-attacks on our IT systems, as described in the Risk Factor below titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”
Our manufacturing operations depend on securing raw materials and other supplies in adequate quality and quantity in a timely manner from multiple suppliers, and in some cases, we rely on a limited number of suppliers, including in some cases sole suppliers, particularly in Asia. There may be cases where supplies of raw materials and other products are interrupted by disaster, accident or some other event at a supplier; supply is suspended due to quality or other issues; there is a shortage of supply due to a rapid increase in demand; and/or we or our suppliers are prohibited from utilizing certain raw materials, or products or components that incorporate such raw materials, due to government restrictions related to the countries from which such raw materials originate, and acceptable alternative suppliers, raw materials or raw materials sources are not available or not available in acceptable time frames or upon acceptable terms, among others, which could impact production and prevent us from supplying our products to our customers. If the supply-demand balance is disrupted, it may considerably increase costs of manufacturing due to increased prices we pay for raw materials. From time to time, suppliers may extend lead times, limit amounts supplied to us or increase prices due to capacity constraints or other factors. Additionally, supply and costs of raw materials may be negatively impacted by trade and/or national security protection policies, such as tariffs, or actions by governments that limit or prevent us from transacting business with certain countries or companies or that limit or prevent certain companies from transacting business with us, or trade tensions, particularly with countries in Asia. Further, it may be difficult or impossible to substitute one piece of equipment for another or replace one type of material with another. A failure by our suppliers to deliver our requirements could result in disruptions to our manufacturing operations.
Our manufacturing processes are highly complex, require advanced and costly equipment and must be continuously modified to improve yields and performance. Difficulties in the production process can reduce yields or interrupt production, and as a result, we may not be able to deliver our products or do so in a timely, cost-effective or competitive manner. Further, to remain competitive and meet customer demand, we may be required to improve our facilities and process technologies and
carry out extensive research and development.development, each of which may require investment of significant amounts of capital and may have a material adverse effect on our results of operations, cash flows and financial condition.
Finally, we typically begin manufacturing our products using our or our customers’ forecasts of demand for our products, which are based on a number of assumptions and estimates and may not be covered by long-term purchase commitments. As a result, we incur inventory and manufacturing costs in advance of anticipated sales, which sales ultimately may not materialize or may be lower than expected. If we or our customers overestimate demand, or if demand is impacted by factors outside of our or our customers’ control such as the COVID-19 pandemic or trade or national security protection policies, that is not under a binding commitment from our customers, we may experience higher inventory carrying and operating costs and/or increased excess or obsolete inventory, which would negatively impact our results of operations
RISKS RELATED TO CYBERSECURITY OR MISAPPROPRIATION OF OUR CRITICAL INFORMATION
Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.
Third parties regularly attempt to gain unauthorized access to our IT systems, and many such attacks are increasingly more sophisticated. The perception that the COVID-19 pandemic has made companies’ IT systems more vulnerable has increased the already significant volume of such attacks. These attacks, which might be related to industrial, corporate or other espionage, criminal hackers or state-sponsored intrusions, include trying to covertly introduce malware to our computers and networks, including those in our manufacturing operations, and impersonating authorized users, among others. We may also be subject to ransom-style cyber-attacks, which could impact our IT systems and cause widespread disruption to our business, including our manufacturing operations, and expose our confidential or propriety information. Third parties that store and/or process our confidential information, or that provide products, software or services used in our IT infrastructure (including applications), may be subject to similar attacks, which could also result in malware being introduced into our IT infrastructure, e.g., through the third parties’ software updates. Such attacks could result in the misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or other third parties, as well as damage to or disruptions in our IT systems. We believe that we have a robust cybersecurity program that is aligned to international cybersecurity frameworks, and that we leverage industry best practices across people, processes and technologies in an attempt to mitigate cybersecurity threats. However, we may not be able to anticipate, detect, repel or implement effective preventative measures against all cybersecurity threats, particularly because the techniques used are increasingly sophisticated and constantly evolving. Attempts to gain unauthorized access to our IT systems or other attacks have in the past, in certain instances and to certain degrees, been successful (but have not caused significant harm), and may in the future be successful, and in some cases, we might be unaware of an incident or its magnitude and effects.
In addition, employees and former employees, in particular former employees who become employees of our competitors, customers, licensees or other third parties, including state actors, have in the past and may in the future misappropriate, use, publish or provide to our competitors, customers, licensees or other third parties, including state actors, our technology, intellectual property or other proprietary or confidential information. This risk is exacerbated as competitors for talent, particularly engineering talent, increasingly attempt to hire our employees. See also the Risk Factor titled “We may not be able to attract and retain qualified employees, and our attempts to fully reopen our offices and operate under a hybrid working environment may not be successful.” Similarly, we provide access to certain of our technology, intellectual property and other proprietary or confidential information to our direct and indirect customers and licensees and certain of our consultants, who have in the past and may in the future wrongfully use such technology, intellectual property or information, or wrongfully disclose such technology, intellectual property or information to third parties, including our competitors or state actors. We also provide access to certain of our technology, intellectual property and other proprietary or confidential information to certain of our joint venture partners, including those affiliated with state actors and including in foreign jurisdictions where ownership restrictions may require us to take a minority ownership interest in the joint venture. Such joint venture partners may wrongfully use such technology, intellectual property or information, or wrongfully disclose such technology, intellectual property or information to third parties, including our competitors or state actors.
The misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or other third parties, could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, cause us to lose business, damage our reputation, subject us to legal or regulatory proceedings, cause us to incur other loss or liability and otherwise adversely affect our business. We expect to continue to devote significant resources to the security of our IT systems, and our technology, intellectual property and proprietary and confidential information.
Further, China has implemented, and other countries or regions may implement, cybersecurity laws that require our overall IT security environment to meet certain standards and/or be certified. Such laws may be complex, ambiguous and subject to interpretation, which may create uncertainty regarding compliance. As a result, our efforts to comply with such laws may be expensive and may fail, which could adversely affect our business, results of operations and cash flows.
RISKS RELATED TO HUMAN CAPITAL MANAGEMENT
We may not be able to attract and retain qualified employees, and our attempts to fully reopen our offices and operate under a hybrid working environment may not be successful.
Our future success depends upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to identify, attract, retain and motivate them. Implementing our business strategy requires specialized engineering and other talent, as our revenues are highly dependent on technological and product innovations. In addition, in order to extend our business into certain new and expanded product areas and/or industries and applications beyond mobile handsets, we will be required to attract, retain and motivate engineering and other technical personnel with specialized skills in these areas, and these skills are in high demand among our competitors. The market for employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to hire, and to varying degrees have been successful in hiring, our employees or employment candidates, including by establishing or expanding local offices near our headquarters in San Diego, California. Further, the increased availability of remote working arrangements, largely driven by the COVID-19 pandemic, has expanded the pool of companies that can compete for our employees and employment candidates. A number of such competitors for talent are significantly larger than us and are able to offer compensation in excess of what we are able to offer or other benefits that we generally do not offer, such as the ability to permanently work from home. Further, existing immigration laws make it more difficult for us to recruit and retain highly skilled foreign national graduates of universities in the United States, making the pool of available talent even smaller. If we are unable to attract and retain qualified employees, our business may be harmed.
The COVID-19 pandemic caused us to modify our workforce practices, including having the vast majority of our employees work from home. As we reopen our offices, we intend to operate under a “hybrid” working environment, meaning that the majority of our employees will have the flexibility to work remotely at least some of the time, for the foreseeable future. The hybrid working environment may impair our ability to maintain our collaborative and innovative culture, and may cause disruptions among our employees, including decreases in productivity, challenges in communications between on-site and off-site employees and, potentially, employee dissatisfaction and attrition. If our attempts to safely reopen our offices and operate under a hybrid working environment are not successful, our business could be adversely impacted.
RISKS SPECIFIC TO OUR LICENSING BUSINESS
The continued and future success of our licensing programs requires us to continue to evolve our patent portfolio and to renew or renegotiate license agreements that are expiring.
We own a very strong portfolio of issued and pending patents related to 3G, 4G, 5G and other technologies. It is critical that we continue to evolve our patent portfolio, particularly in 5G. If we do not maintain a strong portfolio that is applicable to current and future standards, products and services, our future licensing revenues could be negatively impacted.
Our patent license agreements in effect that constitute a significant portion of our licensing revenues are effective for a specified term. To receive royalties after the expiration date of the specified term, we will need to extend or modify such license agreements or enter into new license agreements with such licensees. We might not be able to extend or modify license agreements, or enter into new license agreements, in the future without negatively affecting the material terms and conditions of our license agreements with such licensees, and such modifications or new agreements may negatively impact our revenues. In some circumstances, we may extend, modify or enter into new license agreements as a result of arbitration or litigation, and terms imposed by arbitrators or courts may be less favorable to us than existing terms and may impact the financial or other terms of license agreements not subject to the litigation or arbitration. If there is a delay in extending, modifying or entering into a new license agreement with a licensee, there would be a delay in our ability to recognize revenues related to that licensee’s product sales. Further, if we are unable to reach agreement on such modifications or new agreements, it could result in patent infringement litigation with such licensees.
Efforts by some communicationsoriginal equipment manufacturers or their customers(OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions and/or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business.
From time to time, companies initiate various strategies to attempt to negotiate, renegotiate, mitigatereduce and/or eliminate their need to pay royalties to us for the use of our intellectual property. These strategies have included: (i) litigation, often alleging infringement of patents held by such companies, patent misuse, patent exhaustion, patent invalidity and/or unenforceability of our patents and/or licenses, alleging that we do not license our patents on fair, reasonable and nondiscriminatory (FRAND) terms, or alleging some form of unfair competition or competition law violation; (ii) taking positions contrary to our understanding (and/or the plain language) of their contracts with us; (iii) appeals to governmental authorities; (iv) collective action, including working with wireless operators, standards bodies, other like-minded companies and other organizations, on both formal and informal bases, to adopt intellectual property policies and practices that could have the effect of limiting returns on intellectual property innovations; (v) lobbying governmental regulators and elected officials for the purpose of seeking the reduction of royalty rates or the base on which royalties are calculated, the imposition ofseeking to impose some form of compulsory licensing and/or to weakenweakening a patent holder’s ability to enforce its rights or obtain a fair return for such rights; and (vi) attempts by licensees using various strategies to attempt to shift their royalty obligation to their suppliers that results in loweringorder to lower the wholesale (i.e., licensee’s) selling price on which the royalty is calculated.
In addition, certain licensees have disputed, underreported, underpaid, not reported and/or not paid royalties owed to us under their license agreements or reported to us in a manner that is not in compliance with their contractual obligations, and certain companies have yet to enter into or have delayed entering into or renewing license agreements with us for their use of our intellectual property, and licensees and/they or companiesothers may continue to do soengage in such behavior in the future. The fact that one or more licensees dispute, underreport, underpay, do not report and/or do not pay royalties owed to us may encourage other licensees to take similar actions or not renew their existing license agreements, and may encourage other licensees or unlicensed companies to delay entering into, or to not enter into, new license agreements. Further, to the extent such licensees and/orand companies increase their device share, the negative impact of their underreporting, underpayment, non-payment and/or non-reporting on our business, revenues, results of operations, cash flows and financial condition and/or cash flows will be exacerbated.
We have been in the past and are currently subject to various litigation andand/or governmental investigations and/or proceedings, someand proceedings. Certain of which have arisen and may continue to arise out of the strategies described above. Certain legalthese matters are described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” The unfavorable resolutionWe may become subject to other litigation or governmental investigations or proceedings in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition and/or cash flows. Depending on the type of matter, various remedies that could result from an unfavorable resolution include, among others, injunctions, monetary damages or fines or other orders to pay money and the issuance of orders to cease certain conduct and/or modify our business practices. Further, a governmental body in a particular country or region may assert, and may be successful in imposing, remedies with effects that extend beyond the borders of that
country or region.condition. See also the Risk Factor entitled “If we are required to changeFactors below titled “Changes in our patent licensing practices, whether due to governmental investigations, and/legal challenges or private legal proceedings challenging those practices,otherwise, could adversely impact our business and results of operations could be adversely impacted.operations” and “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings.”
In addition, in connection with our participation in SDOs, we, like other patent owners, generally have made contractual commitments to such organizations to license those of our patents that would necessarily be infringed by standard-compliant products as set forth in those commitments.commitments (referred to as standard-essential patents). Some manufacturers and users of standard-compliant products advance interpretations of these commitments that are adverse to our licensing business, including interpretations that would limit the amount of royalties that we could collect on the licensing of our standard-essential patent portfolio.
Further, some companies or entitiesthird parties have proposed significant changes to existing intellectual property policies for implementation by SDOs and other industry organizations with the goal of significantly devaluing standard-essential patents. For example, some have put forth proposals which would require a maximum aggregate intellectual property royalty rate for the use of all standard-essential patents owned by all of the member companies to be applied to the selling price of any product implementing the relevant standard. They have further proposed that such maximum aggregate royalty rate be apportioned to each member company with standard-essential patents based upon the number of standard-essential patents held by such company. Others have proposed that injunctions should not be an available remedy for infringement of standard-essential patents and/orand have made proposals that could severely limit damage awards and other remedies by courts for patent infringement (e.g., by severely limiting the base upon which the royalty percentagerate may be applied). A number of these strategies are purportedly based on interpretations of the policies of certain SDOs concerning the licensing of patents that are or may be essential to industry standards and on our (and/or(or other companies’) alleged failure to abide by these policies.
Some SDOs, courts and governmental agencies have adopted, and may in the future adopt, some or all of these interpretations or proposals in a manner adverse to our interests, including in litigation to which we may not be a party. Further, SDOs in certain countries may attempt to modify widely accepted standards and claim the resulting standard as their own.
We expect that such proposals, interpretations and strategies will continue in the future, and if successful, our business model would be harmed, either by limiting or eliminating our ability to collect royalties (or by reducing the royalties we can collect) on all or a portion of our standard-essential patent portfolio, limiting our return on investment with respect to new technologies, limiting our ability to seek injunctions against infringers of our standard-essential patents, constraining our ability to make licensing commitments when submitting our technologytechnologies for inclusion in future standards (which could make our technologytechnologies less likely to be included in such standards) or forcing us to work outside of SDOs or other industry groups to promote our new technologies, and our revenues, results of operations and/orand cash flows could be negatively impacted. In addition, the legal and other costs associated with asserting or defending our positions have been and continue tomay in the future be significant. We assumeexpect that such challenges, regardless of their merits, will continue into the foreseeable future and maywill require the investment of substantial management time and financial resources.
OurChanges in our patent licensing practices, whether due togovernmental investigations, legal challenges or otherwise, could adversely impact our business particularly our licensingand results of operations.
As described in the Risk Factor below titled “Our business may suffer as a result of adverse rulings in governmentgovernmental investigations or proceedings.
proceedings,” we have been in the past and may in the future be subject to various governmental investigations and legal proceedings challenging our patent licensing (or chipset sales) practices. We are currently subject to variouscertain governmental investigations and/or legal proceedings particularly with respect to our licensing business, and certain such matters are described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” Key allegations in those matters include, among others, that we do not license our cellular standard-essential patents separately from our other patents, that we violate FRAND licensing commitments by refusing to grant licenses to chipset makers, that our royalty rates are too high and/or that the base on which our royalties are calculated should be something less than the wholesale (i.e., licensee’s) selling price of the applicable device (minus certain permitted deductions). The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Depending on the type of matter, various remedies that could result from an unfavorable resolution include, among others, injunctions, monetary damages or fines or other orders to pay money, and the issuance of orders to cease certain conduct and/or modify our business practices. Further, a governmental body in a particular country or region may assert, and may be successful in imposing, remedies with effects that extend beyond the borders of that country or region. See also the Risk Factor entitled “If we are required to change our patent licensing practices due to governmental investigations and/or private legal proceedings challenging those practices, our business and results of operations could be adversely impacted.”
If we are required to change our patent licensing practices due togovernmental investigations and/or private legal proceedings challenging those practices, our business and results of operations could be adversely impacted.
We are currently subject to various governmental investigations and private legal proceedings challenging our patent licensing practices as described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” Key allegations in those matters include, among others, that we do not license our cellular standard-essential patents separately from our other patents, that we violate FRAND licensing commitments by refusing to
grant licenses to chipset makers, that our royalty rates are too high and/or that the base on which our royalties are calculated should be something less than the wholesale (i.e., licensee’s) selling price of the applicable device (minus certain permitted deductions). We believe that the ultimateone intent of certain of these governmental investigations and legal proceedings ishas been to reduce the amount of royalties that licensees are required to pay to us for their use of our intellectual property.
We have historically licensed our cellular standard-essential patents together with our other patents that may be useful to licensed products because licensees typically have desired to obtain the commercial benefits of receiving such broad patent rights from us. However, we also have licensed only our cellular standard-essential patents to certain licensees who have requested such licenses. In addition, in connection with our resolution with the China National Development and Reform Commission (NDRC) in China, our standard practice in China since 2015 is to offer licenses for our 3G and 4G standard-essential Chinese patents for branded devices sold for use in China separately from licenses to our other patents.
If we were required to separatelyreduce the royalty rates in our patent license agreements, our cellular standard-essential patents to all of our licensees worldwide,revenues, earnings and more licensees chose such a license instead of a portfolio license than has historically been the case, our licensing revenues and earningscash flows would be negatively impacted unless we were able to license our other patents at rates that offset all or a portion of any difference between the royalties previously received for licenses of substantially all of our patent portfolio as compared to licenses of only our cellular standard-essential patents and/or there wasabsent a sufficient increase in the overall volume of sales of devices upon which royalties are paid. Similarly, if we were required to reduce the base on which our royalties are calculated, our revenues, results of operations and cash flows would be negatively impacted unless there was a sufficient increase in the volume of sales of devices upon which royalties are paid or we were able to increase our royalty rates to offset the decrease in revenues resulting from such lower royalty base (assuming the absolute royalty dollars were below any relevant royalty caps).
If we were required to grant patent licenses to chipset manufacturers (i.e.,(which could lead to implementimplementing a more complex, tieredmulti-level licensing structure in which we license certain portions of our patent portfolio to chipset manufacturers and other portions to device manufacturers)OEMs), we would incur additional transaction costs, which may be significant, and we maycould incur delays in recognizing revenues until license negotiations were completed. In addition, our licensing revenues and earnings would be negatively impacted if we were not able to obtain, in the aggregate, equivalent revenues under such a multi-level licensing structure.
If we were required to reduce the royalty rates we charge undersell chipsets to OEMs that do not have a license to our patent license agreements,patents, our revenues and earnings wouldlicensing program could be negatively impacted absentby patent exhaustion claims raised by such unlicensed OEMs (i.e., claims that our sale of chipsets to such OEMs forecloses us from asserting any patents substantially embodied by the chipsets against such OEMs). Such sales would provide OEMs with a sufficient increasedefense in the volume of sales of devices upon which royalties are paid. Similarly, ifevent we were requiredasserted our patents against them to reduce the baseobtain licensing revenue for those patents. This could have a material adverse effect on which our royalties are calculated,licensing program and our revenues, results of operations, and/or cash flows would be negatively impacted unless there was a sufficient increase in the volume of sales of devices upon which royalties are paid and/or we were able to increase our royalty rates to offset the decrease in revenues resulting from such lower royalty base (assuming the absolute royalty dollars were below any relevant royalty caps).and financial condition.
To the extent that we were required to implement any of these new licensing and/or business practices, including by modifying or renegotiating our existing license agreements or pursuing other commercial arrangements, we would incur additional transaction costs, which may be significant, and we maycould incur delays in recognizing revenues until license negotiations were completed.completed, and our business, revenues, results of operations, cash flows and financial condition could be harmed. The impact of any such changes to our licensing practices could vary widely and by jurisdiction, depending on the specific outcomes and the geographic scope of such outcomes. In addition, if we were required to make modifications to our licensing practices in one jurisdiction, licensees and/or governmental agencies in other jurisdictions may attempt to obtain similar outcomes for themselves and/or for such other jurisdictions, as applicable.applicable, which would result in increased legal costs.
RISKS RELATED TO REGULATORY AND LEGAL CHALLENGES
Our business may suffer as a result of adverse rulings in governmental investigations or proceedings.
We have been in the past and are currently subject to various governmental investigations and proceedings. Certain of these matters are described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” Key allegations or findings in those matters include or have in the past included, among others: that we violate FRAND licensing commitments by refusing to grant licenses to chipset manufacturers; that our royalty rates are too high; that the base on which our royalties are calculated should be something less than the wholesale (i.e., licensee’s) selling price of the applicable device (minus certain permitted deductions); that we unlawfully require customers to execute a patent license before we sell them cellular modem chipsets; that we have entered into exclusive agreements with chipset customers that foreclose competition; that we leverage our position in baseband chipsets in the RFFE space; and that we violate antitrust laws and engage in anticompetitive conduct and unfair methods of competition. We may become subject to other litigation or governmental investigations or proceedings in the future.
Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition. Depending on the matter, various remedies that could result from an unfavorable resolution include, among others: the loss of our ability to enforce one or more of our patents; injunctions; monetary damages, fines or other orders to pay money; the issuance of orders to cease certain conduct or modify our business practices, such as requiring us to reduce our royalty rates, reduce the base on which our royalties are calculated, grant patent licenses to chipset manufacturers, sell chipsets to unlicensed OEMs or modify or renegotiate some or all of our existing license agreements; and determinations that some or all of our license agreements are invalid or unenforceable. In addition, a governmental body in a particular country or region may successfully assert and impose remedies with effects that extend beyond the borders of that country or region. If some or all of our license agreements are declared invalid or unenforceable and/or we are required to renegotiate these license agreements, we may not receive, or may not be able to recognize, some or any licensing or royalty revenues under the impacted license agreements unless and until we enter into new license agreements; and even licensees whose license agreements are not impacted may demand to renegotiate their agreements or invoke the dispute resolution provision in their agreements, and we may not be able to recognize some or any licensing or royalty revenues under such agreements. The renegotiation of license agreements could result in terms that are less favorable to us than existing terms, or lead to arbitration or litigation to resolve the licensing terms, which could also be less favorable to us than existing terms, and each of which could take months or possibly years. Licensees may underreport, underpay, not report or not pay royalties owed to us pending the conclusion of such negotiations, arbitration or litigation. In addition, we may be sued for alleged overpayments of past royalties paid to us, including private antitrust actions seeking treble damages under U.S. antitrust laws. The occurrence of any of the above could have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition, and our stock price could decline, possibly significantly, in which case we may have to significantly cut costs and other uses of cash, including in research and development, significantly impairing our ability to maintain product and technology leadership and invest in
next generation technologies. Further, depending on the breadth and severity of the circumstances above, we may have to reduce, suspend or eliminate our capital return programs, and our ability to timely pay our indebtedness may be impacted.
These challenges have required, and may in the future require, the investment of significant management time and attention and have resulted, and may in the future result, in significant legal costs.
RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION
Our revenues depend on our customers’ and licensees’ sales of products and services based on CDMA, OFDMA and other communications technologies, including 5G, and customer demand for our products based on these technologies.
We develop, patent and commercialize technology and products based on CDMA, OFDMA and other communications technologies, which are primarily wireless. We depend on our customers and licensees to develop devices and services based on these technologies with value-added features to drive consumer demand for new 3G/4G and 3G/4G/5G multimode devices, as well as 4G single-mode devices, and to establish the selling prices for such devices. Further, the timing of our shipments of our products is dependent on the timing of our customers’ and licensees’ deployments of new devices and services based on these technologies. Increasingly, we also depend on operators of wireless networks, our customers and licensees and other third parties to incorporate these technologies into new device types and into industries and applications beyond mobile handsets, such as automotive and IoT, among others.
We have historically been successful during wireless technology transitions, including 3G, 4G and now 5G. Commercial deployments of 5G networks and devices have begun and will continue. However, the timing and scale of such deployments, in certain regions, have been and may in the future be delayed due to the COVID-19 pandemic.
Our revenues and growth in revenues could be negatively impacted, our business may be harmed and our substantial investments in these technologies may not provide us an adequate return, if: our customers’ and licensees’ revenues and sales of products, particularly premium-tier products, and services using these technologies, and average selling prices of such products, decline due to, for example, the maturity of smartphone penetration in developed regions, including China; we do not continue to maintain our intellectual property and technical leadership in 5G, including in ongoing 5G standardization efforts; we are unable to drive the adoption of our products into networks and devices, including devices beyond mobile handsets; or consumers’ rates of replacement of smartphones and other computing devices decline.
Our industry is subject to intense competition in an environment of rapid technological change. Our success depends in part on our ability to adapt to such change and compete effectively; and such change and competition could result in decreased demand for our products and technologies or declining average selling prices for our products or those of our customers or licensees.
Our products and technologies face significant competition. Competition may intensify as our current competitors expand their product offerings, improve their products or reduce the prices of their products as part of a strategy to maintain existing business and customers or attract new business and customers, as new opportunities develop, and as new competitors enter the industry. Competition in wireless communications is affected by various factors that include, among others: OEM concentrations; vertical integration; competition in certain geographic regions; government intervention or support of national industries or competitors; the ability to maintain product differentiation as the result of evolving industry standards and speed of technological change (including the transition to smaller geometry process technologies and the demand for always on, always connected capabilities); access to capacity in the supply chain; and value-added features that drive selling prices and consumer demand for new 3G/4G and 3G/4G/5G multimode devices, as well as 3G and 4G single-mode devices.
We anticipate that additional competitors will introduce products as a result of growth opportunities in wireless communications, the trend toward global expansion by foreign and domestic competitors, and technological and public policy changes. Additionally, the semiconductor industry has experienced and may continue to experience consolidation, which could result in significant changes to the competitive landscape. For example, if any key supplier of technologies and intellectual property to the semiconductor industry was sold to one of our competitors, it could negatively affect our ability to procure or license such technologies and intellectual property in the future, at all or upon acceptable terms which could have wide-ranging impacts on our business and operations.
We expect that our future success will depend on, among other factors, our ability to:
•differentiate our integrated circuit products with innovative technologies across multiple products and features (e.g., modem, radio frequency front-end (RFFE), including millimeter wave (mmWave), graphics and other processors, camera and connectivity) and with smaller geometry process technologies that drive both performance and lower power consumption;
•develop and offer integrated circuit products at competitive cost and price points to effectively cover all geographic regions and all device tiers;
•continue to be a leader in mobile, and drive the adoption of our technologies and integrated circuit products, including RFFE, into the most popular device models and across a broad spectrum of devices in mobile, such as smartphones, tablets, laptops and other mobile computing devices;
•increase or accelerate adoption of our technologies and products in industries and applications outside of mobile handsets, including automotive and IoT;
•maintain or accelerate demand for our integrated circuit products at the premium device tier, while also driving the adoption of our products into high, mid- and low-tier devices across all regions;
•remain a leader in 5G (and 4G) technology development, standardization, intellectual property creation and licensing, and develop, commercialize and remain a leading supplier of 5G (and 4G) integrated circuit products, including RFFE products;
•maintain access to sufficient capacity in the supply chain relative to our competitors to meet customer demand;
•create standalone value and contribute to the success of our existing businesses through acquisitions, joint ventures and other strategic transactions, and by developing customer, licensee, vendor, distributor and other channel relationships in new industries and applications;
•identify potential acquisition targets that will grow or sustain our business or address strategic needs, reach agreement on terms acceptable to us, close the transactions and effectively integrate these new businesses, products and technologies;
•provide leading products and technologies to OEMs, high level operating systems (HLOS) providers, operators, cloud providers and other industry participants as competitors, new industry entrants and other factors continue to affect the industry landscape;
•be a preferred partner and sustain preferred relationships providing integrated circuit products that support multiple operating system and infrastructure platforms to industry participants that effectively commercialize new devices using these platforms; and
•continue to develop brand recognition to effectively compete against better known companies in computing and other consumer driven segments and to deepen our presence in significant emerging regions and China.
We compete with many different semiconductor companies, ranging from multinational companies with integrated research and development, manufacturing, sales and marketing organizations across a broad spectrum of product lines, to companies that are focused on a single application, industry or standard product, including those that produce products for mobile handsets, automotive and IoT, among others. Most of these competitors compete with us with respect to some, but not all, of our businesses or product lines. Companies that design integrated circuits based on CDMA, OFDMA, Wi-Fi or their derivatives are generally competitors or potential competitors. Examples (some of which are strategic partners of ours in other areas) include Broadcom, MediaTek, Nvidia, NXP Semiconductors, Qorvo, Samsung, Skyworks, Texas Instruments and UNISOC (formally known as Spreadtrum Communications). Some of these current and potential competitors may have advantages over us that include, among others: motivation by our customers in certain circumstances to use our competitors’ integrated circuit products, to utilize their own internally-developed integrated circuit products and/or sell such products to others, or to utilize alternative technologies; lower cost structures or a willingness and ability to accept lower prices or lower margins for their products, particularly in China; foreign government support of other technologies, competitors or OEMs that sell devices that do not contain our integrated circuit products; better known brand names; ownership and control of manufacturing facilities and greater expertise in manufacturing processes; more extensive relationships with local distribution companies and OEMs in certain geographic regions (such as China); more experience in industries and applications beyond mobile handsets (such as automotive and IoT); and a more established presence in certain regions.
In addition, certain of our largest integrated circuit customers have in the past utilized, currently utilize and may in the future utilize our competitors’ integrated circuit products in some (or all) of their devices, rather than our products. Further, certain of those customers have developed, are developing or may develop their own integrated circuit products (effectively making them competitors), which they have in the past utilized, currently utilize and may in the future utilize in some (or all) of their devices, rather than our products. See also the Risk Factor titled “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).” Further, political actions, including trade and/or national security protection policies, or other actions by governments, particularly the U.S. and Chinese governments, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our customers or suppliers, limit, prevent or discourage certain of our customers or suppliers from transacting business with us, or make it more expensive to do so. This could advantage our competitors by enabling them with increased sales, economies of scale, operating income and/or cash flows and/or enable critical technology transfer, allowing them to increase their investments in technology development, research and development and commercialization of products. See also the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.” Further, certain of our competitors develop and sell multiple components (including integrated circuit products) for use in devices and sell those components together to OEMs. Our competitors’ sales of multiple components put us (and our discrete integrated circuit products) at a competitive disadvantage. Certain of our competitors also develop and sell infrastructure equipment for wireless networks and can optimize their integrated circuit products to perform on such networks to a degree that we are not able to, which again puts us at a competitive disadvantage.
Competition in any or all product tiers may result in the loss of business or customers, which would negatively impact our business, revenues, results of operations, cash flows and financial condition. Such competition may also reduce average selling prices for our chipset products or the products of our customers and licensees. Certain of these dynamics are particularly pronounced in emerging regions and China where competitors may have lower cost structures or may have a
willingness and ability to accept lower prices or lower margins on their products. Reductions in the average selling prices of our chipset products, without a corresponding increase in volumes, would negatively impact our revenues, and without corresponding decreases in average unit costs, would negatively impact our margins. In addition, reductions in the average selling prices of our licensees’ products, unless offset by an increase in volumes, would generally decrease total royalties payable to us, negatively impacting our licensing revenues.
RISKS RELATED TO PRODUCT DEFECTS OR SECURITY VULNERABILITIES
Failures in our products, or in the products of our customers or licensees, including those resulting from security vulnerabilities, defects or errors, could harm our business.
Our products (including for purposes of this Risk Factor, related software) are complex and may contain defects, errors or security vulnerabilities, or experience failures or unsatisfactory performance, due to any number of issues, including issues in materials, design, fabrication, packaging and/or use within a system. Development of products in new domains of technology, such as the transition to 5G, and the migration to integrated circuit technologies with smaller geometric feature sizes, increases complexity and adds risk to manufacturing yields and reliability, and increases the likelihood of product defects, errors or security vulnerabilities. Defects, errors, security vulnerabilities or other unintended functionality could also be introduced into our products by cyber-attacks or other actions by malicious actors, either directly or through third-party products or software used in our products or IT infrastructure (including applications). Further, because of the complexity of our products, defects, errors or security vulnerabilities might only be detected when the products are in use. Risks associated with product or technology defects, errors or security vulnerabilities are exacerbated by the fact that our customers typically integrate our products into consumer and other devices.
The use of devices containing our products to interact with untrusted systems or otherwise access untrusted content creates a risk of exposing the system hardware and software in those devices to malicious attacks. Further, security vulnerabilities in our products or the technologies we use could expose our customers, or end users of our customers’ products, to hackers or other unscrupulous third parties who develop and deploy malware that could attack our products or our customers’ products or IT infrastructure. Such attacks could result in the disruption of our customers’ businesses or the misappropriation, theft, misuse, disclosure, loss or destruction of the technology or intellectual property, or the proprietary, confidential or personal information, of our customers, their employees or the end users of our customers’ devices. While we continue to focus on this issue and take measures to safeguard our products from cybersecurity threats, device capabilities continue to evolve, enabling more elaborate functionality and applications, and increasing the risk of security failures, and techniques used to perpetrate cybersecurity attacks are increasingly sophisticated and constantly evolving. See also the Risk Factor titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”
Our products may be responsible for critical functions in our customers’ products and networks. Failure of our products to perform to specifications, or other product defects, errors or security vulnerabilities, could lead to substantial damage to the products we sell to our customers, the devices into which our products are integrated and the end users of such devices, and, potentially, to our customers’ IT infrastructure. Such defects, errors or security vulnerabilities could give rise to significant costs, including costs related to developing solutions, recalling products, repairing or replacing defective products, writing down defective inventory, or indemnification obligations under our agreements, and could result in the loss of sales and divert the attention of our engineering personnel from our product development efforts. In addition, defects, errors or security vulnerabilities in our products could result in failure to achieve market acceptance, a loss of design wins, a shifting of business to our competitors, and litigation or regulatory action against us, and could harm our reputation, our relationships with customers and partners and our ability to attract new customers, as well as the perceptions of our brand. Other potential adverse impacts of product defects, errors or security vulnerabilities include shipment delays, write-offs of property, plant and equipment and intangible assets, and losses on unfavorable purchase commitments. In addition, defects, errors or security vulnerabilities in the products of our customers or licensees could cause a delay or decrease in demand for the products into which our products are integrated, and thus for our products.
In addition, the occurrence of defects, errors or security vulnerabilities may give rise to product liability claims, particularly if such defects, errors or security vulnerabilities in our products or the technology we use, or the products into which they are integrated, result in personal injury or death, and could result in significant costs, expenses and losses. If a product liability claim is brought against us, the cost of defending the claim could be significant, and could divert the efforts of our technical and management personnel and harm our business, even if we are successful. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and even though we may have indemnity from our customers, and such claims could result in significant costs and expenses. Further, our business liability insurance may be inadequate, or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results. The above is exacerbated by the fact that our products may be used, and perform critical functions, in various high-risk applications such as (i) automobiles, including autonomous driver assistance programs; (ii) cameras and artificial intelligence, including home and enterprise security; (iii) home automation, including smoke and noxious gas detectors; (iv) medical condition monitoring; (v) location and asset tracking and management, including wearables for child safety and elderly health; (vi) robotics, including public safety drones and autonomous municipality vehicles; and (vii) extended reality (XR) for treatment of phobias or PTSD, early detection of disorders or special needs, among others.
Accordingly, defects, errors or security vulnerabilities in our products or the technologies we use could have an adverse impact on us, on our customers and the end users of our customers’ products. If any of these risks materialize, there could be a material adverse effect on our business, results of operations and financial condition.
RISKS RELATED TO INTELLECTUAL PROPERTY
The enforcement and protection of our intellectual property rights may be expensive, could fail to prevent misappropriation or unauthorized use of our intellectual property, rights, could result in the loss of our ability to enforce one or more patents, and/orand could be adversely affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property rights and/orand by ineffective enforcement of laws in such jurisdictions.
We rely primarily on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality agreements, international treaties and other methods, to protect our proprietary information, technologies and processes,intellectual property, including our patent portfolio. Policing unauthorized use of our products, technologies and proprietary informationintellectual property is difficult and time consuming. The steps we have taken have not always prevented, and we cannot be certain the steps we will take in the future will prevent, the misappropriation or unauthorized use of our proprietary information andproducts, technologies or intellectual property, particularly in foreign countries where the laws may not protect our proprietary intellectual property rights as fully or as readily as United StatesU.S. laws or where the enforcement of such laws may be lacking or ineffective. See also the Risk Factor titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”
Some industry participants who have a vested interest in devaluing patents in general, or standard-essential patents in particular, have mounted attacks on certain patent systems, increasing the likelihood of changes to established patent laws. In the United States, there is continued discussion regarding potential patent law changes and current and potential future litigation regarding patents, the outcomes of which could be detrimental to our licensing business. The laws in certain foreign countries in which our products are or may be manufactured or sold, including certain countries in Asia, may not protect our intellectual property rights to the same extent as the laws in the United States. We expect that the European Union will adopt a unitary patent system in the next few years that may broadly impact that region’s patent regime. We cannot predict with certainty the long-term effects of any
potential changes. In addition, we cannot be certain that the laws and policies of any country or the practices of any standards bodies, foreign or domestic, with respect to intellectual property enforcement or licensing or the adoption of standards, will not be changed in the future in a way detrimental to our licensing program or to the sale or use of our products or technologies.
We have had and may in the future have difficulty in certain circumstances in protecting or enforcing our intellectual property rights and/orand contracts, including collecting royalties for use of our patent portfolio due to, among others: refusal by certain licensees to report and/orand pay all or a portion of the royalties they owe to us; policies or political actions of foreign governments;governments, including trade protection and national security policies; challenges to our licensing practices under competition laws; adoption of mandatory licensing provisions by foreign jurisdictions (either with controlled/regulated royalties or royalty free);jurisdictions; failure of foreign courts to recognize and enforce judgments of contract breach and damages issued by courts in the United States; and/orand challenges before competition agencies to our licensing business and/orand the pricing and integration of additional features and functionality into our chipset products. Certain licensees have disputed, underreported, underpaid, not reported and/or not paidSee also the Risk Factors titled “Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties owed to us under their license agreements with us or reported to us in a manner that is not in compliance with their contractual obligations, and certain companies have yet to enter into or delayed entering into or renewing license agreements for theirthe use of our intellectual property may require the investment of substantial management time and such licensees and/financial resources and may result in legal decisions or companiesactions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business” and “Our business may continue to do sosuffer as a result of adverse rulings in governmental investigations or proceedings.”
We have engaged in litigation and arbitration in the future. The fact thatpast and may need to further litigate or arbitrate in the future to enforce our contract and intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation or arbitration, we could lose our ability to enforce one or more patents, portions of our license agreements could be determined to be invalid or unenforceable (which may in turn result in other licensees dispute, underreport, underpay, doeither not report and/complying with their existing license agreements or doinitiating litigation or arbitration), license terms (including but not pay royalties owedlimited to royalty rates for the use of our intellectual property) could be imposed that are less favorable to us than existing terms, and we could incur substantial costs. Any action we take to enforce our contract or intellectual property rights could be costly and could absorb significant management time and attention, which, in turn, could negatively impact our results of operations and cash flows. Further, even a positive resolution to our enforcement efforts may encouragetake time to conclude, which may reduce our revenues and cash resources available for other licenseespurposes, such as research and development, in the periods prior to take similar actions and may encourage other licensees or unlicensed companies to delay entering into, or not enter into, new license agreements. conclusion.
Additionally, although our license agreements generally provide us with the right to audit the books and records of licensees, audits can be expensive, time consuming, incomplete and subject to dispute. Further, certain licensees may not comply with the obligation to provide full access to their books and records. To the extent we do not aggressively enforce our rights under our license agreements, licensees may not comply with their existing license agreements, and to the extent we do not aggressively pursue unlicensed companies to enter into license agreements with us for their use of our intellectual property, other unlicensed companies may not enter into license agreements.
We Similarly, we provide access to certain of our intellectual property and proprietary and confidential business information to our direct and indirect customers and licensees, who have entered into litigation in the past and may need to further litigate in the future to enforce our contract and/orwrongfully use such intellectual property rights, protect our trade secretsand information or determine the validity and scope of proprietary rights of others. We are currently engaged in litigation matters related to protecting or enforcing our contract and/orwrongfully disclose such intellectual property rights, and certain such matters are described more fully in this Annual Report in “Notesinformation to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” As a result of any such litigation, we could losethird parties, including our ability to enforce one or more patents, portions of our license agreements could be determined to be invalid or unenforceable (which may in turn result in other licensees either not complying with their existing license agreements and/or initiating litigation) and/or we could incur substantial costs. Any action we take to enforce our contract or intellectual property rights could be costly and could absorb significant management time and attention, which, in turn, could negatively impact our results of operations and/or cash flows. Further, even a positive resolution to our enforcement efforts may take time to conclude, which may reduce our revenues and cash resources available for other purposes, such as research and development, in the periods prior to conclusion.competitors. See also the Risk Factor entitled “If we are requiredtitled “Efforts by some original equipment manufacturers (OEMs) to change our patent licensing practices due to governmental investigations and/or private legal proceedings challenging those practices, our businessavoid paying fair and results of operations could be adversely impacted.”
Our growth increasingly depends on our ability to extend our technologies, products and services into new and expanded product areas, such as RFFE, and adjacent industry segments outside of traditional cellular industries, such as automotive, IoT and networking, among others. Our research, development and other investments in these new and expanded product areas and industry segments, and related technologies, products and services, as well as in our existing technologies, products and services and new technologies, such as 5G, may not generate operating income or contribute to future results of operations that meet our expectations.
Our industry is subject to rapid technological change, evolving industry standards and frequent new product introductions, and we must make substantial research, development and other investments, such as acquisitions, in new products, services and technologies to compete successfully. Technological innovations generally require significant research and development efforts before they are commercially viable. While we continue to invest significant resources toward advancements primarily in support of 4G OFDMA- and 5G-based technologies, we also innovate across a broad spectrum of opportunities to deploy new and expanded products and enter into adjacent industry segments by leveraging our existing technical and business expertise and/or through acquisitions.
In particular, our future growth significantly depends on new and expanded product areas, such as RFFE, and adjacent industry segments, such as automotive, IoT (includingreasonable royalties for the connected home, smart cities, wearables, voice and music and robotics) data center, networking, computing, and machine learning, among others; our ability to develop leading and cost-effective technologies, products and services for new and expanded product areas and adjacent industry segments; and third
parties incorporating our technology, products and services into devices used in these product areas and industry segments. Accordingly, we intend to continue to make substantial investments in these new and expanded product areas and adjacent industry segments, and in developing new products, services and technologies for these product areas and industry segments.
However, our research, development and other investments in these new and expanded product areas and adjacent industry segments, and corresponding technologies, products and services, as well as in our existing, technologies, products and services and new technologies, such as 5G, use of both licensedour intellectual property may require the investment of substantial management time and unlicensed spectrum,financial resources and convergence of cellular and Wi-Fi, may not succeed due to, among others: new industry segments and/result in
legal decisions or consumer demand may not grow as anticipated; our strategies and/actions by governments, courts, regulators or the strategies of our customers, licensees or partners may not be successful; improvements in alternate technologies in ways that reduce the advantages we anticipate from our investments; competitors’ products or services being more cost effective, having more capabilities or fewer limitations or being brought to market faster than our new products and services; and competitors having longer operating histories in industry segments that are new to us. We may also underestimate the costs of or overestimate the future revenues and/or margins that could result from these investments, and these investments may not, or may take many years to, generate material returns. Further, the automotive industry is subject to long design-in time frames, long product life cycles and a high degree of regulatory and safety requirements, necessitating suppliers to the industry to comply with stringent qualification processes, very low defect rates and high reliability standards, all of which results in a significant barrier to entry and increased costs.
If our new technologies, products and/or services are not successful, or are not successful in the time frame we anticipate, we may incur significant costs and/or asset impairments, our business may not grow as anticipated, our revenues and/or margins may be negatively impacted and/or our reputation may be harmed.
There are numerous risks associated with our operation and control of manufacturing facilities we acquired through the formation of our joint venture with TDK, RF360 Holdings, including a higher portion of fixed costs relative to a fabless model, environmental compliance and liability, exposure to natural disasters, timely supply of equipment and materials and manufacturing difficulties.
Manufacturing facilities are characterized by a higher portion of fixed costs relative to a fabless model. In less favorable industry environments, in particular, we may be faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products. During such periods, our manufacturing facilities could operate at lower capacity levels, while the fixed costs associated with full capacity continue to be incurred, resulting in lower gross profit.
We are subject to many environmental, health and safety laws and regulations in each jurisdiction in which we operate our manufacturing facilities, which govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain and maintain environmental permits from governmental authorities for certain of our operations. We cannot make assurances that we will be at all times in compliance with such laws, regulations and permits. Certain environmental laws impose strict, and in certain circumstances, joint and several, liability on current or previous owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. In addition, we could also be held liable for consequences arising out of human exposure to hazardous substancesagencies, Standards Development Organizations (SDOs) or other environmental damage.
We have manufacturing facilities in Asia and Europe. If tsunamis, flooding, earthquakes, volcanic eruptions or other natural disasters or geopolitical conflicts were to damage, destroy or disrupt our manufacturing facilities, it could disrupt our operations, delay new production and shipments of inventory or result in costly repairs, replacements or other costs. In addition, natural disasters or geopolitical conflicts may result in disruptions in transportation, distribution channels or supply chains, or significant increases in the prices of raw materials.
Our manufacturing operations depend on securing raw materials and other supplies in adequate quality and quantity in a timely manner from multiple suppliers, and in some cases we rely on a limited number of suppliers, particularly in Asia. Accordingly, there may be cases where supplies of raw materials and other products are interrupted by disaster, accident or some other event at a supplier, supply is suspended due to quality or other issues, or there is a shortage of supply due to a rapid increase in demand, which could impact production and prevent us from supplying products to our customers. If the supply-demand balance is disrupted, it may considerably increase costs of manufacturing due to increased prices we pay for raw materials or fuel. From time to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to capacity constraints or other factors. Further, it may be difficult or impossible to substitute one piece of equipment for another or replace one type of material with another. A failure by our suppliers to deliver our requirements could result in disruptions to our manufacturing operations.
Our manufacturing processes are highly complex, require advanced and costly equipment and must be continuously modified to improve yields and performance. Difficulties in the production process can reduce yields or interrupt production, and as a result we may not be able to deliver products or do so in a timely, cost-effective or competitive manner. Further, to remain competitive and/or meet customer demand, we may be required to improve our facilities and process technologies and carry out extensive research and development, each of which may require investment of significant amounts of capital, and may have a material adverse effect on our results of operations, financial condition and/or cash flows.
The continued and future success of our licensing programs can be impacted by the deployment of other technologies in place of technologies based on CDMA, OFDMA and their derivatives; the success of our licensing programs for 4G single mode products and emerging industry segments; and the need to extend license agreementsorganizations that are expiring and/or to cover additional future patents.
Although we own a very strong portfolio of issued and pending patents related to OFDM, OFDMA, WLAN and other technologies, our patent portfolio licensing program in some of these areas may be less established and might not be as successful in generating licensing revenues as our CDMA licensing program has been. Many wireless operators have selected or have deployed OFDMA-based LTE as their next-generation 4G technology in existing (or future if not yet deployed) wireless spectrum bands as complementary to their existing CDMA-based networks. While 3G/4G multimode products are generally covered by our existing 3G licensing agreements, products that implement 4G but do not also implement 3G are generally not covered by these agreements. We believe that our patented technologies are essential and useful to implementation of the LTE industry standards and have granted royalty-bearing 4G single-mode licenses to the majority of the leading handset and other wireless device companies (including Huawei, LG, Microsoft, Oppo, Samsung, Sony Mobile, vivo, Xiaomi and ZTE) as they recognize that they need a license to our patents to make and sell products implementing 4G standards but not implementing 3G standards. The royalty rates for single mode 4G products are lower than our royalty rates for 3G and 3G/4G multimode products. Accordingly, without a corresponding increase in volumes and/or device ASP, we will not achieve the same licensing revenues on such LTE products as on 3G and 3G/4G multimode products. In addition, new connectivity and other services are emerging that rely on devices that may or may not be used on traditional cellular networks, such as devices used in the IoT and automotive industry segments. We also seek to diversify and broaden our technology licensing programs to new industry segments in which we can utilize our technology leadership, such as wireless charging and other technologies. Standards, even de facto standards, that develop as these technologies mature, in particular those that do not include a base level of interoperability, may impact our ability to obtain royalties at all or that are equivalent to those that we receive for 3G and 3G/4G multimode products used in cellular communications. Although we believe that our patented technologies are essential and useful to the commercialization of such services, any royalties we receive may be lower than those we receive from our current licensing program.
Over the long-term, we need to continue to evolve our patent portfolio, particularly in 5G. If we do not maintain a strong portfolio that is applicable to current and/or future standards (such as 5G), products and/or services, our future licensing revenues could be negatively impacted.
The licenses granted to and from us under a number of our license agreements include only patents that are either filed or issued prior to a certain date. As a result, there are agreements with some licensees where later patents are not licensed by or to us. Additionally, certain of our license agreements (including essentially all of our recent agreements in China) are effective for a specified term. In order to license or to obtain a license to such later patents or after the expiration of a specified term, or to receive royalties after the specified time period, we will need to extend or modify such license agreements or enter into new license agreements with such licensees. Accordingly, to the extent not renewed on their terms or by election for an additional (generally multi-year) period, if applicable, we will need to extend or modify such license agreements or enter into new license agreements with such licensees more frequently than we have done historically. We might not be able to renew those license agreements, or enter into new license agreements, in the future without affecting the material terms and conditions of our license agreements with such licensees, and such modifications or new agreements may negatively impact our revenues. If there is a delay in renewing a license agreement prior to its expiration, there would be a delay in our ability to recognize revenues related to that licensee’s product sales. Further, if we are unable to reach agreement on such modifications or new agreements, it could result in patent infringement litigation with such companies.
We depend on a limited number of third-party suppliers for the procurement, manufacture and testing of our products manufactured in a fabless production model. If we fail to execute supply strategies that provide technology leadership, supply assurance and low cost, our business and results of operations may be harmed. We are also subject to order and shipment uncertainties that could negatively impact our results of operations.
Our QCT segment primarily utilizes a fabless production model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Other than the manufacturing facilities we now operate through our recently formed RF360 Holdings joint venture, we rely on independent third-party suppliers to
perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. We employ both turnkey and two-stage manufacturing models to purchase our integrated circuits. Under the turnkey model, our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. Under the two-stage manufacturing model, we purchase die in singular or wafer form from semiconductor manufacturing foundries and contract with separate third-party suppliers for manufacturing services such as wafer bump, probe, assembly and the majority of our final test requirements. The semiconductor manufacturing foundries that supply products to our QCT segment are primarily located in Asia, as are our primary warehouses where we store finished goods for fulfillment of customer orders. The following could have an adverse effect on our ability to meet customer demands and/or negatively impact our revenues, business operations, profitability and/or cash flows:
a reduction, interruption, delay or limitation in our product supply sources;
a failure by our suppliers to procure raw materials or to provide or allocate adequate manufacturing or test capacity for our products;
our suppliers’ inability to react to shifts in product demand or an increase in raw material or component prices;
our suppliers’ delay in developing leading process technologies, or inability to develop or maintain leading process technologies, including transitions to smaller geometry process technologies;
the loss of a supplier or the inability of a supplier to meet performance, quality or yield specifications or delivery schedules;
additional expense and/or production delays as a result of qualifying a new supplier and commencing volume production or testing in the event of a loss of or a decision to add or change a supplier; and/or
natural disasters or geopolitical conflicts, particularly in Asia, impacting our suppliers.
While we have established alternate suppliers for certain technologies, we rely on sole- or limited-source suppliers for certain products, subjecting us to significant risks, including: possible shortages of raw materials or manufacturing capacity; poor product performance; and reduced control over delivery schedules, manufacturing capability and yields, quality assurance, quantity and costs. To the extent we have established alternate suppliers, these suppliers may require significant levels of support to bring complex technologies to production. As a result, we may invest a significant amount of effort and resources and incur higher costs to support and maintain such alternate suppliers. Further, any future consolidation of foundry suppliers could increase our vulnerability to sole- or limited-source arrangements and reduce our suppliers’ willingness to negotiate pricing, which could negatively impact our ability to achieve cost reductions and/or increase our manufacturing costs. Our arrangements with our suppliers may obligate us to incur costs to manufacture and test our products that do not decrease at the same rate as decreases in pricing to our customers. Our ability, and that of our suppliers, to develop or maintain leading process technologies, including transitions to smaller geometry process technologies, and to effectively compete with the manufacturing processes and performance of our competitors, could impact our ability to introduce new products and meet customer demand, could increase our costs (possibly decreasing our margins) and could subject us to the risk of excess inventories. Our inability to meet customer demand due to sole- or limited-sourcing and/or the additional costs that we incur because of these or other supply constraints or because of the need to support alternate suppliers could negatively impact our business, our results of operations and/or cash flows.
Although we have long-term contracts with our suppliers, many of these contracts do not provide for long-term capacity commitments. To the extent we do not have firm commitments from our suppliers over a specific time period or for any specific quantity, our suppliers may allocate, and in the past have allocated, capacity to the production and testing of products for their other customers while reducing or limiting capacity to manufacture or test our products. Accordingly, capacity for our products may not be available when we need it or at reasonable prices. To the extent we do obtain long-term capacity commitments, we may incur additional costs related to those commitments and/or make non-refundable payments for capacity commitments that are not used.
One or more of our suppliers or potential alternate suppliers may manufacture CDMA- or OFDMA-based integrated circuits that compete with our products. Such suppliers could elect to allocate raw materials and manufacturing capacity to their own products and reduce or limit deliveries to us to our detriment.
In addition, we may not receive reasonable pricing, manufacturing or delivery terms from our suppliers. We cannot guarantee that the actions of our suppliers will not cause disruptions in our operations that could harm our ability to meet our delivery obligations to our customers or increase our cost of sales.
Additionally, we place orders with our suppliers using our forecasts of customer demand, which are based on a number of assumptions and estimates, and are generally only partially covered by commitments from our customers. If we overestimate customer demand, we may experience increased excess and/or obsolete inventory, which would negatively impact our results of operations.business.”
Claims by other companies that we infringe their intellectual property could adversely affect our business.
From time to time, companies have asserted, and may again assert, patent, copyright andor other intellectual property rightsclaims against our products or products using our technologies or other technologies used in our industry. These claims have resulted and may again result in our involvement in litigation. We may not prevail in such litigation given, among other factors, the complex technical issues and inherent uncertainties in intellectual property litigation. If any of our products or services were found to infringe another company’s intellectual property, rights, we could be subject to an injunction or be required to redesign our products, or services, which could be costly, or to license such rights and/intellectual property or pay damages or other compensation to such other company.company (any of which could be costly). If we are unable to redesign our products, or services, license such intellectual property rights used in our products or services or otherwise distribute our products (e.g., through a licensed supplier), we could be prohibited from making and selling our products. Similarly, our suppliers could be found to infringe another company’s intellectual property, and such suppliers could then be enjoined from providing products or providing such services. services to us.
In any potential dispute involving other companies’us and another company’s patents or other intellectual property, our chipset foundries, semiconductor assembly and test providers and customers could also become the targets of litigation. We are contingently liable under certain product sales, services, license and other agreements to indemnify certain customers, chipset foundries and semiconductor assembly and test service providers against certain types of liability and/orand damages arising from qualifying claims of patent infringement by products or services sold or provided by us, or by intellectual property provided by us to our chipset foundries and semiconductor assembly and test service providers. Reimbursements under indemnification arrangements could have an adverse effect on our results of operations and/orand cash flows. Furthermore, any such litigation could severely disrupt the supply of our products and the businesses of our chipset customers and their customers, which in turn could hurtharm our relationships with them and could result in a decline in our chipset sales and/or reductionsa reduction in our licensees’ sales, causing a corresponding decline in our chipset and/or licensing revenues. Any claims, regardless of their merit, could be time consuming to address, result in costly litigation, divert the efforts of our technical and management personnel or cause product release or shipment delays, any of which could have an adverse effect on our results of operations and cash flows.
We expect that we may continue to be involved in litigation and may have to appear in front of administrative bodies (such as the United States International Trade Commission) to defend against patent assertions against our products by companies, some of whom are attempting to gain competitive advantage or leverage in licensing negotiations. We may not be successful in such proceedings, and if we are not, the range of possible outcomes is very broad and may include, for example, monetary damages or fines or other orders to pay money, royalty payments, injunctions on the sale of certain of our integrated circuit products (and/or(or on the sale of our customers’ devices using such products) and/or the issuance of orders to cease certain conduct and/or modify our business practices. Further, a governmental body in a particular country or region may assert, and may be successful in imposing, remedies with effects that extend beyond the borders of that country or region. In addition, a negative outcome in any such proceeding could severely disrupt the business of our chipset customers and their wireless operator customers, which in turn could harm our relationships with them and could result in a decline in our worldwide chipset sales and/or a reduction in our licensees’ sales, to wireless operators, causing corresponding declines in our chipset and/or licensing revenues.
Certain legal matters, includingwhich may include certain claims by other companies that we infringe their intellectual property, are described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.”
We may engage in strategic acquisitions, transactions or make investments that could adversely affect our results of operations or fail to enhance stockholder value.
We engage in strategic acquisitions and other transactions, including joint ventures, and make investments, which we believe are important to the future of our business, with the goal of maximizing stockholder value. We acquire businesses and other assets, including patents, technology, wireless spectrum and other intangible assets, enter into joint ventures or other strategic transactions and purchase minority equity interests in or make loans to companies that may be private and early-stage. Our strategic activities are generally focused on opening or expanding opportunities for our technologies and supporting the design and introduction of new products and services (or enhancing existing products or services) for voice and data communications and new industry segments. Recent material transactions include our acquisition of CSR plc, our RF360 Holdings joint venture with TDK Corporation and our proposed acquisition of NXP. Many of our strategic activities entail a high degree of risk and require the use of domestic and/or foreign capital, and investments may not become liquid for several years after the date of the investment, if at all. Our strategic activities may not generate financial returns or result in increased adoption or continued use of our technologies, products or services. We may underestimate the costs and/or
overestimate the benefits, including product, revenue, cost and other synergies and growth opportunities that we expect to realize, and we may not achieve those benefits. In some cases, we may be required to consolidate or record our share of the earnings or losses of companies in which we have acquired ownership interests. In addition, we may record impairment charges related to our strategic activities. Any losses or impairment charges that we incur related to strategic activities will have a negative impact on our financial condition and results of operations, and we may continue to incur new or additional losses related to strategic assets or investments that we have not fully impaired or exited.
Achieving the anticipated benefits of business acquisitions, including joint ventures and other strategic investments in which we have management and operational control, depends in part upon our ability to integrate the businesses in an efficient and effective manner and achieve anticipated synergies, and we may not be successful in these efforts. Such integration is complex and time consuming and involves significant challenges, including, among others: retaining key employees; successfully integrating new employees, technology, products, processes, operations (including manufacturing operations), sales and distribution channels, business models and business systems; retaining customers and suppliers of the businesses; consolidating research and development and/or supply operations; minimizing the diversion of management’s attention from ongoing business matters; consolidating corporate and administrative infrastructures; and managing the increased scale, complexity and globalization of our business, operations and employee base. We may not derive any commercial value from associated technologies or products or from future technologies or products based on these technologies, and we may be subject to liabilities that are not covered by indemnification protection that we may obtain, and we may become subject to litigation. Additionally, we may not be successful in entering or expanding into new sales or distribution channels, business or operational models (including manufacturing), geographic regions, industry segments and/or categories of products served by or adjacent to the associated businesses or in addressing potential new opportunities that may arise out of the combination.
If we do not achieve the anticipated benefits of business acquisitions or other strategic activities, our business and results of operations may be adversely affected, and we may not enhance stockholder value by engaging in these transactions.
We are subject to various laws, regulations, policies and standards. Our business may suffer as a result of existing, or new or amended, laws, regulations, policies or standards and/or our failure or inability to comply with laws, regulations, policies or standards.
Our business, products and services, and those of our customers and licensees, are subject to various laws and regulations globally, as well as government policies and the specifications of international, national and regional communications standards bodies. Compliance with existing laws, regulations, policies and standards, the adoption of new laws, regulations, policies or standards, changes in the interpretation of existing laws, regulations, policies or standards, changes in the regulation of our activities by a government or standards body and/or rulings in court, regulatory, administrative or other proceedings relating to such laws, regulations, policies or standards, including, among others, those affecting licensing practices, competitive business practices, the use of our technology or products, protection of intellectual property, trade, foreign currency, investments or loans, spectrum availability and license issuance, adoption of standards, the provision of device subsidies by wireless operators to their customers, taxation, export control, privacy and data protection, environmental protection, health and safety, labor and employment, human rights, corporate governance, public disclosure or business conduct could have an adverse effect on our business and results of operations.
Government policies, particularly in China, that restrict the timing of funds that may flow out of a country may impact the timing of our receipt of payments from our customers and/or licensees in such country, which may negatively impact our cash flows.
Delays in government approvals or other governmental activities that could result from, among others, a decrease in or a lack of funding for certain agencies or branches of the government and/or political changes, could result in our incurring higher costs, could negatively impact our ability to timely consummate strategic transactions and/or could have other negative impacts on our business and the businesses of our customers and licensees.
National, state and local environmental laws and regulations affect our operations around the world. These laws may make it more expensive to manufacture, have manufactured and sell products, and our costs could increase if our vendors (e.g., suppliers, third-party manufacturers or utility companies) pass on their costs to us. We are also subject to laws and regulations impacting the manufacturing operations we acquired through our RF360 Holdings joint venture. See the Risk Factor entitled “There are numerous risks associated with our operation and control of manufacturing facilities we acquired through the formation of our joint venture with TDK, RF360 Holdings, including high fixed costs, environmental compliance and liability, exposure to natural disasters, timely supply of equipment and materials and manufacturing difficulties.”
Regulations in the United States require that we determine whether certain materials used in our products, referred to as conflict minerals, originated in the Democratic Republic of the Congo or an adjoining country (collectively, the Covered
Countries), or were from recycled or scrap sources. Other countries or regions may impose similar requirements in the future. The verification and reporting requirements, in addition to customer demands for conflict free sourcing, impose additional costs on us and on our suppliers and may limit the sources or increase the prices of materials used in our products. Further, if we are unable to determine that the conflict minerals used in our products do not directly or indirectly finance or benefit armed groups in the Covered Countries, we may face challenges with our customers that place us at a competitive disadvantage, and our reputation may be harmed. Similarly, other laws and regulations have been adopted or proposed that require additional transparency regarding the employment practices of our suppliers, and any failure to maintain responsible sourcing practices could also adversely affect our relationships with customers and our reputation.
Laws, regulations, policies and standards are complex and changing and may create uncertainty regarding compliance. Laws, regulations, policies and standards are subject to varying interpretations in many cases, and their application in practice may evolve over time. As a result, our efforts to comply may fail, particularly if there is ambiguity as to how they should be applied in practice. Failure to comply with any law, regulation, policy or standard may adversely affect our business, results of operations and/or cash flows. New laws, regulations, policies and standards or evolving interpretations of legal requirements may cause us to incur higher costs as we revise current practices, policies and/or procedures and may divert management time and attention to compliance activities.
Our use of open source software may harm our business.
Certain of our software and our suppliers’ software may contain or may be derived from “open source” software, and we have seen, and believe that we will continue to see, an increase in customers requestingrequest that we develop products, including software associated with our integrated circuit products, that incorporate open source software elements and operate in an open source environment, which, under certain open source licenses, may offer accessibility to a portion of a product’sour products’ source code and may expose our related intellectual property to adverse licensing conditions. Licensing of such software may impose certain obligations on us if we were to distribute derivative works of the open sourcethat software. For example, these obligations may require us to make source code for the derivative works available to our customers in a manner that allows them to make such source code available to their customers or license such derivative works under a particular type of license that is different than what we customarily use to license our software. Furthermore, in the course of product development, we may make contributions to third-party open source projects that could subject our intellectual property to adverse licensing conditions. For example, to encourage the growth of a software ecosystem that is interoperable with our products, we may need to contribute certain implementations under the open source licensing terms that govern such projects, which may adversely impact our associated intellectual property. Developing open source products, while adequately protecting the intellectual property rights upon which our licensing businessprogram depends, may prove burdensome and time-consuming under certain circumstances, thereby placing us at a competitive disadvantage, and we may not adequately protect our intellectual property rights.property. Also, our use and our customers’ use of open source software may subject our products and our customers’ products to governmental and third-party scrutiny and delays in product certification, which could cause customers to view our products as less desirable than our competitors’ products. While we believe we have taken appropriate steps
GENERAL RISK FACTORS
We operate in the highly cyclical semiconductor industry, which is subject to significant downturns. We are also susceptible to declines in global, regional and employ adequate controls to protect our intellectual property rights, our use of open source software presents risks that could have an adverse effect on these rights and on our business.
local economic conditions generally. Our stock price earnings and the fair value of our investmentsfinancial results are subject to substantial quarterly and annual fluctuations due to these dynamics, among others.
The semiconductor industry is highly cyclical, volatile, subject to downturns and characterized by constant and rapid technological change, price erosion, evolving technical standards, frequent new product introductions, short product life cycles and fluctuations in product supply and demand. Periods of downturns have been characterized by diminished demand for end-user products, high inventory levels, excess or obsolete inventory adjustments, underutilization of manufacturing capacity, changes in revenue mix and erosion of average selling prices. We expect our business to marketcontinue to be subject to such cyclical downturns. Consequently, our revenues may decline, and our results of operations and financial condition may be adversely impacted.
A decline in global, regional or local economic conditions or a slow-down in economic growth, particularly in geographic regions with high concentrations of wireless voice and data users or high concentrations of our customers or licensees, could also have adverse, wide-ranging effects on our business and financial results, including: a decrease in demand for our products and technologies; a decrease in demand for the products and services of our customers or licensees; the inability of our suppliers to deliver on their supply commitments to us, our inability to supply our products to our customers and/or the inability of our customers or licensees to supply their products to end users; the insolvency of key suppliers, customers or licensees; delays in reporting or payments from our customers or licensees; failures by counterparties; and/or negative effects on wireless device inventories. In addition, our customers’ and licensees’ ability to purchase or pay for our products and intellectual property and network operators’ ability to upgrade their wireless networks could be adversely affected, potentially leading to a reduction, cancellation or delay of orders for our products.
Our stock price and earningsfinancial results have fluctuated in the past and are likely to fluctuate in the future. Factors that may have a significant impact on the market price of our stock and/or earningsand our financial results include those identified above and throughout this Risk Factors section, as well as; volatility of the stock market in general and technology-basedtechnology and semiconductor companies in particular,particular; announcements concerning us, our suppliers, our competitors or our customers or licenseeslicensees; and variations between our actual financial results or guidance and expectations of securities analysts or investors, among others. Further, increased volatility in the financial markets and/or overall economic conditions may reduce the amounts that we realize in the future on our cash equivalents and/or marketable securities and may reduce our earnings as a result of any impairment charges that we record to reduce recorded values of marketable securities to their fair values.
In the past, securities class action litigation has been brought against a companycompanies following periods of volatility in the market price of its securities. Due to changes in our stock price, wetheir securities, among other reasons. We are and may in the future be the target of securities litigation. Securities litigation could result in substantial uninsured costs and divert management’s attention and our resources. Certain legal matters, including certain securities litigation brought against us, are described more fully in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.”
We maintain an extensive investment portfolioOur business may suffer due to the impact of, varied holdings,or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are generally classified as available-for-salesubject.
Our business and are therefore recorded on our consolidated balance sheet at fair value, with unrealized gains or losses reported as a component of accumulated other comprehensive income. The fair valuesproducts, and those of our investmentscustomers and licensees, are subject to fluctuation based primarily on market price volatility,various laws, rules and regulations globally as well as government policies and the underlyingspecifications of international, national and regional communications standards bodies (collectively, Regulations). These include, among others: Regulations affecting patent licensing practices; antitrust, competition and competitive business practices; the flow of funds out of certain countries (e.g., China); cybersecurity; import and export regulations such as the U.S. Export Administration Regulations administered by the U.S. Department of Commerce; protection of intellectual property; trade and trade protection including tariffs; foreign policy and national security; environmental protection (including climate change), health and safety; supply chain, responsible sourcing, including the use of conflict minerals, and human rights; spectrum availability and license issuance; adoption of standards; taxation; privacy and data protection; labor, employment and human capital; corporate governance; public disclosure; or business conduct. Compliance with, or changes in the interpretation of, existing Regulations, the adoption of new Regulations, changes in the oversight of our activities by governments or standards bodies, or rulings in court, regulatory, administrative or other proceedings relating to such Regulations, including, among others, could have an adverse effect on our business and results of operations.See also the Risk Factors titled “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings,” “Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations,” “A significant portion of our business is concentrated in China, and the associated investment, among other things. If the fair valuerisks of such investments decreases below their cost basis, as someconcentration are exacerbated by U.S./China trade and national security tensions,” “There are numerous risks associated with the operation and control of our previous investments have, we may be required in certain circumstancesmanufacturing facilities, including a higher portion of fixed costs relative to recognize a loss infabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues,” and “Tax liabilities could adversely affect our results of operations. The sensitivity”
Regulations are complex and changing (which may create uncertainty regarding compliance), are subject to varying interpretations, and their application in practice may evolve over time. As a result, our efforts to comply with Regulations may fail, particularly if there is ambiguity as to how they should be applied in practice. Failure to comply with any Regulation may adversely affect our business, results of operations and risks associated withcash flows. New Regulations, or evolving interpretations thereof, may cause us to incur higher costs as we revise current practices, policies or procedures and may divert management time and attention to compliance activities.
the market value of our investment portfolio are described more fully in this Annual Report in “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
There are risks associated with our indebtedness.debt.
Our outstanding indebtednessdebt and any additional indebtednessdebt we incur including in connection with our proposed acquisition of NXP, may have negative consequences on our business, including, among others:
requiring us to use cash to pay the principal of and interest on our indebtedness,debt, thereby reducing the amount of cash available for other purposes;
limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, stock repurchases, dividends, general corporate or other general corporatepurposes; and other purposes;
limiting our flexibility in planning for, or reacting to, changes in our business, and our industry; and/industries or
increasing our vulnerability to interest rate fluctuations to the extent a portion of our debt has variable interest rates.
market. Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic and political conditions, industry cycles and financial, business and other factors, including factors which negatively impact our cash flows, such as licensees withholding some or all of the royalty payments they owe to us or paying fines in connection with regulatory investigations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to, among other things: repatriate funds to the United States at substantial tax cost; refinance or restructure all or a portion of our indebtedness;debt; reduce or delay planned capital or operating expenditures; reduce, suspend or eliminate our dividend payments and/or our stock repurchase program; or sell selected assets. Such measures might not be sufficient to enable us to service our debt. In addition, any such refinancing, restructuring or sale of assets might not be available on economically favorable terms or at all, and if prevailing interest rates at the time of any such refinancing and/or restructuring are higher than our current rates, interest expense related to such refinancing and/or restructuring would increase. IfFurther, if there are adverse changes in the ratings assigned to our debt securities by credit rating agencies, our borrowing costs, our ability to access debt financing in the future and/orand the terms of such debt could be adversely affected.
Our business and operations could suffer in the event of security breaches or other misappropriation of our intellectual property or proprietary or confidential information.
Attempts by others to gain unauthorized access to our information technology systems are increasingly more sophisticated. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks, including those in our manufacturing operations, and impersonating authorized users, among others. In addition, employees and former employees, in particular former employees who become employees of our competitors, customers or licensees, may misappropriate, use, publish or provide to our competitors, customers or licensees our intellectual property and/or proprietary or confidential business information. We seek to detect and investigate all security incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or publication of our intellectual property and/or proprietary or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives and/or otherwise adversely affect our business. To the extent any security breach results in inappropriate disclosure of our customers’ or licensees’ proprietary or confidential information, we may incur liability. We expect to continue to devote significant resources to the security of our information technology systems.
Potential taxTax liabilities could adversely affect our results of operations.
We are subject to income taxes in the United States and numerous foreign jurisdictions, including Singapore where our QCT segment’s non-United States headquarters is located.jurisdictions. Significant judgment is required in determining our provision for income taxes. We regularly are subject to examination of our tax returns and reports by taxing authorities in the United States federal jurisdiction and various state and foreign jurisdictions, most notably in countries where we earn a routine return and the tax authorities believe substantial value-add activities are performed. Our current examinations are at various stages with respect to assessments, claims, deficiencies and refunds. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. Althoughperformed, as well as countries where we believe that our tax estimates are reasonable at September 24, 2017, theown intellectual property. The final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our historical income tax provisions and accruals. In such case, our income tax provision, results of operations and/orand cash flows in the period or periods in which that determination is made could be negatively affected.
We have tax incentives in Singapore provided that we meet specified employment and other criteria, and as a result of the expiration of these incentives, our Singapore tax rate increased in fiscal 2017 and is expected to increase again in fiscal
2027. If we do not meet the criteria required to retain such incentives, our Singapore tax rate could increase prior to fiscal 2027, and our results of operations and cash flows could be adversely affected.
Tax rules may change in a manner that adversely affects our future reported results of operations or the way we conduct our business. For example,In response to the 2017 Tax Cuts and Jobs Act and to better align our profits with our activities, we consider the operating earningsimplemented certain restructuring in fiscal 2018 and 2019. After our restructuring, most of certain non-United States subsidiaries to be indefinitely reinvested outsideour income is taxable in the United States based onwith a significant portion qualifying for preferential treatment as FDII (foreign-derived intangible income). Beginning in fiscal 2027, the effective tax rate for FDII increases from 13% to 16%. Further, if U.S. tax rates increase and/or the FDII deduction is eliminated or reduced, both of which have been proposed by the current U.S. presidential administration and Congress, our current needsprovision for those earnings to be reinvested offshore as well as estimates that future domestic cash generated from operations and/or borrowings will be sufficient to meet future domestic cash needs for the foreseeable future. No provision has been made for United States federal, state or foreignincome taxes, that may result from future remittances of the undistributed earnings of these foreign subsidiaries. Our future results of operations and liquiditycash flows would be adversely (potentially materially) affected beginning as early as the first quarter of fiscal 2022. Also, if our customers move manufacturing operations to the United States, our FDII deduction may be adversely affected ifreduced.
We have tax rules regarding unrepatriated earnings change, if domestic cash needsincentives in Singapore that require we meet specified employment and other criteria. Although our profit in Singapore has declined as a result of our 2018 restructuring and such tax incentives were not significant beginning in fiscal 2019, failure to meet these incentive requirements through March 2022 could require us to repatriate foreign earnings, if the shares of these foreign subsidiaries were sold or otherwise transferred or if the United States internationalrefund previously realized material tax rules change as part of comprehensive tax reform or other tax legislation.benefits for 2017 and 2018.
Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (BEPS) project that was undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles related to transfer pricing.pricing and continues to develop new proposals including allocating greater taxing rights to countries where customers are located and establishing a minimum tax on global income. These changes, ifas adopted by countries, couldmay increase tax uncertainty and may adversely affect our provision for income taxes, results of operations and/orand cash flow. We have not yet determined what changes, if any, may be needed to our operations or structure to address BEPS. If our effective tax rates were to increase, particularly in the United States or Singapore, our results of operations, cash flows and/or financial condition could be adversely affected.flows.
Global, regional or local economic conditions that impact the mobile communications industry or the other industries in which we operate could negatively affect the demand for our products and services and our customers’ or licensees’ products and services, which may negatively affect our revenues.
A decline in global, regional or local economic conditions or a slow-down in economic growth, particularly in geographic regions with high concentrations of wireless voice and data users or high concentrations of our customers or licensees, could have adverse, wide-ranging effects on demand for our products and for the products and services of our customers or licensees, particularly equipment manufacturers or others in the wireless communications industry who buy their products, such as wireless operators. Any prolonged economic downturn may result in a decrease in demand for our products or technologies; the insolvency of key suppliers, customers or licensees; delays in reporting and/or payments from our licensees and/or customers; failures by counterparties; and negative effects on wireless device inventories. In addition, our customers’ ability to purchase or pay for our products and services and network operators’ ability to upgrade their wireless networks could be adversely affected by economic conditions, leading to a reduction, cancelation or delay of orders for our products or services.
We may not be able to attract and retain qualified employees.
Our future success depends largely upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to identify, attract, retain and motivate them. Implementing our business strategy requires specialized engineering and other talent, as our revenues are highly dependent on technological and product innovations. The market for employees in our industry is extremely competitive. Further, existing immigration laws make it more difficult for us to recruit and retain highly skilled foreign national graduates of universities in the United States, making the pool of available talent even smaller. If we are unable to attract and retain qualified employees, our business may be harmed.
Currency fluctuations could negatively affect future product sales or royalty revenues, harm our ability to collect receivables or increase the U.S. dollar cost of our products.
Our customers sell their products throughout the world in various currencies. Our consolidated revenues from international customers and licensees as a percentage of our total revenues were greater than 90% in each of the last three fiscal years. Adverse movements in currency exchange rates may negatively affect our business, revenues, results of operations and/or cash flows due to a number of factors, including, among others:
Our products and those of our customers and licensees that are sold outside the United States may become less price-competitive, which may result in reduced demand for those products and/or downward pressure on average selling prices;
Certain of our revenues, such as royalties, that are derived from licensee or customer sales denominated in foreign currencies could decrease;
Our foreign suppliers may raise their prices if they are impacted by currency fluctuations, resulting in higher than expected costs and lower margins;
Certain of our costs that are derived from supply contracts denominated in foreign currencies could increase; and/or
Foreign exchange hedging transactions that we engage in to reduce the impact of currency fluctuations may require the payment of structuring fees, limit the U.S. dollar value of royalties from licensees’ sales that are denominated in foreign currencies, cause earnings volatility if the hedges do not qualify for hedge accounting and expose us to counterparty risk if the counterparty fails to perform.
Failures in our products or services or in the products or services of our customers or licensees, including those resulting from security vulnerabilities, defects or errors, could harm our business.
The use of devices containing our products to access untrusted content creates a risk of exposing the system software in those devices to viral or malicious attacks. While we continue to focus on this issue and are taking measures to safeguard our products from cybersecurity threats, device capabilities continue to evolve, enabling more data and processes, such as computing, and increasing the risk of security failures. Further, our products are inherently complex and may contain defects or errors that are detected only when the products are in use. The design process interface in new domains of technology and the migration to integrated circuit technologies with smaller geometric feature sizes are complex and add risk to manufacturing yields and reliability. Further, manufacturing, testing, marketing and use of our products and those of our customers and licensees entail the risk of product liability. Because our products and services are responsible for critical functions in our customers’ products and/or networks, security failures, defects or errors in our products or services could have an adverse impact on us, on our customers and/or on the end users of our customers’ products. Such adverse impact could include product liability claims or recalls, write-offs of our inventories, property, plant and equipment and/or intangible assets; unfavorable purchase commitments; a shift of business to our competitors; a decrease in demand for connected devices and wireless services; damage to our reputation and to our customer relationships; and other financial liability or harm to our business. Further, security failures, defects or errors in the products of our customers or licensees could have an adverse impact on our results of operations and/or cash flows due to a delay or decrease in demand for our products or services generally, and our premium-tier products in particular, among other factors.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
At September 24, 2017,26, 2021, we occupied the following facilities (square footage in millions):
|
| | | | | | | | |
| | United States | | Other Countries | | Total |
| Owned facilities | 4.6 |
| | 0.2 |
| | 4.8 |
|
| Leased facilities | 1.6 |
| | 4.6 |
| | 6.2 |
|
| Total | 6.2 |
| | 4.8 |
| | 11.0 |
|
| | | | | | | | | | | | | | | | | |
| United States | | Other Countries | | Total |
| Owned facilities | 4.5 | | | 0.3 | | | 4.8 | |
| Leased facilities | 1.0 | | | 6.4 | | | 7.4 | |
| Total | 5.5 | | | 6.7 | | | 12.2 | |
Our headquarters as well asand certain research and development manufacturing and network management hub operations are located in San Diego, California. Additionally, our QCT segment’s non-United States headquarters is located in Singapore. Our consolidated RF360 Holdings joint venture with TDK leasesWe also operate leased manufacturing facilities in Germany, China and Singapore. We alsoSingapore; and we own and lease properties around the world for use as sales and administrative offices and research and development centers, primarily in the United States, India and India.China. Our facility leases expire at varying dates through 2025,2032, not including renewals that would beare at our
option. Several other owned and leased facilities are under construction totaling approximately 128,000960 thousand additional square feet.feet, primarily related to the construction of new facilities in India and Taiwan.
We do not identify or allocate facilities by operating segment. In response to the COVID-19 pandemic, beginning in fiscal 2020, we modified certain of our workforce practices, such as having the vast majority of our employees work from home. Such changes have impacted the physical utilization of certain of our non-manufacturing facilities during both fiscal 2021 and 2020; however, we believe that collectively our facilities are suitable and adequate for our present purposespurposes. We have commenced a phased approach to returning our employees onsite, which included modifications to certain of our facilities as we adapt to a hybrid work environment. We are utilizing the feedback and thatinsights gained through such phased approach taken to reopening our offices to assess the suitability, adequacy, productive capacity and utilization of our existing principal properties, which may result in facilities that are notchanges to our physical property needs in the future. Information related to our additional capital requirements is provided in this Annual Report in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the “Liquidity and Capital Resources” section under construction is substantially utilized. We do not identify or allocate facilities by operating segment.the heading “Additional Capital Requirements.” Additional information on net property, plant and equipment by geography is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.” In the future, we may need to purchase, build or lease additional facilities to meet the requirements projected in our long-term business plan.
Item 3. Legal and Regulatory Proceedings
Information regarding legal and regulatory proceedings is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” We are also engaged in numerous other legal actions arising in the ordinary course of our business (such as, for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights), and while there can be no assurance, we believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
Part
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Dividends
Our common stock is traded on the NASDAQ Global Select Market (NASDAQ) under the symbol “QCOM.” The following table sets forth the range of high and low sales prices of our common stock as reported by NASDAQ and cash dividends announced per share of common stock, for the fiscal periods presented. Quotations of our stock price represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
|
| | | | | |
| | High ($) | | Low ($) | | Dividends ($) |
| 2017 | | | | | |
| First quarter | 71.62 | | 61.86 | | 0.53 |
| Second quarter | 67.58 | | 52.37 | | 0.53 |
| Third quarter | 59.89 | | 51.05 | | 0.57 |
| Fourth quarter | 57.69 | | 48.92 | | 0.57 |
| 2016 | | | | | |
| First quarter | 61.19 | | 45.93 | | 0.48 |
| Second quarter | 53.52 | | 42.24 | | 0.48 |
| Third quarter | 56.27 | | 49.67 | | 0.53 |
| Fourth quarter | 64.00 | | 50.84 | | 0.53 |
At October 30, 2017,November 1, 2021, there were 7,3106,511 holders of record of our common stock. On October 30, 2017, the last sale price reported on the NASDAQ for our common stock was $54.66 per share. On October 10, 2017, we announced a cash dividend of $0.57 per share on our common stock, payable on December 15, 2017 to stockholders of record as of the close of business on November 29, 2017.
We intend to continue to pay quarterly cash dividends, subject to capital availability and our view that cash dividends are in the best interests of our stockholders. Future dividends may be affected by, among other items, our views on potential future capital availability and requirements, including those relating to research and development, creation and expansion of sales and distribution channels, investments and acquisitions, legal and regulatory risks, withholding of payments by one or more of our significant licensees and/or customers, fines by government agencies and/or adverse rulings by a courtgovernment agencies, courts or arbitratorarbitrators in a legal matter,or regulatory matters, stock repurchase programs, debt issuance,issuances, changes in federal, and state or foreign income tax law, trade and/or national security protection policies, volatility in economies and financial markets globally and changes to our business model.
Share-Based Compensation
We primarily issue restricted stock units under our equity compensation plans, which are part of a broad-based, long-term retention program that is intended to attract and retain talented employees and directors and align stockholder and employee interests.
Our 2016 Long-Term Incentive Plan (2016 Plan) provides for the grant of both incentive and nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance units, performance shares, deferred compensation awards and other stock-based awards. Restricted stock units generally vest over periods of three years from the date of grant. Stock options vest over periods not exceeding five years and are exercisable for up to ten years from the grant date. The Board of Directors may amend or terminate the 2016 Plan at any time, with certain amendments also requiring stockholder approval.
Additional information regarding our share-based compensation plans and plan activity for fiscal 2017, 2016 and 2015 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 5. Employee Benefit Plans” and additional information regarding our share-based compensation plans for fiscal 2017 will be provided in our 2018 Proxy Statement under the heading “Equity Compensation Plan Information.”
Issuer Purchases of Equity Securities
IssuerOur purchases of our equity securities duringin the fourth quarter of fiscal 20172021 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid Per Share
(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be
Purchased Under the Plans or Programs
(2) |
| (In thousands) | | | | (In thousands) | | (In millions) |
| June 28, 2021 to July 25, 2021 | — | | | $ | — | | | — | | | $ | 2,019 | |
| July 26, 2021 to August 22, 2021 | 1,247 | | | 146.31 | | | 1,247 | | | 1,836 | |
| August 23, 2021 to September 26, 2021 | 4,164 | | | 141.32 | | | 4,164 | | | 1,248 | |
| | | | | | | |
| | | | | | | |
| Total | 5,411 | | | | | 5,411 | | | |
(1) Average Price Paid Per Share excludes cash paid for commissions. |
| | | | | | | | | | | | | |
| | Total Number of Shares Purchased | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| | (In thousands) | | | | (In thousands) | | (In millions) |
| June 26, 2017 to July 23, 2017 | — |
| | $ | — |
| | — |
| | $ | 1,959 |
|
| July 24, 2017 to August 20, 2017 | 2,854 |
| | 52.54 |
| | 2,854 |
| | 1,809 |
|
| August 21, 2017 to September 24, 2017 | 3,268 |
| | 50.47 |
| | 3,268 |
| | 1,644 |
|
| Total | 6,122 |
| |
|
| | 6,122 |
| |
|
|
| |
(1) | Average Price Paid Per Share excludes cash paid for commissions. |
| |
(2) | On March 9, 2015, we announced a repurchase program authorizing us to repurchase up to $15 billion of our common stock. At September 24, 2017, $1.6 billion remained authorized for repurchase. The stock repurchase program has no expiration date. |
Unregistered Sales of Equity Securities
In January 2021, we entered into an Agreement and Plan of Merger (the Merger Agreement) for the acquisition of NuVia, Inc. (NUVIA), which transaction closed in March 2021. Pursuant to the Merger Agreement, we are obligated to issue shares of our common stock to three specific founders of NUVIA and certain affiliated entities of such founders from time to time upon the satisfaction of certain conditions specified in the Merger Agreement. During the quarter ended September 26, 2021, we issued an aggregate of 104,499 additional shares of our common stock to the three founders of NUVIA and their affiliates, each of whom had advised us that he or such entity was an accredited investor. These shares were issued in transactions not involving a public offering pursuant to the exemption from registration set forth in Section 4(a)(2) of the Securities Act.
Item 6. Selected Financial Data(Reserved)
The following data should be read in conjunction with the annual consolidated financial statements, related notes and other financial information appearing elsewhere herein. |
| | | | | | | | | | | | | | | | | | | |
| | Years Ended (1) |
| | September 24, 2017 | | September 25, 2016 | | September 27, 2015 | | September 28, 2014 | | September 29, 2013 |
| | (In millions, except per share data) |
| Statement of Operations Data: | | | | | | | | | |
| Revenues | $ | 22,291 |
| | $ | 23,554 |
| | $ | 25,281 |
| | $ | 26,487 |
| | $ | 24,866 |
|
| Operating income | 2,614 |
| | 6,495 |
| | 5,776 |
| | 7,550 |
| | 7,230 |
|
| Income from continuing operations (2) | 2,465 |
| | 5,702 |
| | 5,268 |
| | 7,534 |
| | 6,845 |
|
| Discontinued operations, net of income taxes | — |
| | — |
| | — |
| | 430 |
| | — |
|
| Net income attributable to Qualcomm | 2,466 |
| | 5,705 |
| | 5,271 |
| | 7,967 |
| | 6,853 |
|
| | | | | | | | | | |
| Per Share Data: | | | | | | | | | |
| Basic earnings per share attributable to Qualcomm: | | | | | | | | | |
| Continuing operations | $ | 1.67 |
| | $ | 3.84 |
| | $ | 3.26 |
| | $ | 4.48 |
| | $ | 3.99 |
|
| Discontinued operations | — |
| | — |
| | — |
| | 0.25 |
| | — |
|
| Net income | 1.67 |
| | 3.84 |
| | 3.26 |
| | 4.73 |
| | 3.99 |
|
| Diluted earnings per share attributable to Qualcomm: | | | | | | | | | |
| Continuing operations | 1.65 |
| | 3.81 |
| | 3.22 |
| | 4.40 |
| | 3.91 |
|
| Discontinued operations | — |
| | — |
| | — |
| | 0.25 |
| | — |
|
| Net income | 1.65 |
| | 3.81 |
| | 3.22 |
| | 4.65 |
| | 3.91 |
|
| Dividends per share announced | 2.20 |
| | 2.02 |
| | 1.80 |
| | 1.54 |
| | 1.20 |
|
| | | | | | | | | | |
| Balance Sheet Data: | | | | | | | | | |
| Cash, cash equivalents and marketable securities | $ | 38,578 |
| | $ | 32,350 |
| | $ | 30,947 |
| | $ | 32,022 |
| | $ | 29,406 |
|
| Total assets | 65,486 |
| | 52,359 |
| | 50,796 |
| | 48,574 |
| | 45,516 |
|
| Short-term debt (3) | 2,495 |
| | 1,749 |
| | 1,000 |
| | — |
| | — |
|
| Long-term debt (4) | 19,398 |
| | 10,008 |
| | 9,969 |
| | — |
| | — |
|
| Other long-term liabilities (5) | 2,432 |
| | 895 |
| | 817 |
| | 428 |
| | 550 |
|
| Total stockholders’ equity | 30,746 |
| | 31,768 |
| | 31,414 |
| | 39,166 |
| | 36,087 |
|
| |
(1) | Our fiscal year ends on the last Sunday in September. The fiscal years ended September 24, 2017, September 25, 2016, September 27, 2015, September 28, 2014 and September 29, 2013 each included 52 weeks.
|
| |
(2) | Revenues in fiscal 2017 were negatively impacted by actions taken by Apple and its contract manufacturers as well as the previously disclosed dispute with another licensee, who did not fully report or fully pay royalties due in the last three quarters of fiscal 2017, as well as the $940 million reduction to revenues recorded related to the BlackBerry arbitration. Operating income was further negatively impacted by $927 million and $778 million in charges related to the fines imposed by the KFTC and the TFTC, respectively. |
| |
(3) | Short-term debt was comprised of outstanding commercial paper and, in fiscal 2017, the current portion of long-term debt. |
| |
(4) | Long-term debt was comprised of floating- and fixed-rate notes. |
| |
(5) | Other long-term liabilities in this balance sheet data exclude unearned revenues. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those referred to herein due to a number of factors, including but not limited to the risks described in “Part I, Item 1A. Risk Factors” and elsewhere in this Annual Report.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.
The following section generally discusses fiscal 2021 and 2020 items and year-to-year comparisons between fiscal 2021 and 2020. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and 2019 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.
Fiscal 20172021 Overview and Other Recent Events
Revenues were $22.3$33.6 billion, an increase of 43% compared to revenues of $23.5 billion in fiscal 2020, with net income attributableof $9.0 billion, an increase of 74% compared to Qualcommnet income of $2.5$5.2 billion a decrease of 5% and 57%in fiscal 2020. Highlights from fiscal 2016, respectively. Highlights2021 and other recent events fromincluded:
•QCT revenues increased by 64% in fiscal 2017 included:
| |
• | The transition of wireless networks and devices to 3G/4G (CDMA-single mode, OFDMA-single mode and CDMA/OFDMA multi-mode) continued around the world. 3G/4G connections increased to approximately 4.7 billion, up 16% year-over-year, and represent approximately 60% of total mobile connections at the end of fiscal 2017, up from 54% at the end of fiscal 2016.(1)
|
We continue2021 compared to invest significant resources toward advancementsthe prior year, primarily in support of 4G OFDMA- and 5G-based technologies as well as other technologiesdue to extend thean increase in demand for our5G products across handsets and generate new or expanded licensing opportunities, including within adjacent industry segments outside traditional cellular industries, such as automotive, the Internet of Things (IoT) and networking.
QCT results were positively impacted by growthRFFE, in revenues related to adjacent industry segments outside traditional cellular industries, results from our recently formed RF360 Holdings joint venture and cost reduction initiatives achieved under the Strategic Realignment Plan, partially offset bypart reflecting a decline in share at Apple.
QTL results were negatively impacted by actions taken by Apple and its contract manufacturers, as well as the previously disclosed dispute with another licensee, who underpaid royalties due in the second quarter of fiscal 2017 and did not report or pay royalties due in the third or fourth quarter of fiscal 2017.
In January 2017, we received a formal written decisionrecovery from the Korea Fairnegative impacts of COVID-19, along with higher automotive and IoT revenues.
•QTL revenues increased by 26% in fiscal 2021 compared to the prior year, primarily due to an increase in estimated sales of 3G/4G/5G-based multimode products, in part reflecting a recovery from the negative impacts of COVID-19.
•QSI earnings before income taxes increased by $927 million compared to the prior year, primarily due to higher net gains on investments.
•On March 16, 2021, we completed the acquisition of NUVIA for $1.1 billion, net of cash acquired. NUVIA has certain in-process technologies and is comprised of a CPU (central processing unit) and technology design team with expertise in high performance processors, SoC (system-on-chip) and power management for compute-intensive devices and applications. Upon completion of development, NUVIA’s technologies are expected to be integrated into certain QCT products.
•On March 26, 2021, the FTC’s deadline for filing a petition for certiorari with the U.S. Supreme Court to seek review of the Ninth Circuit’s decision in our favor in United States Federal Trade Commission (KFTC) in connection with its investigation of us, which ordered certain remedial actions(FTC) v. QUALCOMM Incorporated expired. The case is now over.
•In October 2021, we and imposedSSW Partners, a fine of approximately 1.03 trillion Korean Won (approximately $927 million). The fine was paid in March 2017.
On October 11, 2017, the Taiwan Fair Trade Commission (TFTC) announced that it had reached a decision in its investigation of us and found us to be in violation of the Taiwan Fair Trade Act. On October 23, 2017, we received the TFTC’s written decision, which prohibits certain conduct, allows for certain competing chip companies and handset manufacturers to request to amend or enter into patent license and other relevant agreements, and imposes a fine of approximately 23.4 billion Taiwan Dollars (approximately $778 million based on the exchange rate at September 24, 2017), which was recorded as a charge to other expense in the fourth quarter of fiscal 2017.
In May 2017, in connection with the arbitration decision, weNew York-based investment partnership, entered into a Joint Stipulation Regarding Final Award Agreement with BlackBerry Limited (BlackBerry) and paid to BlackBerry $940 million to cover the award amount, prejudgment interest and attorney’s fees. This amount, which was recorded as a reduction to revenues, also reflected certain amounts that were owed to us by BlackBerry.
On October 27, 2016, we announced a definitive agreement under which Qualcomm River Holdings, B.V. (Qualcomm River Holdings), an indirect, wholly owned subsidiary of QUALCOMM Incorporated, will acquire NXP Semiconductors N.V. (NXP). Pursuant to the definitive agreement, Qualcomm River Holdings has commenced a tender offer to acquire all of the issued and outstanding common shares of NXPVeoneer, Inc. (Veoneer) for $110$37.00 per share in cash, forwhich values the estimated total cash consideration to be paid to NXP’sVeoneer’s shareholders at approximately $4.5 billion. At closing, SSW Partners will acquire all of $38 billion. NXPthe outstanding capital stock of Veoneer, shortly after which it will sell Veoneer’s Arriver business to Qualcomm and retain Veoneer’s Tier-1 automotive supplier businesses. Following the close of the Arriver business sale, we intend to incorporate Arriver’s computer vision, drive policy and driver assistance technologies into our Snapdragon automotive platform to deliver an open and competitive ADAS platform for automakers and Tier-1 automotive suppliers. Subject to the satisfaction of closing conditions, the acquisition is a leader in high-performance, mixed-signal semiconductor electronics in automotive, broad-based microcontrollers, secure identification, network processing and RF power products. The transaction is subject to receipt of regulatory approvals in various jurisdictions and other closing conditions. While we continue to workexpected to close by the end of calendar 2017, the transaction may close in early 2018.2022.
In May 2017, we issued an aggregate principal amount of $11.0 billion in nine tranches of unsecured floating- and fixed-rate notes, with maturity dates starting in 2019 through 2047 and effective interest rates between 1.80% and 4.47%. The proceeds are intended to be used to finance, in part, our proposed acquisition of NXP and other related transactions and for general corporate purposes.
| |
(1) | According to GSMA Intelligence estimates as of October 30, 2017 (estimates excluded Wireless Local Loop). |
Our Business and Operating Segments
We develop and commercialize foundational technologies and products used in mobile devices and other wireless products, including network equipment, broadband gateway equipment and consumer electronics devices.products. We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents software and other rights.
We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies for use in mobile devices, wireless networks, devices used in IoT, broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems. QTL grants licenses to use portions of its intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies), our mobile health, data center, small cellcloud AI inference processing initiative and other wireless technology and service initiatives.
Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering, research and development functions, are operated by Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.
Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.
Seasonality.Many of our products and/orand much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. As a result, QCT has tendedOur revenues have historically to have stronger sales toward the end of the calendar yearfluctuated based on consumer demand for devices, as manufacturers prepare for major holiday selling seasons; and because QTL recognizes royalty revenues when royalties are reported by licensees, QTL has tended to record higher royalty revenues in the first calendar quarter when licensees report their sales made in the fourth calendar quarter. We have also experienced fluctuations in revenues due towell as on the timing of conversionscustomer/licensee device launches and/or innovation cycles (such as the transition to the next generation of wireless technologies). This has resulted in fluctuations in QCT revenues in advance of and expansions of 3G and 4G networks by wireless operators and the timing ofduring device launches of flagship wireless devices that incorporateincorporating our products and/or intellectual property.and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future. These seasonalFurther, the trends for QTL have been, and may in the future be, impacted by disputes and/or resolutions with licensees.licensees and/or governmental investigations or proceedings.
Results of Operations | | | | | | | | | | | | | | | | | | | | | |
| Revenues (in millions) | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Equipment and services | $ | 26,741 | | | $ | 16,298 | | | | | $ | 10,443 | | | |
| Licensing | 6,825 | | | 7,233 | | | | | (408) | | | |
| $ | 33,566 | | | $ | 23,531 | | | | | $ | 10,035 | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Revenues (in millions) | | | | | |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 Change | | 2016 vs. 2015 Change |
| Equipment and services | $ | 16,647 |
| | $ | 15,467 |
| | $ | 17,079 |
| | $ | 1,180 |
| | $ | (1,612 | ) |
| Licensing | 5,644 |
| | 8,087 |
| | 8,202 |
| | (2,443 | ) | | (115 | ) |
| | $ | 22,291 |
| | $ | 23,554 |
| | $ | 25,281 |
| | $ | (1,263 | ) | | $ | (1,727 | ) |
The increase in revenues in fiscal 2021 was primarily due to:
+ $10.4 billion in higher equipment and services revenues from our QCT segment
+ $1.3 billion in fiscal 2017 is primarily due to an increase in QCThigher licensing revenues of $1.13from our QTL segment
- $1.8 billion and an increase in QSI revenues of $66 million. The decrease in equipment and services revenues in fiscal 2016 was primarily due to a decrease in QCT revenues of $1.76 billion, partially offset by increases in revenues of one of our nonreportable segments and our QSI segment of $56 million and $43 million, respectively. The decrease in licensing revenues from Huawei recorded in the fourth quarter of fiscal 2017 was primarily2020 resulting from amounts due under the settlement agreement signed in July 2020 and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent license agreement signed in July 2020 (which were not allocated to the decrease in QTL revenues, the reduction to licensing revenues of $962 million related to the BlackBerry arbitration and a $103 million decrease in revenues of one of our nonreportable segments. The decrease in licensing revenues in fiscal 2016 was primarily due to the decrease in QTL revenues, partially offset by a $143 million increase in revenues of one our nonreportable segments.segment results)
In fiscal 2017, 2016 and 2015, revenues from suppliers to Apple Inc. and from Samsung Electronics each comprised more than 10% of consolidated revenues. Combined revenues from GuangDong OPPO Mobile Telecommunications Corp. Ltd. and vivo Communication Technology Co., Ltd., and their respective affiliates, also comprised more than 10% of consolidated revenues in fiscal 2017. QCT and QTL segment revenues related to the products of these customers/licensees comprised 51%, 49% and 47% of total consolidated revenues in fiscal 2017, 2016 and 2015, respectively.
| | | | | | | | | | | | | | | | | | | | | |
| Costs and Expenses (in millions, except percentages) | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Cost of revenues | $ | 14,262 | | | $ | 9,255 | | | | | $ | 5,007 | | | |
| Gross margin | 58 | % | | 61 | % | | | | | | |
Revenues from customers in China (including Hong Kong) and South Korea comprised 65% and 16%, respectively, of total consolidated revenues for fiscal 2017, compared to 57% and 17%, respectively, for fiscal 2016, and 53% and 16%, respectively, for fiscal 2015. We report revenues from external customers by country based on the location to which our products or services are delivered, which for QCT is generally the country in which our customers manufacture their products, or for licensing revenues, the invoiced addresses of our licensees. As a result, the revenues by country presented herein are not necessarily indicative of either the country in which the devices containing our products and/or intellectual property are ultimately sold to consumers or the country in which the companies that sell the devices are headquartered. For example, China revenues would include revenues related to shipments of integrated circuits to a company that is headquartered in South Korea but that manufactures devices in China, which devices are then sold to consumers in Europe and/or the United States.2021 vs. 2020
|
| | | | | | | | | | | | | | | | | | | |
| Costs and Expenses (in millions) | | | | | |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 Change | | 2016 vs. 2015 Change |
| Cost of revenues | $ | 9,792 |
| | $ | 9,749 |
| | $ | 10,378 |
| | $ | 43 |
| | $ | (629 | ) |
| Gross margin | 56 | % | | 59 | % | | 59 | % | | | | |
TheGross margin percentage decreased in fiscal 20172021 primarily due toto:
- decrease in licensing revenues from Huawei recorded in fiscal 2020 resulting from amounts due under the settlement agreement and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent licensing agreement
- decrease in higher margin QTL licensing revenues as ain proportion of totalto QCT revenues partially offset by an
+ increase in QCT gross margin percentage. The margin percentage in fiscal 2017 was also negatively impacted by the reduction to licensing revenues related to the BlackBerry arbitration. The margin percentage in fiscal 2016 remained flat primarily due to the effect of $163 million in additional charges related to the amortization of intangible assets and the recognition of the step-up of inventories to fair value primarily related to the acquisition of CSR plc in the fourth quarter of fiscal 2015, offset by the impact of higher-margin segment mix primarily related to QTL. Our margin percentage may continue to fluctuate in future periods depending on the mix of segment results as well as products sold, competitive pricing, new product introduction costs and other factors, including disputes and/or resolutions with licensees.
| | | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 Change | | 2016 vs. 2015 Change | | 2021 | | 2020 | | | 2021 vs. 2020 Change | |
| Research and development | $ | 5,485 |
| | $ | 5,151 |
| | $ | 5,490 |
| | $ | 334 |
| | $ | (339 | ) | Research and development | $ | 7,176 | | | $ | 5,975 | | | | $ | 1,201 | | |
| % of revenues | 25 | % | | 22 | % | | 22 | % | | | | | % of revenues | 21 | % | | 25 | % | | | | |
| Selling, general, and administrative | $ | 2,658 |
| | $ | 2,385 |
| | $ | 2,344 |
| | $ | 273 |
| | $ | 41 |
| |
| % of revenues | 12 | % | | 10 | % | | 9 | % | | | | | |
| Other | $ | 1,742 |
| | $ | (226 | ) | | $ | 1,293 |
| | $ | 1,968 |
| | $ | (1,519 | ) | |
|
2021 vs. 2020
The dollar increase in research and development expenses in fiscal 20172021 was primarily attributable to andue to:
+ $793 million increase of $372 million indriven by higher costs related to the development of wireless and integrated circuit technologies including(including 5G technology and RFFE technologies from our recently formed RF360 Holdings joint venture, and related software products, partially offset by cost decreases driven by actions initiated under our Strategic Realignment Plan,application processor technologies), a portion of which was substantially completed by the end of fiscal 2016. The dollar decrease in research and development expenses in fiscal 2016 was primarily attributable to a decrease of $228higher employee cash incentive program costs
+ $362 million in cost related to the development of integrated circuit technologies and related software products. Such decrease was primarily driven by actions initiated under the Strategic Realignment Plan, partially offset by increased research and development costs resulting from acquisitions. The decrease in research and development expenses in fiscal 2016 also included decreases of $67 million in development costs of display technologies and $45 millionincrease in share-based compensation expense.expense
+ $46 million increase in expenses driven by revaluation of our deferred compensation obligation on improved stock market performance (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)
| | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Selling, general and administrative | $ | 2,339 | | | $ | 2,074 | | | | | $ | 265 | | | |
| % of revenues | 7 | % | | 9 | % | | | | | | |
2021 vs. 2020
The dollar increase in selling, general and administrative expenses in fiscal 20172021 was primarily attributable to increases of $136due to:
+ $164 million in professional services fees, primarily related to third-party acquisition and integration services resulting from the proposed acquisition of NXP, $70 million in costs related to litigation and other legal matters and $33 millionincrease in employee-related expenses, primarily related to our recently formed RF360 Holdings joint venture,a portion of which closed in February 2017. The dollar increase in selling, general and administrative expenses in fiscal 2016 was primarily attributable to increases of $65higher employee cash incentive program costs
+ $83 million in costs related to litigation and other legal matters, $39 million in employee-related expenses and $27 million in depreciation and amortization expense, partially offset by decreases of $36 millionincrease in share-based compensation expense $21
+ $38 million increase in sellingexpenses driven by revaluation of our deferred compensation obligation on improved stock market performance (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)
+ $32 million increase in sales and marketing expenses $19
- $73 million decrease in professional services and $17 million in patent-related costs.litigation costs
| | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Other (income) expense | $ | — | | | $ | (28) | | | | | $ | 28 | | | |
Other expenses in fiscal 2017 consisted of a $927 million charge related to the KFTC fine, including related foreign currency losses, a $778 million charge related to the TFTC fine and $37 million in restructuring and restructuring-related charges related to our Strategic Realignment Plan. 2020
Other income in fiscal 2016 was attributable to a $380 million gain on the sale2020 consisted of wireless spectrum, partially offset by net charges related to our Strategic Realignment Plan, which included $202 million in restructuring and restructuring-related charges, partially offset by a $48 million gain on the sale of our business that provided augmented reality applications. Other expenses in fiscal 2015 were attributable to a $975 million charge resulting from the resolution reached with the NDRC, charges of $255 million and $11 million for impairment of goodwill and intangible assets, respectively, related to our content and push-to-talk services and display businesses and $190 million in restructuring and restructuring-related charges related to our Strategic Realignment Plan, partially offset by $138$28 million in gains on sales of certain property plant and equipment.
|
| | | | | | | | | | | | | | | | | | | |
| Interest Expense and Investment and Other Income, Net (in millions) | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 Change | | 2016 vs. 2015 Change |
| Interest expense | $ | 494 |
| | $ | 297 |
| | $ | 104 |
| | $ | 197 |
| | $ | 193 |
|
| | | | | | | | | | |
| Investment and other income, net | | | | | | | | | |
| Interest and dividend income | $ | 619 |
| | $ | 611 |
| | $ | 527 |
| | $ | 8 |
| | $ | 84 |
|
| Net realized gains on marketable securities | 456 |
| | 239 |
| | 451 |
| | 217 |
| | (212 | ) |
| Net realized gains on other investments | 74 |
| | 49 |
| | 49 |
| | 25 |
| | — |
|
| Impairment losses on marketable securities and other investments | (177 | ) | | (172 | ) | | (200 | ) | | (5 | ) | | 28 |
|
| Equity in net losses of investees | (74 | ) | | (84 | ) | | (32 | ) | | 10 |
| | (52 | ) |
| Net losses on foreign currency transactions | (30 | ) | | — |
| | — |
| | (30 | ) | | — |
|
| Net gains (losses) on derivative instruments | 32 |
| | (8 | ) | | 17 |
| | 40 |
| | (25 | ) |
| Net gains on deconsolidation of subsidiaries | — |
| | — |
| | 3 |
| | — |
| | (3 | ) |
| | $ | 900 |
| | $ | 635 |
| | $ | 815 |
| | $ | 265 |
| | $ | (180 | ) |
The increase in interest expense in fiscal 2017 was primarily due to the issuance of an aggregate principal amount of $11.0 billion of unsecured floating- and fixed-rate notes in May 2017 and fees related to the Bridge and Term Loan Facilities entered into during the first quarter of fiscal 2017. The increase in net realizeda favorable legal settlement.
| | | | | | | | | | | | | | | | | | | | | |
| Interest Expense and Investment and Other Income, Net (in millions) | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Interest expense | $ | 559 | | | $ | 602 | | | | | $ | (43) | | | |
| | | | | | | | | |
| Investment and other income, net | | | | | | | | | |
| Interest and dividend income | $ | 83 | | | $ | 156 | | | | | $ | (73) | | | |
| Net gains on marketable securities | 427 | | | 198 | | | | | 229 | | | |
| Net gains on other investments | 470 | | | 108 | | | | | 362 | | | |
| Net gains on deferred compensation plan assets | 130 | | | 47 | | | | | 83 | | | |
| Impairment losses on other investments | (33) | | | (405) | | | | | 372 | | | |
| Net (losses) gains on derivative instruments | (14) | | | 8 | | | | | (22) | | | |
| Equity in net earnings (losses) of investees | 13 | | | (21) | | | | | 34 | | | |
| Net losses on foreign currency transactions | (32) | | | (25) | | | | | (7) | | | |
| | $ | 1,044 | | | $ | 66 | | | | | $ | 978 | | | |
Net gains on marketable securities for fiscal 2021 was primarily driven by the initial public offerings of certain QSI equity investments. Net gains on other investments for fiscal 2021 was primarily driven by realized gains resulting from the sale of certain of our QSI non-marketable investments.
The impairment losses in fiscal 2017 was primarily attributable to certain marketable securities that we sold to fund,2020 were due in part our proposed acquisition of NXP. The net losses on foreign currency transactions in fiscal 2017 were primarily attributable to the impact of currency exchange rate movementsCOVID-19 had on certain monetary assets and liabilities of our recently formed RF360 Holdings joint venture.
The increaseinvestees. A significant portion of the impairment losses related to our investment in interest expenseOneWeb who filed for bankruptcy in the second quarter of fiscal 2016 was primarily due to the issuance of an aggregate principal amount of $10.0 billion of unsecured floating- and fixed-rate notes in May 2015.
|
| | | | | | | | | | | | | | | | | | | |
| Income Tax Expense (in millions) | | | | | |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 Change | | 2016 vs. 2015 Change |
| Income tax expense | $ | 555 |
| | $ | 1,131 |
| | $ | 1,219 |
| | $ | (576 | ) | | $ | (88 | ) |
| Effective tax rate | 18 | % | | 17 | % | | 19 | % | | 1 | % | | (2 | %) |
Income Tax Expense (in millions, except percentages)
The following table summarizes the primary factors that caused our annual effective tax ratesprovision to be less than the United States federal statutory rate: |
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Expected income tax provision at federal statutory tax rate | 35 | % | | 35 | % | | 35 | % |
| Benefits from foreign income taxed at other than U.S. rates | (32 | %) | | (16 | %) | | (14 | %) |
| Benefits related to the research and development tax credits | (3 | %) | | (2 | %) | | (2 | %) |
| Worthless stock deduction of domestic subsidiary | — |
| | (1 | %) | | — |
|
| Nondeductible charges related to the KFTC and TFTC investigations | 12 | % | | — |
| | — |
|
| Impact of changes in tax reserves and audit settlements for prior year tax positions | 4 | % | | — |
| | (1 | %) |
| Other | 2 | % | | 1 | % | | 1 | % |
| Effective tax rate | 18 | % | | 17 | % | | 19 | % |
In fiscal 2017, we recorded charges of $927 million and $778 million related to the fines imposed by the KFTC and the TFTC, respectively, which are not deductible for tax purposes and are each attributable to both the United States and a foreign jurisdiction. Additionally, the effective tax rate of 18% for fiscal 2017 was impacted by lower United States revenues primarily related to decreased royalty revenues from Apple’s contract manufacturers and the BlackBerry arbitration. The effective tax rate of 18% for fiscal 2017 also reflected the increase in our Singapore tax rate as a result of the expiration of certain of our tax incentives in March 2017, which was substantially offset by tax benefits resultingdiffer from the increase in our Singapore tax rate that will be in effect when certain deferred tax assets are scheduled to reverse. The effective tax rate for our stateexpected income tax provision netat the U.S. federal statutory rate. Substantially all of federal benefit, was negligibleour income is in the U.S., of which a significant portion qualifies for all years presented.
Thepreferential treatment as FDII (foreign-derived intangible income) at a 13% effective tax
rate of 17% for fiscal 2016 reflected a $101 million tax benefit recorded discretely in the third quarter of fiscal 2016 resulting from a worthless stock deduction on a domestic subsidiary of one of our former display businesses and a $79 million benefit recorded discretely inrate. | | | | | | | | | | | | | |
| 2021 | | 2020 | | |
| Expected income tax provision at federal statutory tax rate | $ | 2,158 | | | $ | 1,201 | | | |
| | | | | |
| Benefit from FDII deduction | (550) | | | (381) | | | |
| Excess tax benefit associated with share-based awards | (265) | | | (83) | | | |
| Benefit related to the research and development tax credit | (195) | | | (125) | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 83 | | | (91) | | | |
| Income tax expense | $ | 1,231 | | | $ | 521 | | | |
| Effective tax rate | 12 | % | | 9 | % | | |
In the first quarter of fiscal 20162021, the United States Treasury Department issued final regulations on the foreign tax credit, which generally are applicable beginning in fiscal 2021, with certain provisions retroactive to fiscal 2019. As a result of these regulations, our fiscal 2021 effective tax rate increased by approximately 1%. The retroactive impact resulting from these new regulations, which was related to fiscal 2015 resulting from the retroactive2019 and permanent reinstatement of the United States federal researchfiscal 2020 and development tax credit.
Duringrecorded in fiscal 2015, the NDRC imposed a fine of $975 million, which2021, was not deductible for tax purposes and was substantially attributable to a foreign jurisdiction. Additionally, during fiscal 2015, we recorded a tax benefit of $101 million related to fiscal 2014 resulting from the retroactive reinstatement of the United States federal research and development tax credit to January 1, 2014 through December 31, 2014. The effective tax rate for fiscal 2015 also reflected the United States federal research and development tax credit generated through December 31, 2014, the date on which the credit expired and a $61 million tax benefit as a result of a favorable tax audit settlement with the Internal Revenue Service (IRS) related to Qualcomm Atheros, Inc.’s pre-acquisition 2010 and 2011 tax returns.
The effective tax rate for fiscal 2017, 2016 and 2015 also reflected tax benefits for certain tax incentives obtained in Singapore that commenced in March 2012, including a tax exemption for the first five years, provided that we meet specified employment and other criteria. Our Singapore tax rate increased in fiscal 2017 as a result of the expiration of certain of these incentives and will increase again in fiscal 2027 upon the expiration of the remaining incentives.significant.
Unrecognized tax benefits were $372 million$2.1 billion and $271 million$1.9 billion at September 24, 201726, 2021 and September 25, 2016,27, 2020, respectively. The increase in unrecognized tax benefits in fiscal 20172021 was primarily due to expected refunds of Korean withholding taxes previously paid as licensees in Korea continue to withhold taxes on payments due under their licensing agreements at a rate higher than we believe is owed (which had an insignificant impact to our income tax positions related to transfer pricing. We believe that it is reasonably possible thatprovision). If successful, the total amounts of unrecognizedrefund will result in a corresponding reduction in U.S. foreign tax benefits at September 24, 2017 may increase or decrease in the next 12 months.
credits. We are subject to income taxes in the United StatesU.S. and numerous foreign jurisdictions and are currently under examination by various tax authorities worldwide, most notably in countries where we earn a routine return and tax authorities believe substantial value-add activities are performed.primarily related to transfer pricing. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds. We continually assess the likelihood and amount of potential adjustments and adjustsadjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. As of September 24, 2017,26, 2021, we believe that adequate amounts have been reserved for based on facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our income tax provision and the related accruals.
The current U.S. presidential administration and Congress have proposed to increase U.S. tax rates and/or eliminate or reduce the FDII deduction. Substantially all of our income is taxable in the U.S., of which a significant portion qualifies for preferential treatment as FDII. If such proposals are enacted into law, our provision for income taxes, results of operations and cash flows would be adversely affected (potentially materially) beginning as early as the first quarter of fiscal 2022.
Our
Segment Results
The following should be read in conjunction with the fiscal 2017, 20162021 and 20152020 results of operations for each reportable segment included in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”
QCT Segment (in millions, except percentages) | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Revenues | | | | | | | | | |
| Handsets (1) | $ | 16,830 | | | $ | 10,461 | | | | | $ | 6,369 | | | |
| RFFE (2) | 4,158 | | | 2,362 | | | | | 1,796 | | | |
| Automotive (3) | 975 | | | 644 | | | | | 331 | | | |
| IoT (internet of things) (4) | 5,056 | | | 3,026 | | | | | 2,030 | | | |
| Total revenues | $ | 27,019 | | | $ | 16,493 | | | | | $ | 10,526 | | | |
| | | | | | | | | |
| | | | | | | | | |
| EBT (5) | $ | 7,763 | | | $ | 2,763 | | | | | $ | 5,000 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| EBT as a % of revenues | 29 | % | | 17 | % | | | | 12 points | | |
| | | | | | | | | |
| | | | | | | | | |
(1) Includes revenues from products sold for use in mobile handsets, excluding RFFE (radio frequency front-end) components. (2) Includes all revenues from sales of 4G, 5G sub-6 and 5G millimeter wave RFFE products (a substantial portion of which are sold for use in mobile handsets) and excludes radio frequency transceiver components.
(3) Includes revenues from products sold for use in automobiles, including telematics, connectivity and digital cockpit.
(4) Primarily includes products sold for use in the following industries and applications: consumer (including computing, voice and music and XR), industrial (including handhelds, retail, transportation and logistics and utilities) and edge networking (including mobile broadband and wireless access points).
(5) Earnings (loss) before income taxes.
|
| | | | | | | | | | | |
| (in millions) | 2017 | | 2016 | | 2015 |
| Revenues | | | | | |
| QCT | $ | 16,479 |
| | $ | 15,409 |
| | $ | 17,154 |
|
| QTL | 6,445 |
| | 7,664 |
| | 7,947 |
|
| QSI | 113 |
| | 47 |
| | 4 |
|
| EBT (1) | | | | | |
| QCT | $ | 2,747 |
| | $ | 1,812 |
| | $ | 2,465 |
|
| QTL | 5,175 |
| | 6,528 |
| | 6,882 |
|
| QSI | 65 |
| | 386 |
| | (74 | ) |
| EBT as a % of revenues | | | | | |
| QCT | 17 | % | | 12 | % | | 14 | % |
| QTL | 80 | % | | 85 | % | | 87 | % |
| |
(1) | Earnings (loss) before taxes. |
QCT Segment. QCTSubstantially all of QCT’s revenues increased in fiscal 2017 and decreased in fiscal 2016 due to corresponding fluctuations inconsist of equipment and services revenues. Equipmentrevenues, which were $26.6 billion and services$16.1 billion in fiscal 2021 and 2020, respectively. QCT handsets, automotive and IoT revenues mostly relatedrelate to sales of MSMour stand-alone Mobile Data Modems, Snapdragon platforms (which include processors and accompanying RF, Power Management (PM)modems), radio frequency transceiver, power management and wireless connectivity integrated circuits, were $16.31 billion, $15.18 billion and $16.95chipsets.
QCT results for fiscal 2021 compared to the prior year reflect a recovery from the negative impacts of COVID-19.
2021 vs. 2020
The increase in QCT revenues in fiscal 2021 was primarily due to:
+ higher handset revenues, primarily driven by $3.6 billion in fiscal 2017, 2016higher chipset shipments and 2015, respectively. Approximately 804 million, 842 million and 932 million MSM integrated circuits$2.6 billion in higher revenue per chipset, both of which were sold during fiscal 2017, 2016 and 2015, respectively.
Equipment and services revenues increased in fiscal 2017 primarily due to an increase in demand for 5G products from Apple and other major OEMs
+ higher RFFE product revenues, related to RFFEdriven by an increase in demand for 4G/5G products including $676 million from the formation of our RF360 Holdings joint venture, a $492 millionApple and other major OEMs
+ higher automotive revenues, primarily driven by an increase resulting fromin demand for telematics and digital cockpit products
+ higher IoT revenues, driven by $1.7 billion in higher shipments of connectivityacross consumer, edge networking and industrial products primarily related to adjacent industry segments outside of traditional cellular industries and a $469 million increase resulting from the net impact of higher-priced product mix and lower average selling prices. These increases were partially offset by a decrease of $553 million primarily related to lower MSM and accompanying RF and PM unit shipments driven primarily by a decline in share at Apple, partially offset by higher demand from OEMs in China. The decrease in equipment and services revenues in fiscal 2016 resulted primarily from decreases of $1.35 billion related to lower MSM and accompanying RF and PM unit shipments and $1.14 billion from lower average selling prices and lower-priced product mix, partially offset by a net increase of $753$378 million in revenues relatedrevenue per unit due to other products, primarily related to higher connectivity shipments resulting from the acquisition of CSRan increase in the fourth quarter of fiscal 2015.demand for 5G
QCT EBT as a percentage of revenues increased in fiscal 20172021 due to:
+ higher revenues
+ higher gross margin percentage, primarily driven by favorable mix and higher average selling prices, partially offset by higher average unit costs, all of which were due to an increase in gross margin percentage, partially offsetdemand for 5G products
-higher operating expenses, primarily driven by a combined increase of 1% inhigher research and development expenses
QTL Segment (in millions, except percentages) | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Licensing revenues | $ | 6,320 | | | $ | 5,028 | | | | | $ | 1,292 | | | |
| EBT | 4,627 | | | 3,442 | | | | | 1,185 | | | |
| EBT as a % of revenues | 73 | % | | 68 | % | | | | 5 points | | |
| | | | | | | | | |
| | | | | | | | | |
In July 2020, we entered into a settlement agreement with Huawei to resolve our prior dispute related to the license agreement that expired on December 31, 2019. We also entered into a new long-term, global patent license agreement that applies to sales of certain wireless products by Huawei beginning on January 1, 2020. We did not record any QTL revenues for the first nine months of fiscal 2020 for royalties due on the sales of Huawei’s consumer wireless products. Revenues of $1.8 billion recorded in the fourth quarter of fiscal 2020 resulting from the settlement agreement with Huawei and selling, generalroyalties for sales made in the March 2020 and administrative expenses primarily fromJune 2020 quarters under the new global patent license agreement with Huawei were not allocated to our RF360 Holdings joint venture. QCT gross margin percentage increasedsegment results.
2021 vs. 2020
The increase in QTL licensing revenues in fiscal 20172021 was due to:
+ $1.1 billion in estimated sales of 3G/4G/5G-based multimode products, primarily due to a recovery from the negative impacts of COVID-19 and as a result of higher-margin product mix and lower averagenot recognizing any QTL revenues for the first nine months of fiscal 2020 for royalties due on the sales of Huawei’s consumer wireless products
+ $273 million in higher estimated revenues per unit, costs, partially offset by lower average selling prices and higher excess inventory charges. QCT EBT as a percentage of revenues decreased in fiscal 2016 primarily due to the impact offavorable OEM mix
-$103 million in lower revenues relative to operating expenses. QCT gross margin percentage remained flat in fiscal 2016 primarily as a result of lower average selling prices and lower-margin product mix, offset by lower average unit costs and lower excess inventory charges.
QCT accounts receivable increased by 24% in fiscal 2017 from $1.46 billion to $1.81 billion, primarily due to the accounts receivable related to our RF360 Holdings joint venture and increased revenues related to integrated circuits. QCT inventories increased by 31% in fiscal 2017 from $1.54 billion to $2.02 billion due to inventories relating to our RF360 Holdings joint venture and an increase in the overall quantity of units on hand, partially offset by lower average unit costs.
QTL Segment. QTL results were negatively impacted by actions taken by Apple and its contract manufacturers as well as the previously disclosed dispute with another licensee, who did not report or pay royalties due in the third or fourth quarter of fiscal 2017. Revenues related to the products of Apple’s contract manufacturers and the other licensee in dispute comprised a total of approximately $1.35 billion in the third and fourth quarters of fiscal 2016. Additionally, QTL revenues were negatively impacted by an estimated amount in excess of $150 million related to the dispute with the other licensee who
underpaid royalties due in the second quarter of fiscal 2017. In addition to the above, the decrease in QTL revenues during fiscal 2017 was also attributable to the recognition of revenues in fiscal 2016 relating to the termination of an infrastructure license agreement resulting from the merger of two licensees and decreased recognition of unearned license fees, partially offset by an increase in revenues per unit and higher royalty revenues recognized related to devices sold in prior periods. periods
QTL EBT as a percentage of revenues decreasedincreased in fiscal 2017 as compared to fiscal 20162021 due to:
+higher revenues
-higher operating expenses, primarily due to the decrease in QTL revenues. QTL revenuesdriven by higher research and EBT in fiscal 2016 and 2017 also continued to be impacted negatively by units that we believe are not being reported by certain other licensees and sales of certain unlicensed products. While we have reached agreements with many licensees, negotiations with certain other licensees and unlicensed companies are ongoing, particularly in emerging regions, including China, and additional litigation may become necessary if negotiations fail to resolve the relevant issues.development expenses
The decrease in QTL revenues in fiscal 2016 of $283 million was primarily attributable to decreases in revenues per reported unit and recognition of unearned license fees, partially offset by an increase in reported sales of CDMA-based products (including multimode products that also implement OFDMA) and $266 million in licensing revenues recorded in the second quarter of fiscal 2016 due to the termination of an infrastructure license agreement resulting from the merger of two licensees.
QTL accounts receivable increased by more than 100% in fiscal 2017 from $644 million to $1.74 billion, primarily due to the short payment of royalties reported in the second quarter of fiscal 2017 by, and deemed collectible from, Apple’s contract manufacturers and the timing of the collection of payments from certain of our other licensees.
QSI Segment. The decrease in QSI EBT in fiscal 2017 of $321 million was primarily due to the effect of a $380 million gain on the sale of wireless spectrum recorded in fiscal 2016, partially offset by the net impact of $41 million resulting from higher revenues and costs associated with certain development contracts with one of our equity method investees. (in millions) | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | 2021 vs. 2020 Change | | |
| Equipment and services revenues | $ | 45 | | | $ | 36 | | | | | $ | 9 | | | |
| EBT | 916 | | | (11) | | | | | 927 | | | |
2021 vs. 2020
The increase in QSI EBT in fiscal 2016 of $4602021 was due to:
+ $575 million was primarily due to a $380 million gain on the sale of wireless spectrum, an increase of $47 million in net realized gains on investments, and aprimarily driven by gains resulting from the initial public offerings of certain of our equity investments
+ $313 million decrease of $21 million in impairment losses on investments.other investments, of which a significant portion in fiscal 2020 related to our investment in OneWeb
+ $38 million increase in equity in net earnings of investees
Looking Forward
We expect continued growth inIn the coming years, inwe expect new consumer demand for 3G,3G/4G/5G multimode and 5G products and services to continue to ramp around the world as we continue to transition from 3G/4G multimode and 4G products and services around the world, driven primarily by smartphones.services. We also expect growth in new device categories and industries, driven by the expandingbelieve that 5G will continue to drive adoption of certain technologies that are already commonly used in smartphones by industry segments outside traditional cellular industries and applications beyond mobile handsets, such as automotive IoT and networking. IoT. We believe it is important that we remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and a leading developer and supplier of 5G integrated circuit products in order to sustain and grow our business long term.
As we look forward to the next several months and beyond, we expectquarters, our business tomay be impacted by the following key items:
On October 27, 2016, we announced a definitive agreement under which Qualcomm River Holdings, an indirect, wholly owned subsidiary of QUALCOMM Incorporated, will acquire NXP. Pursuant•We expect QCT revenues to the definitive agreement, Qualcomm River Holdings has commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, for estimated total cash considerationcontinue to be paidfavorably impacted compared to NXP’s shareholdersfiscal 2021 due to increased demand across handset, RFFE, automotive and IoT revenue streams.
•While the semiconductor industry continues to experience certain capacity constraints, we have entered into several, and we expect to enter into additional, multi-year capacity purchase commitments with certain suppliers of $38 billion. NXP is a leaderour integrated circuit products in high-performance, mixed-signal semiconductor electronics in automotive, broad-based microcontrollers,an effort to secure identification, network processing and RF power products. The transaction is subjectcommitments for future supply, which we expect will allow us to receipt of regulatory approvals in various jurisdictions and other closing conditions, including the tender of at least 80% of the issued and outstanding common shares of NXP in the offer (provided that the minimum tender threshold may be reduced to a percentage not less than 70% with the prior written consent of NXP). While we continue to workrealize benefits from increased demand for integrated circuit products, particularly from certain Chinese OEMs as they continue to close by the end of calendar 2017, the transaction may closeposition to gain device share.
•We expect commercial 5G network deployments and device launches will continue.
•We expect our research and development costs will increase compared to fiscal 2021, primarily due to increased investment towards advancements in early 2018. We intend to fund the transaction with cash generated from our recent debt offering5G and application processor technologies and certain other long-term initiatives, as well as cash held by our foreign entities and use of a Term Loan, which we expect to draw on at close. an increase in share-based compensation expense.
•We expect thatcontinued intense competition, particularly in China.
•Current U.S./China trade relations and/or national security protection policies may negatively impact our business, growth prospects and results of operations. See “Risk Factors” in this acquisition will continue to require us to devoteAnnual Report, including the Risk Factor entitled “A significant resources and management time and attention and utilize a substantial portion of our cash, cash equivalentsbusiness is concentrated in China, and marketable securities.the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”
Regulatory authorities in certain jurisdictions continue to investigate•We currently do not expect a significant impact on our business practices, and other regulatory authorities may do so in the future. Unfavorable resolutionsresults of one or more of these matters have had and couldoperations in the future have a materialdue to COVID-19. The degree to which the COVID-19 pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain. See “Risk Factors” in this Annual Report, specifically the Risk Factor titled “The coronavirus (COVID-19) pandemic had an adverse effect on our business with remedies that include, among others, injunctions, monetary damages or fines or other orders to pay money, and the issuance of orders to cease certain conduct and/or modify our business practices. Additionally, certain of our direct and indirect customers and licensees, including BlackBerry Limited and Apple Inc., have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, including monetary damages. These activities have required and we expect that they will continue to require the investment of significant management time and attention, and
have resulted and we expect that they will continue to result in increased legal costs. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies” included in this Annual Report.
We are currently in dispute with Apple surrounding what we believe is an attempt by Apple to reduce the amount of royalties that its contract manufacturers are required to pay to us for use of our intellectual property. QTL revenues and EBT in fiscal 2017 were negatively impacted as a result of actions taken by Apple and its contract manufacturers. Such contract manufacturers did not fully report and did not pay royalties due on sales of Apple products for a portion of the fiscal year. We have taken action against Apple’s contract manufacturers to compel such licensees to pay the required royalties, and against Apple. Additionally, QTL revenues and EBT in fiscal 2017 were negatively impacted by the previously disclosed dispute with another licensee, who did not fully report or fully pay royalties due in the last three quarters of fiscal 2017. We expect these companies will continue to take such actions in the future, resulting in increased legal costs and negatively impacting our future revenues, as well as our financial condition, results of operations, and cash flows until the respective disputes are resolved.
We continue to believe that certain licensees, particularly in China, are not fully complying with their contractual obligations to report their sales of licensed products to us, and certain companies, including unlicensed companies, particularly in emerging regions, including China, are delaying execution of new license agreements. We have made substantial progress in reaching agreements with many companies, primarily in China. However, negotiations with certain licensees and unlicensed companies are ongoing. We believe that the conclusion of new agreements with these companies will result in improved reporting by these licensees, including with respect to sales of three-mode devices (i.e., devices that implement GSM, TD-SCDMA and LTE-TDD) sold in China. Additionally, we believe our increased efforts in the areas of compliance will improve reporting, but will also result in increased costs to the business. Litigation and/or other actions, such as those recently taken against Apple and its contract manufacturers, may be necessary to compel licensees to report and pay the required royalties for sales they have not previously reported and/or to compel unlicensed companies to execute licenses. Such litigation or other actions would result in increased legal costs.
We expect our business, particularly QCT, to continue to be impacted by industry dynamics, including:
Concentration of device share among a few companies within the premium tier, resulting in significant supply chain leverage for those companies;
Decisions by companies to utilize their own internally-developed integrated circuit products and/or sell such products to others, including by bundling with other products, increasing competition;
Decisions by certain companies to utilize our competitors’ integrated circuit products in all or a portion of their devices. For example, commencing with the iPhone 7 (which was released in September 2016), we are no longer the sole supplier of modems for new iPhone product launches, as Apple utilizes modems from one of our competitors in a portion of such devices. We expect that in the future Apple will utilize our competitors’ modems in a portion of (or potentially all) iPhones. Accordingly, QCT revenues from modem sales for iPhones declined in fiscal 2017 and may continue to declineimpact us in the future, in part depending on the extent of Apple’s utilization of competitors’ modems and the mix of the various versions that are sold. Overall QCT revenues, as well as profitability, may similarly decline unless offset by sales of integrated circuit products to other customers, including those outside of traditional cellular industries, such as automotive, IoT and networking. Apple’s dual sourcing does not impact our licensing revenues since our licensing revenues from Apple products are not dependent upon whether such products include our chipsets;
Intense competition, particularly in China, as our competitors expand their product offerings and/or reduce the prices of their products as part of a strategy to attract new and/or retain existing customers; and
Lengthening replacement cycles in developed regions, where the smartphone industry is mature, premium-tier smartphones are common and consumer demand is increasingly driven by new product launches and/or innovation cycles, and from increasing consumer demand in emerging regions where premium-tier smartphones are less common and replacement cycles are on average longer than in developed regions.
Consumer demand for 3G/4G smartphone products is increasing in emerging regions driven by availability of lower-tier 3G/4G devices. We expect the ongoing rollout of 4G services in emerging regions will encourage competition and growth, bringing the benefits of 3G/4G LTE multimode to consumers.
We continue to invest significant resources toward advancements in 4G LTE and 5G technologies, OFDM-based WLAN technologies, wireless baseband chips, our converged computing/communications (Snapdragon) chips, radio
RFFE, connectivity, power management, graphics, audio and video codecs, multimedia products and software, which contribute to the expansion of our intellectual property portfolio. We are also investing in targeted opportunities that leverage our existing technical and business expertise to deploy new business models and enter and/or expand into new industry segments, such as products for automotive, IoT (including the connected home, smart cities, wearables, voice and music and robotics), data center, networking, computing and machine learning, among others.future.”
In addition to the foregoing business and market-based matters, we continue to devote resources to working with and educating participants in the wireless value chainindustry and governments as to the benefits of our business modellicensing program and our extensive technology investments in promoting a highly competitive and innovative wireless industry. However, we expect that certain companies may continue to be dissatisfied with the need to pay reasonable royalties for the use of our technologytechnologies and not welcome the success of our business modellicensing program in enabling new, highly cost-effective competitors to their products. We expect thatAccordingly, such companies, and/or governments or regulators, willmay continue to challenge our business model in various forums throughout the world.
Further discussion of risks related to our business is presentedprovided in “Part I, Item 1A. Risk Factors” included in this Annual Report.
Liquidity and Capital Resources
On October 27, 2016, we announced a definitive agreement under which Qualcomm River Holdings will acquire NXP. Pursuant to the definitive agreement, Qualcomm River Holdings has commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, for estimated total cash consideration to be paid to NXP’s shareholders of $38 billion. The transaction is subject to receipt of regulatory approvals in various jurisdictions and other closing conditions. While we continue to work to close by the end of calendar 2017, the transaction may close in early 2018. In May 2017, we issued an aggregate principal amount of $11.0 billion of unsecured floating- and fixed-rate notes with varying maturities, of which a portion will be used to fund the purchase price and other related transactions. In addition, we have secured $4.0 billion in committed financing through a Term Loan Facility, which is expected to be drawn on at the close of the NXP transaction. The remaining amount will be funded with cash held by our foreign entities, which will result in the use of a substantial portion of our cash, cash equivalents and marketable securities.
Qualcomm River Holdings and NXP may terminate the definitive agreement under certain circumstances. If the definitive agreement is terminated by NXP in certain circumstances, NXP will be required to pay Qualcomm River Holdings a termination fee of $1.25 billion. If the definitive agreement is terminated by Qualcomm River Holdings under certain circumstances involving the failure to obtain the required regulatory approvals or the failure of NXP to complete certain pre-closing reorganization steps in all material respects, Qualcomm River Holdings will be required to pay NXP a termination fee of $2.0 billion. In November 2016, as required by the definitive agreement, we entered into four letters of credit for an aggregate amount of $2.0 billion pursuant to which NXP will have the right to draw amounts to fund the potential termination fee payable to NXP. Each letter of credit is required to be fully cash collateralized in an amount equal to 100% of its face value through deposits with the issuers of the letters of credit. We are restricted from using the funds deposited as collateral while the letters of credit are outstanding. At September 24, 2017, the letters of credit were fully collateralized through bank time deposits and money market funds.
Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and cash provided by our debt programs and proceeds from the issuance of common stock under our stock option and employee stock purchase plans.programs. The following table presents selected financial information related to our liquidity as of and for the years ended September 24, 201726, 2021 and September 25, 201627, 2020 (in millions): | | | | | | | | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 | | Change |
| Cash, cash equivalents and marketable securities | $ | 12,414 | | | $ | 11,249 | | | $ | 1,165 | |
| Accounts receivable, net | 3,579 | | | 4,003 | | | (424) | |
| Inventories | 3,228 | | | 2,598 | | | 630 | |
| Short-term debt | 2,044 | | | 500 | | | 1,544 | |
| Long-term debt | 13,701 | | | 15,226 | | | (1,525) | |
| Noncurrent income taxes payable | 1,713 | | | 1,872 | | | (159) | |
| | | | | |
| 2021 | | 2020 | | Change |
| Net cash provided by operating activities | $ | 10,536 | | | $ | 5,814 | | | $ | 4,722 | |
| Net cash used by investing activities | (3,356) | | | (5,263) | | | 1,907 | |
| Net cash used by financing activities | (6,798) | | | (5,707) | | | (1,091) | |
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Cash, cash equivalents and marketable securities | $ | 38,578 |
| | $ | 32,350 |
| | $ | 6,228 |
| | 19 | % |
| Accounts receivable, net | 3,632 |
| | 2,219 |
| | 1,413 |
| | 64 | % |
| Inventories | 2,035 |
| | 1,556 |
| | 479 |
| | 31 | % |
| Short-term debt | 2,495 |
| | 1,749 |
| | 746 |
| | 43 | % |
| Long-term debt | 19,398 |
| | 10,008 |
| | 9,390 |
| | 94 | % |
| Net cash provided by operating activities | 4,693 |
| | 7,400 |
| | (2,707 | ) | | (37 | %) |
| Net cash provided (used) by investing activities | 18,463 |
| | (3,488 | ) | | 21,951 |
| | N/M |
|
| Net cash provided (used) by financing activities | 5,879 |
| | (5,522 | ) | | 11,401 |
| | N/M |
|
N/M = Not meaningful
Cash, cash equivalents and marketable securities. The net increase in cash, cash equivalents and marketable securities was primarily due to the proceeds from the issuance of unsecured floating-rate and fixed-rate notes in May 2017 of approximately $10.95 billion, net of underwriting discounts and offering expenses, and net cash provided by operating activities (which includes $1.6 billion of cash outflows related to certain advance payments made to suppliers of our integrated circuit products under multi-year capacity commitments), $430 million increase in marketable securities resulting from initial public offerings of certain non-marketable equity investments, $347 million in proceeds from the issuance of common stock (primarily under our Employee Stock Purchase Plan) and $320 million in proceeds from other investments, partially offset by $3.3 billion in cash dividends paid, the deposit of $2.0 billion that was used to collateralize the letters of credit related to our proposed acquisition of NXP, $1.5 billion in payments to fund acquisitions and other investments, primarily related to our recently formed RF360 Holdings joint venture, $1.3$3.4 billion in payments to repurchase shares of our common stock, $3.0 billion in cash dividends paid, $1.9 billion in capital expenditures, $1.4 billion in cash paid for acquisitions and $751other investments (primarily related to the acquisition of NUVIA) and $737 million in payments of net repaymentstax withholdings related to the vesting of our outstanding commercial paper debt. Total cash provided by operating activities decreasedshare-based awards.
Accounts receivable, net. The decrease in accounts receivable was primarily due to payments received under the $940 million payment in connectionpreviously disclosed settlement agreement with the BlackBerry arbitration and the $927 million payment of the fine imposed by the KFTC, as well as changes in working capital related to an increaseHuawei. The decrease in accounts receivable and inventories andwas also partially attributable to the timing of related payments. Total cash provided by operating activities was also impacted by actions taken by Apple and its contract manufacturers, as well as the previously disclosed dispute with another licensee, who did not report or pay royalties due in the third or fourth quarter of fiscal 2017.
Our days sales outstanding, on a consolidated basis, increased to 56 days at September 24, 2017 compared to 33 days at September 25, 2016. The increase in accounts receivable and the related days sales outstanding were primarily due to the short payment in the second quarter of fiscal 2017 of royalties reported by and deemed collectible from Apple’s contract manufacturers. We expect these receivables to remain outstanding until we resolve our dispute with Apple. The increase in accounts receivable also resulted from the accounts receivable relating to our RF360 Holdings joint venture, increased revenues related to integrated circuits and the timing of the collection of payments from certain of our other licensees.QTL licensees, partially offset by an increase in QCT accounts receivable resulting from an increase in QCT revenues in the fourth quarter of fiscal 2021 as compared to the fourth quarter of fiscal 2020.
Inventories. The increase in inventories was primarily due to inventories relating to our RF360 Holdings joint venture and andriven by the increase in demand for 5G products.
Debt. At September 26, 2021, we had $15.5 billion of principal floating- and fixed-rate notes outstanding, $1.5 billion of which matures in May 2022. The remaining debt has maturity dates in 2023 through 2050.
We have an unsecured commercial paper program, which provides for the overall quantityissuance of unitsup to $4.5 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 26, 2021, we had $500 million of commercial paper outstanding.
On December 8, 2020, we entered into a Revolving Credit Facility replacing our prior Amended and Restated Revolving Credit Facility. There were no outstanding borrowings under the Amended and Restated Revolving Credit Facility at the time of termination. The Revolving Credit Facility provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5 billion, which expires on hand, partially offset by lower average unit costs.December 8, 2025. At September 26, 2021, no amounts were outstanding under the Revolving Credit Facility.
Our cash, cash equivalentsWe expect to issue new debt in the future. The amount and marketable securities at September 24, 2017 consistedtiming of $9.2 billion held by our United States-based entities and $29.4 billion held by our foreign entities. Mostany such new debt will depend on a number of factors, including but not limited to maturities of our existing debt, acquisitions and strategic investments, favorable and/or acceptable interest rates and changes in corporate income tax law. Additional information regarding our outstanding debt at September 26, 2021 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 6. Debt.”
Income Taxes. At September 26, 2021, we estimated remaining future payments of $1.9 billion for a one-time U.S. repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next five years. At September 26, 2021, other current liabilities included $196 million for the next installment due in January 2022. Additional information regarding our income taxes is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”
Acquisitions. In October 2021, we and SSW Partners entered into a definitive agreement to acquire Veoneer for total estimated cash cash equivalentsconsideration of approximately $4.5 billion, substantially all of which will be funded by Qualcomm, and marketable securities heldwe paid a $110 million termination fee to Magna International Inc., on behalf of Veoneer. Further, we have agreed to provide a
loan facility (or guarantee amounts provided by a third party) that provides financing to Veoneer of up to $480 million. The acquisition is expected to close in 2022. Information related to this definitive agreement to acquire Veoneer, including additional information related to certain contingent financing obligations, is included in this Annual Report in “Notes to Consolidated Financial Statements, Note 12. Subsequent Events.” We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly, to open new opportunities for our foreign entitiestechnologies, obtain development resources, grow our patent portfolio or pursue new businesses.
Capital Return Program. The following table summarizes stock repurchases, before commissions, and dividends paid during fiscal 2021 and 2020 (in millions, except per-share amounts): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Repurchase Program | | Dividends | | Total |
| | Shares | | Average Price Paid Per Share | | Amount | | Per Share | | Amount | | Amount |
| 2021 | | 24 | | | $ | 141.17 | | | $ | 3,366 | | | $ | 2.66 | | | $ | 3,008 | | | $ | 6,374 | |
| 2020 | | 31 | | | 79.32 | | | 2,450 | | | 2.54 | | | 2,882 | | | 5,332 | |
In fiscal 2018, we announced a stock repurchase program authorizing us to repurchase up to $30.0 billion of our common stock. On October 12, 2021, we announced a new $10.0 billion stock repurchase authorization, which is in addition to the remaining repurchase authority of $0.9 billion under the aforementioned program. The stock repurchase programs have no expiration date. Since September 26, 2021, we repurchased and retired 5.4 million shares of common stock for $703 million. Our stock repurchase programs are indefinitely reinvested and would be subject to material tax effectsperiodic evaluations to determine when and if repatriated. However, we believe that our United States sources of cash and liquidityrepurchases are sufficient to meet our business needs in the United Statesbest interests of our stockholders, and do not expectwe may accelerate, suspend, delay or discontinue repurchases at any time.
On October 13, 2021, we announced a cash dividend of $0.68 per share on our common stock, payable on December 16, 2021 to stockholders of record as of the close of business on December 2, 2021. We intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that we will need to repatriatecash dividends are in the funds.best interests of our stockholders, among other factors.
Additional Capital Requirements.We believe our current cash, cash equivalents and marketable securities, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to our proposed acquisition of NXP,the above matters, also include the items described below.below:
•Our purchase obligations at September 24, 2017,26, 2021, which primarily relate to purchase commitments with certain suppliers of our integrated circuit products, including those under multi-year capacity commitments, and certain other expenses, some of which relate to research and development activities and capital expenditures, totaled $4.3$23.5 billion, of which, $12.9 billion is expected to be paid in the next 12 months. We expect an increase in operating cash outflows as compared to fiscal 2021 as we make payments under the multi-year capacity commitments and $1.0 billion for fiscal 2018 and 2019, respectively, and $0.5 billion thereafter.as we enter into additional agreements with certain suppliers of our integrated circuit products.
•Our research and development expenditures were $5.5$7.2 billion in fiscal 2021 and $5.2$6.0 billion duringin fiscal 2017 and 2016, respectively,2020, and we expect to continue to invest heavilyincrease our investment in research and development forin fiscal 2022, including in advancements in existing and new technologies applications and services for voice and data communications.products.
•Cash outflows for capital expenditures were $690 million$1.9 billion in fiscal 2021 and $539 million during$1.4 billion in fiscal 2017 and 2016, respectively.2020. We anticipate thatexpect capital expenditures will be higherto increase in fiscal 2018 as compared2022 to fiscal 2017, primarily due to ansupport the increase in estimated capital expenditures of approximately $150 million for the full year impact of capital expendituresour manufacturing and production capacity needs.
•Amounts related to future lease payments for operating lease obligations at September 26, 2021 totaled $677 million, with $141 million expected to be paid within the manufacturing operationsnext 12 months.
•At September 26, 2021, $1.5 billion was accrued related to two fines imposed by the EC (based on the exchange rate at September 26, 2021, including related foreign currency gains and accrued interest). We have provided financial guarantees in lieu of cash payment to satisfy the obligations while we appeal the EU’s decisions.
Further, regulatory authorities in certain jurisdictions have investigated our business practices and instituted proceedings against us and they or other regulatory authorities may do so in the future. Additionally, certain of our RF360 Holdings joint venture. We expect to
continue to incur capital expendituresdirect and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to supportour business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, including researchrevenues, results of operations, financial condition and development activities. Future capital expenditures may be impacted by transactions that are currently not forecasted.
The TFTC imposed a fine on us of approximately 23.4 billion Taiwan Dollars (approximately $778 million based on exchange rates at September 24, 2017), which is due on or before November 7, 2017.
We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly, to open new opportunities for our technologies, obtain development resources, grow our patent portfolio or pursue new businesses.
Debt. In November 2016, we amended and restated our existing Revolving Credit Facility that provides for unsecured revolving facility loans, swing line loans and letters of credit to increase the aggregate amount available to $5.0 billion, of which $530 million and $4.47 billion will expire in February 2020 and November 2021, respectively. At September 24, 2017, no amounts were outstanding under the Amended and Restated Revolving Credit Facility.
We have an unsecured commercial paper program, which provides for the issuance of up to $5.0 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 24, 2017, we had $999 million of commercial paper outstanding with weighted-average net interest rates of 1.19% and weighted-average remaining days to maturity of 45 days.
In May 2017, we issued an aggregate principal amount of $11.0 billion in nine tranches of unsecured floating- and fixed-rate notes, with maturity dates starting in 2019 through 2047 and effective interest rates between 1.80% and 4.47%. Net proceeds from the issuance of the notes of $10.95 billion are intended to be used to fund a portion of the purchase price of our planned acquisition of NXP and other related transactions and also for general corporate purposes. Our 2019 floating-rate notes, 2020 floating-rate notes, 2019 fixed-rate notes and 2020 fixed-rate notes issued in May 2017 for an aggregate principal amount of $4.0 billion are subject to a special mandatory redemption at a price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the date of such mandatory redemption. The redemption is required on the first to occur of (i) the termination of the NXP purchase agreement or (ii) January 25, 2018 (which reflects the automatic extension of the original expiration date of October 27, 2017 in accordance with the NXP purchase agreement, and as such date may be further extended in accordance with the NXP purchase agreement to a date on or prior to June 1, 2018).
In May 2015, we issued an aggregate principal amount of $10.0 billion in eight tranches of unsecured floating- and fixed-rate notes, with maturity dates in 2018 through 2045 and effective interest rates between 1.65% and 4.74%. Interest is payable in arrears quarterly for the floating-rate notes and semi-annually for the fixed-rate notes.
In November 2016, we entered into a Term Loan Facility that provides for senior unsecured delayed-draw term facility loans in an aggregate amount of $4.0 billion. Proceeds from the Term Loan Facility, if drawn, will be used to finance, in part, the proposed acquisition of NXP. At September 24, 2017, no amounts were outstanding under the Term Loan Facility.
We may issue additional debt in the future. The amount and timing of such additional borrowings will be subject to a number of factors, including the cash flow generated by United States-based entities, acquisitions and strategic investments, acceptable interest rates and changes in corporate income tax law, among other factors. Additional information regarding our outstanding debt at September 24, 2017 is provided in this Annual Report inflows. See “Notes to Consolidated Financial Statements, Note 6. Debt.”
Capital Return Program. The following table summarizes stock repurchases7. Commitments and dividends paid during fiscal 2017, 2016Contingencies” and 2015 (in millions, except per-share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Stock Repurchase Program | | Dividends | | Total |
| | | Shares | | Average Price Paid Per Share | | Amount | | Per Share | | Amount | | Amount |
| 2017 | | 22.8 |
| | $ | 58.87 |
| | $ | 1,342 |
| | $ | 2.20 |
| | $ | 3,252 |
| | $ | 4,594 |
|
| 2016 | | 73.8 |
| | 53.16 |
| | 3,922 |
| | 2.02 |
| | 2,990 |
| | 6,912 |
|
| 2015 | | 172.4 |
| | 65.21 |
| | 11,245 |
| | 1.80 |
| | 2,880 |
| | 14,125 |
|
On March 9, 2015, we announced that we had been authorized to repurchase up to $15 billion of our common stock. At September 24, 2017, $1.6 billion remained authorized for repurchase under our stock repurchase program. As a result of our proposed acquisition of NXP and the pending use of a substantial portion of our cash, cash equivalents and marketable securities, we currently expect to repurchase shares in the next few years to offset dilution from the issuance of common stock under our employee benefit plans. We periodically evaluate repurchases as a means of returning capital to stockholders to determine when and if repurchases are in the best interests of our stockholders.
On October 10, 2017, we announced a cash dividend of $0.57 per share on our common stock, payable on December 15, 2017 to stockholders of record as of the close of business on November 29, 2017. We intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that cash dividends are in the best interests of our stockholders, among other factors.
Contractual Obligations/Off-Balance Sheet Arrangements
We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements. We have no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).
The following table summarizes the payments due by fiscal period for our outstanding contractual obligations at September 24, 2017 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Beyond 2022 | | No Expiration Date |
| Purchase obligations (1) | $ | 5,874 |
| | $ | 4,348 |
| | $ | 1,379 |
| | $ | 147 |
| | $ | — |
| | $ | — |
|
| Operating lease obligations | 445 |
| | 98 |
| | 184 |
| | 108 |
| | 55 |
| | — |
|
| Capital lease obligations (2) | 44 |
| | 14 |
| | 27 |
| | 3 |
| | — |
| | — |
|
| Equity funding and financing commitments (3) | 514 |
| | 69 |
| | — |
| | 69 |
| | — |
| | 376 |
|
| Long-term debt (4) | 21,000 |
| | 1,500 |
| | 6,000 |
| | 2,000 |
| | 11,500 |
| | — |
|
| Other long-term liabilities (5)(6) | 1,957 |
| | 308 |
| | 1,448 |
| | 62 |
| | 15 |
| | 124 |
|
| Total contractual obligations | $ | 29,834 |
| | $ | 6,337 |
| | $ | 9,038 |
| | $ | 2,389 |
| | $ | 11,570 |
| | $ | 500 |
|
| |
(1) | Total purchase obligations included commitments to purchase integrated circuit product inventories of $3.5 billion, $846 million, $286 million, $72 million and $27 million for each of the subsequent five years from fiscal 2018 through 2022, respectively; there were no such purchase commitments thereafter. Integrated circuit product inventory obligations represent purchase commitments for raw materials, semiconductor die, finished goods and manufacturing services, such as wafer bump, probe, assembly and final test. Under our manufacturing relationships with our foundry suppliers and assembly and test service providers, cancelation of outstanding purchase orders is generally allowed but requires payment of all costs incurred through the date of cancelation, and in some cases, incremental fees related to capacity underutilization. |
| |
(2) | Amounts represent future minimum lease payments including interest payments. Capital lease obligations are included in other liabilities in the consolidated balance sheet at September 24, 2017. |
| |
(3) | Certain of these commitments do not have fixed funding dates and are subject to certain conditions and have, therefore, been presented as having no expiration date. Commitments represent the maximum amounts to be funded under these arrangements; actual funding may be in lesser amounts or not at all. |
| |
(4) | The amounts noted herein represent contractual payments of principal only. |
| |
(5) | Certain long-term liabilities reflected on our balance sheet, such as unearned revenues, are not presented in this table because they do not require cash settlement in the future. Other long-term liabilities as presented in this table include the related current portions, as applicable. |
| |
(6) | Our consolidated balance sheet at September 24, 2017 included $138 million in noncurrent liabilities for uncertain tax positions, some of which may result in cash payment. The future payments related to uncertain tax positions recorded as noncurrent liabilities have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities. |
Additional information regarding our financial commitments at September 24, 2017 is provided“Part I, Item 1A. Risk Factors” in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes,” “Note 6. Debt” and “Note 7. Commitments and Contingencies.”Report.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are subject to an inherent degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results that differ from our estimates could be material to our consolidated financial statements. A summary
Refer to “Note 1. Significant Accounting Policies” and “Note 2. Composition of our significant accounting policies isCertain Financial Statement Items” included in this
Annual Report in “Notes to Consolidated Financial Statements, Note 1. The Company and Its Significant Accounting Policies.” We consider the followingStatements” for further information on our critical accounting estimates and policies, which are as follows. In addition, if the impact of changes in our critical accounting estimates are material or considered necessary to be criticalunderstand our results of operations for the periods presented, then such information is disclosed within this Annual Report in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations.”
Revenue Recognition. We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the preparationmanufacture, sale or use of certain wireless products. We estimate and recognize sales-based royalties on such licensed products in the period in which the licensees’ sales occur, which is based largely on preliminary royalty estimates provided by our consolidatedlicensees. Actual amounts for sales-based royalties have been materially consistent with such estimates, and no significant reversals of revenues have been required as a result of adjustments to prior period royalty estimates. Significant evaluation and judgment were required in determining the appropriate accounting for the settlement agreement and the global patent license agreement with Huawei, which were signed in the fourth quarter of fiscal 2020. We considered, among other items, Huawei’s commitment to perform under such agreements (including Huawei’s intent and ability to pay amounts due), Huawei’s performance as of the date of assessment under the agreements (including timely payments made), Huawei’s then-current and projected financial statements.condition (including the impact of enacted national security protection policies by the U.S. government on Huawei’s business) and certain contractual protections that we obtained under these agreements. In the fourth quarter of fiscal 2021, Huawei paid the final installment under the settlement agreement, and there were no changes to our previous judgments, estimates and initial evaluation related to the revenues recorded in fiscal 2020 under the settlement agreement.
Impairment of Marketable Securities and OtherNon-marketable Equity Investments. We hold investments in marketable securities, with increases and decreases in fair value generally recorded through stockholders’ equity as other comprehensive income or loss. We record impairment losses in earnings when we believe an investment has experienced a decline that is other than temporary. During fiscal 2017, 2016 and 2015, we recorded $131 million, $112 million and $163 million, respectively, in impairment losses on our investments in marketable securities. In connection with the proposed NXP transaction, during fiscal 2017, we divested a substantial portion of our marketable securities portfolio in order to finance, in part, that transaction. Given the change in our intention to sell certain marketable securities, we recognized other-than-temporary impairment losses in fiscal 2017 for such marketable securities and may recognize additional losses prior to the sale of such marketable securities still held at September 24, 2017. For the available-for-sale securities that are not expected to be sold to finance the NXP transaction, we concluded that the gross unrealized losses of $1 million were temporary at September 24, 2017.
We also hold investments in non-marketable equity instruments in privately held companies that are accounted for using either the cost or the equity method. Many of these investments are in early-stage companies, which are inherently risky because the markets for the technologies or products of these companies are uncertain and may never develop. We monitor our investments for events or circumstances that could indicate impairment, including those that result from observable price adjustments. In fiscal 2021, we recorded impairment losses on other investments (which primarily related to our non-marketable equity investments) of $33 million, a decrease of $372 million compared to fiscal 2020. Significant evaluation and judgments were required in determining if the negative effects of COVID-19 indicated that such investments arewere impaired, and if so, the extent of such impairment. This included, among other items: (i) assessing the business impacts that COVID-19 had on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as aapplicable, (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and business forecastscash flows, as well as assessing liquidity and/or going concern risks and lower valuations(iii) considering any appreciation in recently completed or proposed financings,fair value that has not been recognized in the carrying values of such investments. Based on this evaluation, certain of our investments were impaired and we recordwritten down to their estimated fair values in fiscal 2020 (a significant portion of which related to the full impairment of our investment in OneWeb, who filed for bankruptcy in the second quarter of fiscal 2020). For a significant portion of the impairment losses recorded in earnings when we believe an investment has experienced2020, the estimated fair values resulted in a decline in value that is other than temporary.full write-off of the carrying value. In fiscal 2021, there were no significant impairment losses or adjustments to our previous judgments and estimates recorded.
Valuation of Inventories. Inventories are valued We measure inventory at the lower of cost or market (replacement cost, not to exceed net realizable value) using the first-in, first-out method. Recoverability of inventories is assessed based on review ofvalue considering judgments related to future customer demand that considers multiple factors, including committed purchase orders from customers as well as purchase commitment projections provided by customers, among other things. This valuation also requires us to make judgments and assumptions based on information currently available about market conditions, including competition, product pricing, product life cyclesuch as the impact of certain capacity constraints experienced across the semiconductor industry in fiscal 2021 and development plans. If we overestimate demand forthe impacts of COVID-19 in fiscal 2020. For fiscal 2021 and 2020, the overall net effect on our products, the amount of our loss will be impacted by our contractual ability to reduce inventory purchasesoperating results from our suppliers. Our assumptions of future product demand are inherently uncertain, and changes in our estimates and assumptions may cause us to realize material write-downs in the future.this estimate were not material.
ValuationImpairment of Goodwill and Other Indefinite-LivedLong-Lived Assets. We monitor our goodwill and Long-Lived Assets. Our business combinations typically result in the recording of goodwill, other intangiblelong-lived assets and property, plant and equipment, and the recorded values of those assets may become impaired in the future. We also acquire intangible assets and property, plant and equipment in other types of transactions. The determination of the recorded value of intangible assets acquired in a business combination requires management to make estimates and assumptions that affect our consolidated financial statements. For intangible assets acquired in a non-monetary exchange, the estimated fair values of the assets transferred (or the estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless the values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case the assets received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. An estimate of fair value can be affected by many assumptions that require significant judgment. For example, the income approach generally requires us to use assumptions to estimate future cash flows including those related to total addressable market, pricing and share forecasts, competition, technology obsolescence, future tax rates and discount rates. Our estimate of the fair value of certain assets may differ materially from that determined by others who use different assumptions or utilize different business models and from the future cash flows actually realized.
Goodwill and other indefinite-lived intangible assets are tested annually for impairment and in interim periods if certain events occur indicating that the carrying amounts may be impaired. Long-lived assets, such as property, plant and equipment and intangible assets subject to amortization, are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Our judgments regarding the existence of impairment indicators and future cash flows related to goodwill and other indefinite-lived intangible assets and long-lived assets may be based on operational performance of our businesses, market conditions, expected selling price and/or other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use, including estimates of future cash flows and discount rates, are consistent with our internal planning, when appropriate. If these estimates or their related assumptions changeapply judgments in the future, we may be required to record an impairment charge on a
portion or all of our goodwill, other indefinite-lived intangible assets and/or long-lived assets. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor the impactvaluation methods and underlying assumptions utilized in such events might have on our reported asset values. Future events could cause us to conclude that impairment indicators exist and that goodwill or other intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have an adverse impact on our financial condition and results of operations.assessments. During fiscal 2017, 20162021 and 2015, we recorded $76 million, $107 million and $317 million, respectively, infiscal 2020, impairment charges for goodwill, other indefinite-lived intangiblelong-lived assets and long-lived assets. Thewere negligible. Additionally, the estimated fair values of our QCT and QTL reporting units, based on our qualitative assessment, were substantially in excess of their respective carrying values at September 24, 2017.26, 2021.
Legal and Regulatory Proceedings. We are currently involved in certain legal and regulatory proceedings, and we intend to continue to vigorously defend ourselves. However, the unfavorable resolution of one or more of these proceedings could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. A broad range of remedies with respect to our business practices that are deemed to violate applicable laws are potentially available. These remedies may include, among others, injunctions, monetary damages or fines or other orders to pay money and the issuance of orders to cease certain conduct and/or to modify our business practices. We disclose a loss contingency if there is at least a reasonable possibility that a material loss has been incurred. We record our best estimate of a loss related to pending legal orand regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. Where a rangeWe face difficulties in evaluating or estimating likely outcomes or the amount of possible loss can be reasonably estimated with no best estimate in the range, we record the minimum estimated liability. As additional information becomes available, we assess the potential liability, including the probability of loss related to pendingcertain legal orand regulatory proceedings, and revise our estimates and update our disclosures accordingly. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. Revisions in our estimates of the potential liability could materially impact our results of operations.proceedings.
Income Taxes. We are subject tomake significant judgments and estimates in determining our provision for income taxes, in the United States and numerous foreign jurisdictions, and theincluding our assessment of our income tax positions involves dealing withgiven the uncertainties involved in the interpretation and application of complex tax laws and regulations in various taxing jurisdictions. In addition, the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Significant judgments and estimates are required in determining our provision for income taxes, including those related to tax incentives, intercompany research and development cost-sharing arrangements, transfer pricing and tax credits. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by taxing authorities in determining the adequacy of our provision for income taxes. Therefore, the actual liability for United States or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. We are participating in the Internal Revenue Service (IRS) Compliance Assurance Process program whereby we endeavor to agree with the IRS on the treatment of all issues prior to filing our federal return. A benefit of participation in this program is that post-filing adjustments by the IRS are less likely to occur.
Our QCT segment’s non-United States headquarters is located in Singapore. We obtained tax incentives in Singapore that commenced in March 2012, including a tax exemption for the first five years, provided that we meet specified employment and incentive criteria, and as a result of the expiration of certain of these incentives, our Singapore tax rate increased in fiscal 2017 and will increase again in fiscal 2027 upon the expiration of the remaining incentives. Our failure to meet these criteria could adversely impact our provision for income taxes.We consider the operating earnings of certain non-United States subsidiaries to be indefinitely reinvested outside the United States based on our plans for use and/or investment outside of the United States and our belief that our sources of cash and liquidity in the United States will be sufficient to meet future domestic cash needs. On a regular basis, we consider projected cash needs for, among other things, potential acquisitions, such as our proposed acquisition of NXP, investments in our existing businesses, future research and development and capital transactions, including repurchases of our common stock, dividends and debt repayments. We estimate the amount of cash or other liquidity that is available or needed in the jurisdictions where these investments are expected as well as our ability to generate cash in those jurisdictions and our access to capital markets. This analysis enables us to conclude whether or not we will indefinitely reinvest the current period’s foreign earnings. We have not recorded a deferred tax liability of approximately $13.7 billion related to the United States federal and state income taxes and foreign withholding taxes on approximately $39.0 billion of undistributed earnings of certain non-United States subsidiaries indefinitely reinvested outside the United States. Should we decide to no longer indefinitely reinvest such earnings outside the United States, for example, if we determine that such earnings are needed to fund future domestic operations or there is not a sufficient need for such earnings outside of the United States, we would have to adjust the income tax provision in the period we make such determination.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements and the impact of those pronouncements, if any, on our consolidated financial statements is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. The Company and Its Significant Accounting Policies.”
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Marketable Securities
We have made investments in marketable equity securities of companies of varying size, style, industry and geography and changes in investment allocations may affect the price volatility of our investments. On October 27, 2016, we announced a definitive agreement under which Qualcomm River Holdings will acquire NXP for estimated total cash consideration to be paid to NXP’s shareholders of $38 billion. We intend to fund the transaction with cash held by our foreign entities as well as funds raised in connection with our May 2017 debt issuance, which will result in the use of a substantial portion of our cash, cash equivalents and marketable securities, as well as committed financing through a Term Loan Facility, which is expected to be drawn on at the close of the NXP transaction. As a result, during fiscal 2017, we divested a substantial portion of our marketable securities portfolio, including our equity securities and fund shares.
Equity Price Risk. The At September 26, 2021, the recorded valuesvalue of our marketable equity securities and fund shares decreased to $36 million at September 24, 2017 from $1.7 billion at September 25, 2016.was $682 million. A 10% decrease in the market price of our marketable equity securities and fund shares at September 24, 2017 would have caused a negligible decrease in the carrying amounts of these securities. A 10% decrease in the market price of our marketable equity securities and fund shares at September 25, 201626, 2021 would have caused a decrease in the carrying amounts of these securities of $175$68 million. At September 24, 2017, there were no gross unrealized lossesA 10% decrease in the market price of our marketable equity securities and fund shares.at September 27, 2020 would have caused a decrease in the carrying amounts of these securities of $35 million.
Interest Rate Risk. We invest a portion of our cash in a number of diversified fixed- and floating-rate securities consisting of cash equivalents, marketable debt securities debt funds and time and demand deposits that are subject to interest rate risk. Changes in the general level of interest rates can affect the fair value of our investment portfolio. If interest rates in the general economy were to rise, our holdings could lose value. As a result of divesting a substantial portion of our marketable securities portfolio and changes in portfolio allocation, the fair value of our investment portfolio is subject to lower interest rate risk. At September 24, 2017,26, 2021 and September 27, 2020, a hypothetical increase in interest rates of 100 basis points across the entire yield curve on our holdings would have resulted in a decrease of $26$50 million and $32 million, respectively, in the fair value of our holdings. At September 25, 2016, a hypothetical increase in interest rates of 100 basis points across the entire yield curve on our holdings would have resulted in a decrease of $501 million in the fair value of our holdings.
Other Investments
Equity Price Risk. We hold investments in non-marketable equity instruments in privately held companies that may be impacted by equity price risks. Volatility in the equity markets could negatively affect our investees’ ability to raise additional capital as well as our ability to realize value from our investments through initial public offerings, mergers andor private sales. Consequently, we could incur other-than-temporary impairment losses or realized losses on all or a part of the values of our non-marketable equity investments. At September 24, 2017,26, 2021, the aggregate carrying value of our non-marketable equity investments was $982 million and was included in other noncurrent assets. At September 25, 2016, the aggregate carrying value of our non-marketable equity investments was $855 millionassets and was included in other noncurrent assets.$1.3 billion.
Debt and Interest Rate Swap Agreements
Interest Rate Risk. In May 2017, As substantially all of our debt is comprised of unsecured fixed-rate notes, we issuedare not subject to significant interest rate risk. At September 26, 2021, we had an aggregate principal amount of $11.0 billion of$500 million in unsecured floating- and fixed-ratefloating-rate notes with varying maturity dates. In 2015, we issued an aggregate principal amount of $10.0 billion of unsecured floating- and fixed-rate notes with varying maturity dates and entered into interest rate swaps with an aggregate notional amount of $3.0 billion to effectively convert certain fixed-rate interest payments into floating-rate payments.due January 30, 2023. The interest rates on our floating-rate notes and interest rate swaps are based on LIBOR. By issuing additional floating-rate notes in fiscal 2017, our assumed risks associated with variable interest rates based on LIBOR have increased. At September 24, 2017,26, 2021 and September 27, 2020, a hypothetical increase in LIBOR-based interest rates of 100 basis points would cause oura negligible increase to interest expense to increase by $46 million on an annualized basis as it relates to our floating-rate notes andnotes. At September 26, 2021, we also had $500 million in commercial paper outstanding, for which our exposure to interest rate swap agreements.risk was negligible based on the original maturities of approximately three months or less.
From time to time, we manage our exposure to certain interest rate risks related to our long-term debt through the use of interest rate swaps. During fiscal 2021, we entered into forward-starting interest rate swaps with an aggregate notional amount of $2.6 billion to hedge the variability of forecasted interest payments on anticipated debt issuances through 2025. The interest rates on our interest rate swaps are based on LIBOR. At September 25, 2016,26, 2021, a hypothetical increasedecrease in LIBOR-based interest rates of 100 basis points would have caused ourcause an increase of $23 million to interest expense to increase by $30 million on an annualized basis as it relatesresulting from the changes in fair values of the interest rate swaps related to our floating-rate notes and interest rate swap agreements.anticipated debt issuances through 2025.
Additionally, we have a commercial paper program that provides for the issuance of up to $5.0 billion of commercial paper. At September 24, 2017, we had $999 million of commercial paper outstanding, with original maturities of less than
three months. Changes in interest rates could affect the amounts of interest that we pay if we refinance the current outstanding commercial paper with new debt.
Additional information regarding our notes and related interest rate swap agreements and commercial paper program is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. The Company and Its Significant Accounting Policies” and “Notes to Consolidated Financial Statements, Note 6. Debt.”
Foreign Exchange Risk
We manage our exposure to foreign exchange market risks, when deemed appropriate, through the use of derivative and non-derivative financial instruments, including foreign currency forward and option contracts with financial counterparties.counterparties and net investment hedges. We utilize such derivative financial instruments for hedging or risk management purposes rather than for speculative purposes. Counterparties to ourthese derivative contracts are all major banking institutions. In the event of the financial insolvency or distress of a counterparty to our derivative financial instruments, we may be unable to settle transactions if the counterparty does not provide us with sufficient collateral to secure its net settlement obligations to us, which could have a negative impact on our results. A description of our foreign currency accounting policies is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. The Company and Its Significant Accounting Policies.”
Foreign Currency Options.At September 24, 2017,26, 2021, our net liability related to foreign currency options designated as hedges of foreign currency risk on royalties earned from certain licensees was $15 million. Ifnegligible. At September 26, 2021 and September 27, 2020, if our forecasted royalty revenues for currencies in which we hedge were to decline by 20%10% and foreign exchange rates were to change unfavorably by 20%10% in our hedged foreign currency, we would not incur a loss as our hedge positions would continue to be fully effective.
Foreign Currency Forwards. At September 24, 2017,26, 2021, our net asset related to foreign currency option and forward contracts designated as hedges of foreign currency risk on certain operating expenditure transactions was negligible.$39 million. If our forecasted operating expenditures for currencies in which we hedge were to decline by 20%10% and foreign exchange rates were to change
unfavorably by 20%10% in our hedged foreign currency, we would incur a negligible loss. Based on forecasts at September 27, 2020, assuming the same hypothetical market conditions, we would not have incurred a loss.
At September 26, 2021, our net asset related to foreign currency forward contracts not designated as hedging instruments used to manage foreign currency risk on certain receivables and payables was negligible. At September 26, 2021 and September 27, 2020, if the foreign exchange rates were to change unfavorably by 10% in our hedged foreign currency, we would not incur a loss as the change in the fair value of the foreign currency option and forward contracts would be offset by the change in fair value of the related receivables and/or payables being economically hedged.
Net Investment Hedges.At September 26, 2021, we have designated $1.5 billion of foreign currency-denominated liabilities, excluding accrued interest, as hedges of our net investment in certain foreign subsidiaries. If foreign exchange rates were to change unfavorably by 10% in our hedged foreign currency, there would be an increase of $145 million in the accumulated other comprehensive loss attributable to the cumulative foreign currency translation adjustment at September 26, 2021 related to our net investment hedges. The change in value recorded in cumulative foreign currency translation adjustment would be expected to offset a corresponding foreign currency translation gain or loss from our investment in foreign subsidiaries.
Functional Currency. Financial assets and liabilities held by consolidated subsidiaries that are not denominated in the functional currency of those entities are subject to the effects of currency fluctuations and may affect reported earnings. As a global company, we face exposure to adverse movements in foreign currency exchange rates. We may hedge currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies and certain anticipated nonfunctional currency transactions. As a result, we could experience unanticipated gains or losses on anticipated foreign currency cash flows, as well as economic loss with respect to the recoverability of investments. While we may hedge certain transactions with non-United Statesnon-U.S. customers, declines in currency values in certain regions may, if not reversed, adversely affect future product sales because our products may become more expensive to purchase in the countries of the affected currencies.
At September 24, 2017, our net liability related to foreign currency option and forward contracts not designated as hedging instruments used to manage foreign currency risk on certain receivables and payables was negligible. If the foreign exchange rates were to change unfavorably by 20% in our hedged foreign currency, we would not incur a loss as the change in the fair value of the foreign currency option and forward contracts would be offset by the change in fair value of the related receivables and payables being economically hedged.
Our analysis methods used to assess and mitigate the risks discussed above should not be considered projections of future risks. Additional information regarding the financial instruments mentioned above is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. Significant Accounting Policies,” “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items,” “Notes to Consolidated Financial Statements, Note 6. Debt,” “Notes to Consolidated Financial Statements, Note 10. Fair Value Measurements” and “Notes to Consolidated Financial Statements, Note 11. Marketable Securities.”
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements at September 24, 201726, 2021 and September 25, 201627, 2020 and for each of the three years in the period ended September 24, 201726, 2021, and the Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, are included in this Annual Report on pages F-1 through F-44.F-32.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this
evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of September 24, 2017.26, 2021.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited theour consolidated financial statements included in this Annual Report, has also audited the effectiveness of our internal control over financial reporting as of September 24, 2017,26, 2021, as stated in its report which appears on page F-1.pages F-1 through F-2 in this Annual Report.
Inherent Limitations over Internal Controls
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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i. | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
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ii. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
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iii. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. |
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Part
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding directors is incorporated by reference to our Definitive2022 Proxy Statement to be filed with the Securities and Exchange CommissionSEC in connection with our 20182022 Annual Meeting of Stockholders (the 2018(2022 Proxy Statement) in “Proposal 1: Election of Directors” under the headingssubheading “Nominees for Election” and “Section 16(a) Beneficial Ownership Reporting Compliance.Election.” Certain information required by this item regarding executive officers is set forth in Item 1 of Part I of this Report under the caption “Executive Officers,” and certain information is incorporated by reference to the 2018 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.“Information about our Executive Officers.” The information required by this item regarding corporate governance is incorporated by reference to the 2018our 2022 Proxy Statement in the section titled “Corporate Governance” under the headings “Code of Ethics and Corporate Governance Principles and Practices,” “Director Nominations”Practices” and “Board Meetings, Committees and Attendance.Attendance” and in the section titled “Stock Ownership of Certain Beneficial Owners and Management” under the heading “Delinquent Section 16(a) Reports.”
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the 2018our 2022 Proxy Statement underin the headingssections titled “Executive Compensation and Related Information,” “Compensation Discussion and Analysis,” “HR and Compensation Committee Report,” “Compensation Tables and Narrative Disclosures,”Disclosures” and “Director Compensation,” and in the section titled “Stock Ownership of Certain Beneficial Owners and Management” under the subheading “Compensation Committee Interlocks and Insider Participation in Compensation Decisions” and “Compensation Committee Report.Participation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the 2018our 2022 Proxy Statement underin the headings “Equity Compensation Plan Information” andsection titled “Stock Ownership of Certain Beneficial Owners and Management.Management” including under the subheading “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the 2018our 2022 Proxy Statement underin the headingssection titled “Certain Relationships and Related-Person Transactions”Transactions,” and in the section titled “Corporate Governance” under the subheadings “Director Independence.Independence” and “Board Meetings, Committees and Attendance.”
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the 2018our 2022 Proxy Statement under the heading “Fees for Professional Services” and “Policy on Audit Committee Pre-Approvalin “Proposal 2: Ratification of Audit and Non-Audit ServicesSelection of Independent Public Accountants.”
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
(a) Financial Statements:
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| | Page | |
| | Number | |
| (1) Report of Independent Registered Public Accounting Firm | | | |
Consolidated Balance Sheets at September 24, 201726, 2021 and September 25, 201627, 2020 | | F-2 | |
Consolidated Statements of Operations for Fiscal 2017, 20162021, 2020 and 20152019 | | F-3 | |
Consolidated Statements of Comprehensive Income for Fiscal 2017, 20162021, 2020 and 20152019 | | F-4 | |
Consolidated Statements of Cash Flows for Fiscal 2017, 20162021, 2020 and 20152019 | | F-5 | |
Consolidated Statements of Stockholders’ Equity for Fiscal 2017, 20162021, 2020 and 20152019 | | F-6 | |
| Notes to Consolidated Financial Statements | | F-7 | |
| (2) Schedule II - Valuation and Qualifying Accounts for Fiscal 2021, 2020 and 2019 | | | |
Financial statement schedules other than those listed above have been omitted because they are either not required, not applicable or the information is otherwise included in the notes to the consolidated financial statements.
(b) Exhibits
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Exhibit
Number | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| 2.1 | | | | 8-K | | 1/13/2021 | | 2.1 | | |
| 2.2 | | | | 8-K | | 10/4/2021 | | 2.1 | | |
| 3.1 | | | | 8-K | | 4/20/2018 | | 3.1 | | |
| 3.2 | | | | 8-K | | 7/23/2021 | | 3.2 | | |
| 4.1 | | | | 8-K | | 5/21/2015 | | 4.1 | | |
| 4.2 | | | | 8-K | | 5/21/2015 | | 4.2 | | |
| 4.3 | | | | 8-K | | 5/21/2015 | | 4.7 | | |
| 4.4 | | | | 8-K | | 5/21/2015 | | 4.8 | | |
| 4.5 | | | | 8-K | | 5/21/2015 | | 4.9 | | |
| 4.6 | | | | 8-K | | 5/21/2015 | | 4.10 | | |
| 4.7 | | Officers’ Certificate, dated May 26, 2017, for the Floating Rate Notes due 2019, the Floating Rate Notes due 2020, the Floating Rate Notes due 2023, the 1.850% Notes due 2019, the 2.100% Notes due 2020, the 2.600% Notes due 2023, the 2.900% Notes due 2024, the 3.250% Notes due 2027 and the 4.300% Notes due 2047. | | 8-K | | 5/31/2017 | | 4.2 | | |
| 4.8 | | | | 8-K | | 5/31/2017 | | 4.5 | | |
| 4.9 | | | | 8-K | | 5/31/2017 | | 4.8 | | |
| 4.10 | | | | 8-K | | 5/31/2017 | | 4.9 | | |
| 4.11 | | | | 8-K | | 5/31/2017 | | 4.10 | | |
| 4.12 | | | | 8-K | | 5/31/2017 | | 4.11 | | |
| 4.13 | | | | 8-K | | 5/11/2020 | | 4.2 | | |
| 4.14 | | | | 8-K | | 5/11/2020 | | 4.3 | | |
| 4.15 | | | | 8-K | | 5/11/2020 | | 4.4 | | |
| 4.16 | | | | 8-K | | 8/18/2020 | | 4.2 | | |
| 4.17 | | | | 8-K | | 8/18/2020 | | 4.3 | | |
| 4.18 | | | | 8-K | | 8/18/2020 | | 4.5 | | |
| 4.19 | | | | 8-K | | 8/18/2020 | | 4.7 | | |
| 4.20 | | | | 10-Q | | 02/3/2021 | | 4.23 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No./ Film No. | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| | Rule 2.7 Announcement, Recommended Cash Acquisition of CSR plc by Qualcomm Global Trading Pte. Ltd. | | 8-K | | 000-19528/ 141156425 | | 10/15/2014 | | 2.1 | | |
| | Master Transaction Agreement, dated January 13, 2016, by and among Qualcomm Global Trading Pte. Ltd., each other Purchaser Group member, TDK Japan, each other Seller Group member, and, solely for purposes of Section 10.9 thereof, QUALCOMM Incorporated. (1) | | 8-K | | 000-19528/ 161339867
| | 1/13/2016
| | 2.1 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| 4.21 | | | | 10-Q | | 02/3/2021 | | 4.24 | | |
| 4.22 | | | | 10-Q | | 02/3/2021 | | 4.25 | | |
| 4.23 | | | | 10-K | | 11/6/2019 | | 4.15 | | |
| 10.1 | | | | 10-K | | 11/4/2015 | | 10.1 | | |
| 10.2 | | | | 10-Q | | 4/29/2020 | | 10.7 | | |
| 10.3 | | | | 10-Q | | 4/20/2016 | | 10.32 | | |
| 10.4 | | | | 10-Q | | 4/28/21 | | 10.4 | | |
| 10.5 | | | | 8-K | | 12/10/2020 | | 10.1 | | |
| 10.6 | | | | 10-Q
| | 7/28/2021 | | 10.7 | | |
| 10.7 | | | | 10-Q | | 4/28/21 | | 10.8 | | |
| 10.8 | | | | 10-Q | | 4/25/2018 | | 10.60 | | |
| 10.9 | | | | 10-Q | | 4/25/2018 | | 10.62 | | |
| 10.10 | | | | 10-Q | | 7/28/2021 | | 10.11 | | |
| 10.11 | | | | 10-Q | | 7/28/2021 | | 10.12 | | |
| 10.12 | | | | 10-K | | 11/7/2018 | | 10.59 | | |
| 10.13 | | | | 10-K | | 11/7/2018 | | 10.60 | | |
| 10.14 | | | | 10-Q | | 2/3/2021 | | 10.16 | | |
| 10.15 | | | | 10-K | | 11/6/2019 | | 10.29 | | |
| 10.16 | | | | 10-K | | 11/4/2020 | | 10.22 | | |
| 10.17 | | | | 10-Q | | 2/3/2021 | | 10.19 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No./ Film No. | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| | Amendment #1, dated December 20, 2016, to Master Transaction Agreement, dated January 13, 2016, by and among Qualcomm Global Trading Pte. Ltd., each other Purchaser Group member, TDK Japan, each other Seller Group member, and, solely for purposes of Section 10.9 thereof, QUALCOMM Incorporated. (1) | | 10-Q | | 000-19528/ 17546539 | | 1/25/2017 | | 2.3 | | |
| | Amendment #2, dated January 19, 2017, to Master Transaction Agreement, dated January 13, 2016, by and among Qualcomm Global Trading Pte. Ltd., each other Purchaser Group member, TDK Japan, each other Seller Group member, and, solely for purposes of Section 10.9 thereof, QUALCOMM Incorporated. (1) | | 10-Q | | 000-19528/ 17546539 | | 1/25/2017 | | 2.4 | | |
| | Amendment #3, dated February 3, 2017, to Master Transaction Agreement, dated January 13, 2016, by and among Qualcomm Global Trading Pte. Ltd., each other Purchaser Group member, TDK Japan, each other Seller Group member, and, solely for purposes of Section 10.9 thereof, QUALCOMM Incorporated. (1) | | 10-Q | | 000-19528/ 17770305 | | 4/19/2017 | | 2.6 | | |
| | Purchase Agreement dated as of October 27, 2016 by and between Qualcomm River Holdings, B.V. and NXP Semiconductors N.V. (1) | | 8-K | | 000-19528/ 161956228 | | 10/27/2016 | | 2.1 | | |
| | Restated Certificate of Incorporation, as amended. | | 10-Q | | 000-19528/ 161775595 | | 7/20/2016 | | 3.1 | | |
| | Amended and Restated Bylaws. | | 8-K | | 000-19528/ 161769723 | | 7/15/2016 | | 3.2 | | |
| | Indenture, dated May 20, 2015, between the Company and U.S. Bank National Association, as trustee. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.1 | | |
| | Officers’ Certificate, dated May 20, 2015, for the Floating Rate Notes due 2018, the Floating Rate Notes due 2020, the 1.400% Notes due 2018, the 2.250% Notes due 2020, the 3.000% Notes due 2022, the 3.450% Notes due 2025, the 4.650% Notes due 2035 and the 4.800% Notes due 2045. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.2 | | |
| | Form of Floating Rate Notes due 2018. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.3 | | |
| | Form of Floating Rate Notes due 2020. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.4 | | |
| | Form of 1.400% Notes due 2018. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.5 | | |
| | Form of 2.250% Notes due 2020. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.6 | | |
| | Form of 3.000% Notes due 2022. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.7 | | |
| | Form of 3.450% Notes due 2025. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.8 | | |
| | Form of 4.650% Notes due 2035. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.9 | | |
| | Form of 4.800% Notes due 2045. | | 8-K | | 000-19528/ 15880967 | | 5/21/2015 | | 4.10 | | |
| | Officers’ Certificate, dated May 26, 2017, for the Floating Rate Notes due 2019, the Floating Rate Notes due 2020, the Floating Rate Notes due 2023, the 1.850% Notes due 2019, the 2.100% Notes due 2020, the 2.600% Notes due 2023, the 2.900% Notes due 2024, the 3.250% Notes due 2027 and the 4.300% Notes due 2047. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.2 | | |
| | Form of Floating Rate Notes due 2019. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.3 | | |
| | Form of Floating Rate Notes due 2020. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.4 | | |
| | Form of Floating Rate Notes due 2023. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.5 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| 10.18 | | | | 10-Q | | 2/3/2021 | | 10.20 | | |
| 10.19 | | | | 10-K | | 11/4/2020 | | 10.21 | | |
| 10.20 | | | | 10-Q | | 4/28/2021 | | 10.23 | | |
| 10.21 | | | | 8-K | | 10/4/2021 | | 10.1 | | |
| 10.22 | | | | | | | | | | X |
| 10.23 | | | | | | | | | | X |
| 10.24 | | | | | | | | | | X |
| 21 | | | | | | | | | | X |
| 23.1 | | | | | | | | | | X |
| 31.1 | | | | | | | | | | X |
| 31.2 | | | | | | | | | | X |
| 32.1 | | | | | | | | | | X |
| 32.2 | | | | | | | | | | X |
| 101.INS | | Inline XBRL Instance Document. | | | | | | | | X |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema. | | | | | | | | X |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase. | | | | | | | | X |
| 101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase. | | | | | | | | X |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase. | | | | | | | | X |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase. | | | | | | | | X |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | |
(1)We shall furnish supplementally a copy of any omitted schedule to the Commission upon request.
(2)Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a).
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No./ Film No. | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| | Form of 1.850% Notes due 2019. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.6 | | |
| | Form of 2.100% Notes due 2020. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.7 | | |
| | Form of 2.600% Notes due 2023. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.8 | | |
| | Form of 2.900% Notes due 2024. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.9 | | |
| | Form of 3.250% Notes due 2027. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.10 | | |
| | Form of 4.300% Notes due 2047. | | 8-K | | 000-19528/ 17882336 | | 5/31/2017 | | 4.11 | | |
| | Form of Indemnity Agreement between the Company and its directors and officers. (2) | | 10-K | | 000-19528/ 151197257 | | 11/4/2015 | | 10.1 | | |
| | Form of Grant Notice and Stock Option Agreement under the 2006 Long-Term Incentive Plan. (2) | | 10-K | | 000-19528/ 091159213 | | 11/5/2009 | | 10.84 | | |
| | Atheros Communications, Inc. 2004 Stock Incentive Plan, as amended. (2) | | S-8 | | 333-174649/ 11886141 | | 6/1/2011 | | 99.1 | | |
| | Resolutions Amending Atheros Communications, Inc. Equity Plans. (2) | | S-8 | | 333-174649/ 11886141 | | 6/1/2011 | | 99.6 | | |
| | Form of Grant Notices and Global Employee Stock Option Agreement under the 2006 Long-Term Incentive Plan. (2) | | 10-K | | 000-19528/ 121186937 | | 11/7/2012 | | 10.104 | | |
| | Form of Grant Notices and Global Employee Restricted Stock Unit Agreement under the 2006 Long-Term Incentive Plan. (2) | | 10-K | | 000-19528/ 121186937 | | 11/7/2012 | | 10.105 | | |
| | 2006 Long-Term Incentive Plan, as amended and restated. (2) | | 10-Q | | 000-19528/ 13779468 | | 4/24/2013 | | 10.112 | | |
| | Form of Aircraft Time Sharing Agreement. (2) | | 10-Q | | 000-19528/ 13983769 | | 7/24/2013 | | 10.114 | | |
| | Form of Grant Notices and Non-Employee Director Restricted Stock Unit Agreements under the 2006 Long-Term Incentive Plan for non-employee directors residing in the United Kingdom and Hong Kong. (2) | | 10-K | | 000-19528/ 131196747 | | 11/6/2013 | | 10.117 | | |
| | Form of Grant Notices and Non-Employee Director Deferred Stock Unit Agreements under the 2006 Long-Term Incentive Plan for non-employee directors residing in the United States and Spain. (2) | | 10-K | | 000-19528/ 131196747 | | 11/6/2013 | | 10.119 | | |
| | Form of Non-Employee Director Deferred Stock Unit Grant Notices and Deferred Stock Unit Agreement under the 2006 Long-Term Incentive Plan for non-employee directors residing in Singapore. (2) | | 10-Q | | 000-19528/ 14988939 | | 7/23/2014 | | 10.122 | | |
| | Form of Executive Restricted Stock Unit Grant Notice and Executive Restricted Stock Unit Agreements under the 2006 Long-Term Incentive Plan, which includes a September 29, 2014 to March 29, 2015 performance period. (2) | | 10-Q | | 000-19528/ 14988939 | | 7/23/2014 | | 10.123 | | |
| | Non-Qualified Deferred Compensation Plan, as amended, effective January 1, 2016. (2) | | 8-K | | 000-19528/ 151134109 | | 9/30/2015 | | 10.1 | | |
| | Amendment to 2006 Long-Term Incentive Plan, as amended and restated. (2) | | 10-Q | | 000-19528/ 15555092 | | 1/28/2015 | | 10.126 | | |
| | Amended and Restated QUALCOMM Incorporated 2001 Employee Stock Purchase Plan, as amended. (2) | | 10-Q | | 000-19528/ 151000141 | | 7/22/2015 | | 10.128 | | |
| | Revolving Credit Agreement among Qualcomm Incorporated, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, dated as of February 18, 2015. | | 8-K | | 000-19528/ 15628813 | | 2/18/2015 | | 10.1 | | |
| | Form of Executive Performance Stock Unit Grant Notice and Executive Performance Stock Unit agreement under the 2006 Long-Term Incentive Plan, which includes a September 29, 2014 to September 24, 2017 performance period. (2) | | 10-K | | 000-19528/ 151197257 | | 11/4/2015 | | 10.27 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No./ Film No. | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| | Form of Executive Performance Stock Unit Award Grant Notice and Executive Performance Stock Unit Award Grant Agreement under the 2006 Long-Term Incentive Plan, which includes a September 28, 2015 to September 28, 2018 performance period. (2) | | 10-K | | 000-19528/ 151197257 | | 11/4/2015 | | 10.28 | | |
| | Form of 2016 Annual Cash Incentive Plan Performance Unit Agreement. (2) | | 10-Q | | 000-19528/ 161365251 | | 1/27/2016 | | 10.29 | | |
| | 2016 Long-Term Incentive Plan. (2) | | DEF 14A | | 000-19528/ 161353677 | | 1/21/2016 | | Appendix 5 | | |
| | Form of Executive Performance Stock Unit Award Grant Notice under the 2006 Long-Term Incentive Plan, which includes a March 28, 2016 to March 28, 2019 performance period. (2) | | 10-Q | | 000-19528/ 161581558 | | 4/20/2016 | | 10.31 | | |
| | Form of Non-Employee Director Deferred Stock Unit Grant Notices and Non-Employee Director Deferred Stock Unit Agreements under the 2016 Long-Term Incentive Plan for non-employee directors residing in the United States. (2) | | 10-Q | | 000-19528/ 161581558 | | 4/20/2016 | | 10.32 | | |
| | Form of Non-Employee Director Deferred Stock Unit Grant Notices and Non-Employee Director Deferred Stock Unit Agreements under the 2016 Long-Term Incentive Plan for non-employee directors residing in Spain. (2) | | 10-Q | | 000-19528/ 161581558 | | 4/20/2016 | | 10.33 | | |
| | Form of Non-Employee Director Deferred Stock Unit Grant Notices and Non-Employee Director Deferred Stock Unit Agreements under the 2016 Long-Term Incentive Plan for non-employee directors residing in Singapore. (2) | | 10-Q | | 000-19528/ 161581558 | | 4/20/2016 | | 10.34 | | |
| | Qualcomm Incorporated 2017 Director Compensation Plan. (2) | | 8-K | | 000-19528/ 161931217 | | 10/11/2016 | | 99.1 | | |
| | Form of Executive Restricted Stock Unit Grant Notice and Executive Restricted Stock Unit Agreement under the 2016 Long-Term Incentive Plan. (2) | | 10-K | | 000-19528/ 161967933 | | 11/2/2016 | | 10.36 | | |
| | Form of Executive Performance Stock Unit Award Grant Notice and Executive Performance Stock Unit Award Agreement under the 2016 Long-Term Incentive Plan. (2) | | 10-K | | 000-19528/ 161967933 | | 11/2/2016 | | 10.37 | | |
| | Executive Performance Unit Award Grant Notice and Executive Performance Unit Award Agreement under the 2016 Long-Term Incentive Plan for Derek K. Aberle. (2) (3) | | 10-K | | 000-19528/ 161967933 | | 11/2/2016 | | 10.38 | | |
| | Letter Agreement, dated as of October 27, 2016, by and between QUALCOMM Incorporated and Qualcomm River Holdings B.V. | | 8-K | | 000-19528/ 161956228 | | 10/27/2016 | | 10.1 | | |
| | Credit Agreement among QUALCOMM Incorporated, the lenders party thereto and Goldman Sachs Bank USA, as Administrative Agent, dated as of November 8, 2016. | | 8-K | | 000-19528/ 161985209 | | 11/9/2016 | | 10.1 | | |
| | Amended and Restated Credit Agreement among QUALCOMM Incorporated, the lenders party thereto and Bank of America, N.A., as Administrative Agent, dated as of November 8, 2016. | | 8-K | | 000-19528/ 161985209 | | 11/9/2016 | | 10.2 | | |
| | Letter of Credit and Reimbursement Agreement between Qualcomm River Holdings B.V. and Mizuho Bank, Ltd., dated as of November 22, 2016. | | 8-K | | 000-19528/ 162023573 | | 11/29/2016 | | 10.1 | | |
| | First Amendment to Letter of Credit and Reimbursement Agreement between Qualcomm River Holdings B.V. and Mizuho Bank, Ltd., dated as of November 23, 2016. | | 8-K | | 000-19528/ 162023573 | | 11/29/2016 | | 10.2 | | |
| | Continuing Agreement for Standby Letters of Credit between Qualcomm River Holdings B.V. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., dated as of November 22, 2016. | | 8-K | | 000-19528/ 162023573 | | 11/29/2016 | | 10.3 | | |
| | Reimbursement and Security Agreement between Qualcomm River Holdings B.V. and Sumitomo Mitsui Banking Corporation, dated as of November 22, 2016. | | 8-K | | 000-19528/ 162023573 | | 11/29/2016 | | 10.4 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File No./ Film No. | | Date of First Filing | | Exhibit Number | | Filed Herewith |
| | Letter of Credit Application by QUALCOMM Incorporated to Bank of America, N.A., dated as of November 23, 2016. | | 8-K | | 000-19528/ 162023573 | | 11/29/2016 | | 10.5 | | |
| | Form of 2017 Annual Cash Incentive Plan Performance Unit Agreement (2) | | 10-Q | | 000-19528/ 17546539 | | 1/25/2017 | | 10.47 | | |
| | Qualcomm Incorporated 2018 Director Compensation Plan. (2) | | | | | | | | | | X |
| | Form of Executive Restricted Stock Unit Grant Notice and Executive Restricted Stock Unit Agreement under the 2016 Long-Term Incentive Plan, which includes a September 25, 2017 to March 25, 2018 performance period. (2)
| | | | | | | | | | X |
| | Form of Executive Performance Stock Unit Award Grant Notice and Executive Performance Stock Unit Award Agreement under the 2016 Long-Term Incentive Plan, which includes a September 25, 2017 to September 27, 2020 performance period. (2)
| | | | | | | | | | X |
| | Computation of Ratio of Earnings to Fixed Charges. | | | | | | | |
| | X |
| | Subsidiaries of the Registrant. | | | | | | | |
| | X |
| | Consent of Independent Registered Public Accounting Firm. | | | | | | | |
| | X |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Steve Mollenkopf. | | | | | | | |
| | X |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for George S. Davis. | | | | | | | |
| | X |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for Steve Mollenkopf. | | | | | | | |
| | X |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for George S. Davis. | | | | | | | |
| | X |
| 101.INS | | XBRL Instance Document. | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema. | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Labels Linkbase. | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. | | | | | | | | | | X |
| |
(1) | The Company shall furnish supplementally a copy of any omitted schedule to the Commission upon request. |
| |
(2) | Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a). |
| |
(3) | Confidential treatment has been requested with respect to certain portions of this exhibit. |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 1, 2017
| | | | | | | | | | | |
| | | |
| | | QUALCOMM Incorporated |
| QUALCOMM Incorporated | |
| November 3, 2021 | By | /s/ Cristiano R. Amon |
| By | /s/ Steve MollenkopfCristiano R. Amon |
| | Steve Mollenkopf |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: | | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Cristiano R. Amon | | President and Chief Executive Officer, and Director | | November 3, 2021 |
| Cristiano R. Amon | | (Principal Executive Officer) | | |
| | | | |
| /s/ Akash Palkhiwala | | Chief Financial Officer | | November 3, 2021 |
| Akash Palkhiwala | | (Principal Financial Officer) | | |
| | | | |
| /s/ Erin Polek | | Senior Vice President, Corporate Controller and Chief Accounting Officer | | November 3, 2021 |
| Erin Polek | | (Principal Accounting Officer) | | |
| | | | |
Signature/s/ Sylvia Acevedo | | TitleDirector | | DateNovember 3, 2021 |
| Sylvia Acevedo | | | | |
/s/ Steve Mollenkopf | | Chief Executive Officer and Director | | November 1, 2017 |
Steve Mollenkopf/s/ Mark Fields | | (Principal Executive Officer)Director | | November 3, 2021 |
| Mark Fields | | | | |
/s/ George S. Davis | | Executive Vice President and Chief Financial Officer | | November 1, 2017 |
George S. Davis | | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ Barbara T. Alexander | | Director | | November 1, 2017 |
Barbara T. Alexander | | | | |
| | | | |
| /s/ Jeffrey W. Henderson | | Director | | November 1, 20173, 2021 |
| Jeffrey W. Henderson | | | | |
| | | | |
/s/ Thomas W. HortonGregory N. Johnson | | Director | | November 1, 20173, 2021 |
Thomas W. HortonGregory N. Johnson | | | | |
| | | | |
/s/ Paul E. Jacobs | | Chairman | | November 1, 2017 |
Paul E. Jacobs | | | | |
| | | | |
| /s/ Ann M. Livermore | | Director | | November 1, 20173, 2021 |
| Ann M. Livermore | | | | |
| | | | |
| /s/ Harish Manwani | | Director | | November 1, 20173, 2021 |
| Harish Manwani | | | | |
| | | | |
| /s/ Mark D. McLaughlin | | DirectorChair of the Board | | November 1, 20173, 2021 |
| Mark D. McLaughlin | | | | |
| | | | |
| /s/ Jamie S. Miller | | Director | | November 3, 2021 |
| Jamie S. Miller | | | | |
| | | | |
| /s/ Clark T. Randt, Jr. | | Director | | November 1, 20173, 2021 |
| Clark T. Randt, Jr. | | | | |
| | | | |
/s/ Francisco RosIrene B. Rosenfeld | | Director | | November 1, 20173, 2021 |
Francisco RosIrene B. Rosenfeld | | | | |
| | | | |
| /s/ Kornelis (Neil) Smit | | Director | | November 3, 2021 |
| Kornelis (Neil) Smit | | | | |
| | | | |
| /s/ Jean-Pascal Tricoire | | Director | | November 3, 2021 |
| Jean-Pascal Tricoire | | | | |
| | | | |
| /s/ Anthony J. Vinciquerra | | Director | | November 1, 20173, 2021 |
| Anthony J. Vinciquerra | | | | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of QUALCOMM Incorporated:Incorporated
In our opinion,Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial positionbalance sheets of QUALCOMM Incorporated and its subsidiaries (the “Company”) as of September 24, 201726, 2021 and September 25, 2016,27, 2020, and the resultsrelated consolidated statements of their operations, comprehensive income, stockholders’ equity and their cash flows for each of the three years in the period ended September 24, 201726, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 26, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 26, 2021 and September 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 26, 2021 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 24, 2017,26, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the CommitteeCOSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020 and the manner in which it accounts for revenues from contracts with customers and income tax effects of Sponsoring Organizationsintra-entity transfers of the Treadway Commission (COSO). assets other than inventory in fiscal 2019.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition – Qualcomm CDMA Technologies (QCT) customer incentive arrangements
As described in Notes 1 and 2 to the consolidated financial statements, the Company’s QCT segment, which recorded revenues of $27.0 billion in fiscal 2021, records reductions to revenues for customer incentive arrangements, including volume-related and other pricing rebates and cost reimbursements for marketing and other activities involving certain products and technologies, in the period that the related revenues are earned. For certain QCT customer incentive arrangements, there is complexity in applying certain contractual terms to determine the amount recorded as a reduction to revenues. The amounts accrued for customer incentive arrangements are recorded as a reduction to accounts receivable, net or as other current liabilities based on whether the Company has the intent and contractual right of offset. Certain amounts recorded as a reduction to revenues for customer incentive arrangements are considered variable consideration and are included in the transaction price primarily based on estimating the most likely amount expected to be provided to the customer.
The principal considerations for our determination that performing procedures relating to revenue recognition of QCT customer incentive arrangements is a critical audit matter are the significant audit effort in performing procedures and evaluating audit evidence obtained related to the completeness and accuracy of reductions to QCT revenues recognized.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s review of and accounting for customer incentive arrangements as well as controls relating to management’s review over the completeness and accuracy of reductions to revenues in fiscal 2021 and accruals for customer incentive arrangements as of the balance sheet date. These procedures also included, among others, testing the completeness and accuracy of customer incentive arrangement reductions to revenues and customer incentive arrangement accruals recorded in the consolidated financial statements, and recalculating, on a test basis, reductions to revenues and accruals for customer incentive arrangements based upon customer-specific contractual terms.
/s/ PricewaterhouseCoopers LLP
San Diego, California
November 3, 2021
November 1, 2017We have served as the Company’s auditor since 1985.
QUALCOMM Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)par value amounts)
| | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 7,116 | | | $ | 6,707 | |
| Marketable securities | 5,298 | | | 4,507 | |
| Accounts receivable, net | 3,579 | | | 4,003 | |
| Inventories | 3,228 | | | 2,598 | |
| Other current assets | 854 | | | 704 | |
| Total current assets | 20,075 | | | 18,519 | |
| | | |
| Deferred tax assets | 1,591 | | | 1,351 | |
| Property, plant and equipment, net | 4,559 | | | 3,711 | |
| Goodwill | 7,246 | | | 6,323 | |
| Other intangible assets, net | 1,458 | | | 1,653 | |
| Other assets | 6,311 | | | 4,037 | |
| Total assets | $ | 41,240 | | | $ | 35,594 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Trade accounts payable | $ | 2,750 | | | $ | 2,248 | |
| Payroll and other benefits related liabilities | 1,531 | | | 1,053 | |
| Unearned revenues | 612 | | | 568 | |
| Short-term debt | 2,044 | | | 500 | |
| | | |
| Other current liabilities | 5,014 | | | 4,303 | |
| Total current liabilities | 11,951 | | | 8,672 | |
| Unearned revenues | 364 | | | 761 | |
| Income taxes payable | 1,713 | | | 1,872 | |
| Long-term debt | 13,701 | | | 15,226 | |
| Other liabilities | 3,561 | | | 2,986 | |
| Total liabilities | 31,290 | | | 29,517 | |
| | | |
| Commitments and contingencies (Note 7) | 0 | | 0 |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding | — | | | — | |
| Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,125 and 1,131 shares issued and outstanding, respectively | — | | | 586 | |
| Retained earnings | 9,822 | | | 5,284 | |
| Accumulated other comprehensive income | 128 | | | 207 | |
| | | |
| | | |
| Total stockholders’ equity | 9,950 | | | 6,077 | |
| Total liabilities and stockholders’ equity | $ | 41,240 | | | $ | 35,594 | |
|
| | | | | | | |
| | September 24,
2017 | | September 25,
2016 |
| ASSETS |
| Current assets: | | | �� |
| Cash and cash equivalents | $ | 35,029 |
| | $ | 5,946 |
|
| Marketable securities | 2,279 |
| | 12,702 |
|
| Accounts receivable, net | 3,632 |
| | 2,219 |
|
| Inventories | 2,035 |
| | 1,556 |
|
| Other current assets | 618 |
| | 558 |
|
| Total current assets | 43,593 |
| | 22,981 |
|
| Marketable securities | 1,270 |
| | 13,702 |
|
| Deferred tax assets | 2,900 |
| | 2,030 |
|
| Property, plant and equipment, net | 3,216 |
| | 2,306 |
|
| Goodwill | 6,623 |
| | 5,679 |
|
| Other intangible assets, net | 3,737 |
| | 3,500 |
|
| Other assets | 4,147 |
| | 2,161 |
|
| Total assets | $ | 65,486 |
| | $ | 52,359 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Trade accounts payable | $ | 1,971 |
| | $ | 1,858 |
|
| Payroll and other benefits related liabilities | 1,183 |
| | 934 |
|
| Unearned revenues | 502 |
| | 509 |
|
| Short-term debt | 2,495 |
| | 1,749 |
|
| Other current liabilities | 4,756 |
| | 2,261 |
|
| Total current liabilities | 10,907 |
| | 7,311 |
|
| Unearned revenues | 2,003 |
| | 2,377 |
|
| Long-term debt | 19,398 |
| | 10,008 |
|
| Other liabilities | 2,432 |
| | 895 |
|
| Total liabilities | 34,740 |
| | 20,591 |
|
| | | | |
| Commitments and contingencies (Note 7) |
| |
|
| | | | |
| Stockholders’ equity: | | | |
| Qualcomm stockholders’ equity: | | | |
| Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding | — |
| | — |
|
| Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,474 and 1,476 shares issued and outstanding, respectively | 274 |
| | 414 |
|
| Retained earnings | 30,088 |
| | 30,936 |
|
| Accumulated other comprehensive income | 384 |
| | 428 |
|
| Total Qualcomm stockholders’ equity | 30,746 |
| | 31,778 |
|
| Noncontrolling interests | — |
| | (10 | ) |
| Total stockholders’ equity | 30,746 |
| | 31,768 |
|
| Total liabilities and stockholders’ equity | $ | 65,486 |
| | $ | 52,359 |
|
See accompanying notes.
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended |
| | | | | | | | September 26,
2021 | | September 27,
2020 | | September 29,
2019 |
| Revenues: | | | | | | | | | | | | |
| Equipment and services | | | | | | | | $ | 26,741 | | | $ | 16,298 | | | $ | 14,611 | |
| Licensing | | | | | | | | 6,825 | | | 7,233 | | | 9,662 | |
| Total revenues | | | | | | | | 33,566 | | | 23,531 | | | 24,273 | |
| Costs and expenses: | | | | | | | | | | | | |
| Cost of revenues | | | | | | | | 14,262 | | | 9,255 | | | 8,599 | |
| Research and development | | | | | | | | 7,176 | | | 5,975 | | | 5,398 | |
| Selling, general and administrative | | | | | | | | 2,339 | | | 2,074 | | | 2,195 | |
| Other | | | | | | | | — | | | (28) | | | 414 | |
| Total costs and expenses | | | | | | | | 23,777 | | | 17,276 | | | 16,606 | |
| Operating income | | | | | | | | 9,789 | | | 6,255 | | | 7,667 | |
| Interest expense | | | | | | | | (559) | | | (602) | | | (627) | |
| Investment and other income, net | | | | | | | | 1,044 | | | 66 | | | 441 | |
| Income before income taxes | | | | | | | | 10,274 | | | 5,719 | | | 7,481 | |
| Income tax expense | | | | | | | | (1,231) | | | (521) | | | (3,095) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net income | | | | | | | | $ | 9,043 | | | $ | 5,198 | | | $ | 4,386 | |
| | | | | | | | | | | | |
| Basic earnings per share | | | | | | | | $ | 7.99 | | | $ | 4.58 | | | $ | 3.63 | |
| Diluted earnings per share | | | | | | | | $ | 7.87 | | | $ | 4.52 | | | $ | 3.59 | |
| Shares used in per share calculations: | | | | | | | | | | | | |
| Basic | | | | | | | | 1,131 | | | 1,135 | | | 1,210 | |
| Diluted | | | | | | | | 1,149 | | | 1,149 | | | 1,220 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended |
| | September 24, 2017 | | September 25, 2016 | | September 27, 2015 |
| Revenues: | | | | | |
| Equipment and services | $ | 16,647 |
| | $ | 15,467 |
| | $ | 17,079 |
|
| Licensing | 5,644 |
| | 8,087 |
| | 8,202 |
|
| Total revenues | 22,291 |
| | 23,554 |
| | 25,281 |
|
| Costs and expenses: | | | | | |
| Cost of revenues | 9,792 |
| | 9,749 |
| | 10,378 |
|
| Research and development | 5,485 |
| | 5,151 |
| | 5,490 |
|
| Selling, general and administrative | 2,658 |
| | 2,385 |
| | 2,344 |
|
| Other (Note 2) | 1,742 |
| | (226 | ) | | 1,293 |
|
| Total costs and expenses | 19,677 |
| | 17,059 |
| | 19,505 |
|
| Operating income | 2,614 |
| | 6,495 |
| | 5,776 |
|
| Interest expense | (494 | ) | | (297 | ) | | (104 | ) |
| Investment and other income, net (Note 2) | 900 |
| | 635 |
| | 815 |
|
| Income before income taxes | 3,020 |
| | 6,833 |
| | 6,487 |
|
| Income tax expense | (555 | ) | | (1,131 | ) | | (1,219 | ) |
| Net income | 2,465 |
| | 5,702 |
| | 5,268 |
|
| Net loss attributable to noncontrolling interests | 1 |
| | 3 |
| | 3 |
|
| Net income attributable to Qualcomm | $ | 2,466 |
| | $ | 5,705 |
| | $ | 5,271 |
|
| | | | | | |
| Basic earnings per share attributable to Qualcomm | $ | 1.67 |
| | $ | 3.84 |
| | $ | 3.26 |
|
Diluted earnings per share attributable to Qualcomm
| $ | 1.65 |
| | $ | 3.81 |
| | $ | 3.22 |
|
| Shares used in per share calculations: | | | | | |
| Basic | 1,477 |
| | 1,484 |
| | 1,618 |
|
| Diluted | 1,490 |
| | 1,498 |
| | 1,639 |
|
| | | | | | |
| Dividends per share announced | $ | 2.20 |
| | $ | 2.02 |
| | $ | 1.80 |
|
See accompanying notes.
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended |
| | | | | | | | September 26,
2021 | | September 27,
2020 | | September 29,
2019 |
| Net income | | | | | | | | $ | 9,043 | | | $ | 5,198 | | | $ | 4,386 | |
| Other comprehensive (loss) income, net of income taxes: | | | | | | | | | | | | |
| Foreign currency translation gains (losses) | | | | | | | | 40 | | | 60 | | | (110) | |
| Net unrealized (losses) gains on certain available-for-sale securities | | | | | | | | (5) | | | 22 | | | (6) | |
| Net unrealized (losses) gains on derivative instruments | | | | | | | | (53) | | | 29 | | | 26 | |
| Other (losses) gains | | | | | | | | (2) | | | 7 | | | (19) | |
| Other reclassifications included in net income | | | | | | | | (59) | | | (11) | | | (5) | |
| Total other comprehensive (loss) income | | | | | | | | (79) | | | 107 | | | (114) | |
| Comprehensive income | | | | | | | | $ | 8,964 | | | $ | 5,305 | | | $ | 4,272 | |
|
| | | | | | | | | | | |
| | Year Ended |
| | September 24,
2017 | | September 25,
2016 | | September 27,
2015 |
| Net income | $ | 2,465 |
| | $ | 5,702 |
| | $ | 5,268 |
|
| Other comprehensive (loss) income, net of income taxes: | | | | | |
| Foreign currency translation gains (losses) | 309 |
| | (22 | ) | | (47 | ) |
| Reclassification of foreign currency translation (gains) losses included in net income | (1 | ) | | 21 |
| | — |
|
| Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain available-for-sale debt securities, net of tax (expense) benefit of ($3), $23 and $19, respectively | 6 |
| | (43 | ) | | (35 | ) |
| Reclassification of net other-than-temporary losses on available-for-sale securities included in net income, net of tax benefit of $46, $71 and $66, respectively | 85 |
| | 130 |
| | 121 |
|
| Net unrealized (losses) gains on other available-for-sale securities, net of tax benefit (expense) of $59, ($166) and $114, respectively | (102 | ) | | 306 |
| | (215 | ) |
| Reclassification of net realized gains on available-for-sale securities included in net income, net of tax expense of $156, $85 and $173, respectively | (286 | ) | | (156 | ) | | (317 | ) |
| Net unrealized (losses) gains on derivative instruments, net of tax benefit of $0, $2 and $0, respectively | (49 | ) | | (4 | ) | | 54 |
|
| Reclassification of net realized (gains) losses on derivative instruments included in net income, net of tax expense (benefit) of $4, ($2) and $0, respectively | (10 | ) | | 1 |
| | — |
|
| Other gains | 4 |
| | — |
| | — |
|
| Total other comprehensive (loss) income | (44 | ) | | 233 |
| | (439 | ) |
| Total comprehensive income | 2,421 |
| | 5,935 |
| | 4,829 |
|
| Comprehensive loss attributable to noncontrolling interests | 1 |
| | 3 |
| | 3 |
|
| Comprehensive income attributable to Qualcomm | $ | 2,422 |
| | $ | 5,938 |
| | $ | 4,832 |
|
See accompanying notes.
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) | | | | | | | | | | | | | | | | | |
| Year Ended |
| September 26,
2021 | | September 27,
2020 | | September 29,
2019 |
| Operating Activities: | | | | | |
| Net income | $ | 9,043 | | | $ | 5,198 | | | $ | 4,386 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization expense | 1,582 | | | 1,393 | | | 1,401 | |
| Income tax provision (less than) in excess of income tax payments | (245) | | | (309) | | | 1,976 | |
| Share-based compensation expense | 1,663 | | | 1,212 | | | 1,037 | |
| Net gains on marketable securities and other investments | (1,002) | | | (336) | | | (356) | |
| Indefinite and long-lived asset impairment charges | 5 | | | — | | | 203 | |
| Impairment losses on marketable securities and other investments | 33 | | | 405 | | | 135 | |
| | | | | |
| | | | | |
| Other items, net | (82) | | | (142) | | | (272) | |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable, net | 426 | | | (1,529) | | | 1,373 | |
| Inventories | (622) | | | (1,157) | | | 273 | |
| Other assets | (1,649) | | | (110) | | | 78 | |
| Trade accounts payable | 495 | | | 907 | | | (443) | |
| Payroll, benefits and other liabilities | 1,091 | | | 528 | | | (2,376) | |
| Unearned revenues | (202) | | | (246) | | | (129) | |
| Net cash provided by operating activities | 10,536 | | | 5,814 | | | 7,286 | |
| Investing Activities: | | | | | |
| Capital expenditures | (1,888) | | | (1,407) | | | (887) | |
| Purchases of debt and equity marketable securities | (5,907) | | | (6,213) | | | — | |
| Proceeds from sales and maturities of debt and equity marketable securities | 5,555 | | | 2,399 | | | 198 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Acquisitions and other investments, net of cash acquired | (1,377) | | | (185) | | | (252) | |
| Proceeds from other investments | 320 | | | 100 | | | 68 | |
| | | | | |
| Other items, net | (59) | | | 43 | | | 67 | |
| Net cash used by investing activities | (3,356) | | | (5,263) | | | (806) | |
| Financing Activities: | | | | | |
| Proceeds from short-term debt | 2,886 | | | 2,848 | | | 5,989 | |
| Repayment of short-term debt | (2,885) | | | (2,846) | | | (6,492) | |
| Proceeds from long-term debt | — | | | 1,988 | | | — | |
| Repayment of long-term debt | — | | | (2,219) | | | — | |
| Proceeds from issuance of common stock | 347 | | | 329 | | | 414 | |
| Repurchases and retirements of common stock | (3,366) | | | (2,450) | | | (1,793) | |
| Dividends paid | (3,008) | | | (2,882) | | | (2,968) | |
| Payments of tax withholdings related to vesting of share-based awards | (737) | | | (347) | | | (268) | |
| Payment of purchase consideration related to RF360 Holdings | (16) | | | (55) | | | (1,163) | |
| | | | | |
| Other items, net | (19) | | | (73) | | | (105) | |
| Net cash used by financing activities | (6,798) | | | (5,707) | | | (6,386) | |
| Effect of exchange rate changes on cash and cash equivalents | 27 | | | 24 | | | (32) | |
| Net increase (decrease) in total cash and cash equivalents | 409 | | | (5,132) | | | 62 | |
| Total cash and cash equivalents at beginning of period | 6,707 | | | 11,839 | | | 11,777 | |
| Total cash and cash equivalents at end of period | $ | 7,116 | | | $ | 6,707 | | | $ | 11,839 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended |
| | September 24,
2017 | | September 25,
2016 | | September 27,
2015 |
| Operating Activities: | | | | | |
| Net income | $ | 2,465 |
| | $ | 5,702 |
| | $ | 5,268 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization expense | 1,461 |
| | 1,428 |
| | 1,214 |
|
| Indefinite and long-lived asset impairment charges | 76 |
| | 107 |
| | 317 |
|
| Income tax provision (less than) in excess of income tax payments | (400 | ) | | (200 | ) | | 47 |
|
| Gain on sale of wireless spectrum | — |
| | (380 | ) | | — |
|
| Non-cash portion of share-based compensation expense | 914 |
| | 943 |
| | 1,026 |
|
| Incremental tax benefits from share-based compensation | (40 | ) | | (8 | ) | | (103 | ) |
| Net realized gains on marketable securities and other investments | (530 | ) | | (288 | ) | | (500 | ) |
| Impairment losses on marketable securities and other investments | 177 |
| | 172 |
| | 200 |
|
| Other items, net | 146 |
| | 77 |
| | (16 | ) |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable, net | (1,104 | ) | | (232 | ) | | 550 |
|
| Inventories | (200 | ) | | (49 | ) | | 93 |
|
| Other assets | 169 |
| | 246 |
| | (793 | ) |
| Trade accounts payable | (45 | ) | | 541 |
| | (908 | ) |
| Payroll, benefits and other liabilities | 1,835 |
| | (352 | ) | | (328 | ) |
| Unearned revenues | (231 | ) | | (307 | ) | | (561 | ) |
| Net cash provided by operating activities | 4,693 |
| | 7,400 |
| | 5,506 |
|
| Investing Activities: | | | | | |
| Capital expenditures | (690 | ) | | (539 | ) | | (994 | ) |
| Purchases of available-for-sale securities | (19,062 | ) | | (18,015 | ) | | (15,400 | ) |
| Proceeds from sales and maturities of available-for-sale securities | 41,715 |
| | 14,386 |
| | 15,080 |
|
| Purchases of trading securities | — |
| | (177 | ) | | (1,160 | ) |
| Proceeds from sales and maturities of trading securities | — |
| | 779 |
| | 1,658 |
|
| Purchases of other marketable securities | (710 | ) | | — |
| | — |
|
| Proceeds from sales and maturities of other marketable securities | 706 |
| | 450 |
| | — |
|
| Deposits of investments designated as collateral | (2,000 | ) | | — |
| | — |
|
| Acquisitions and other investments, net of cash acquired | (1,544 | ) | | (812 | ) | | (3,019 | ) |
| Proceeds from sale of wireless spectrum | — |
| | 232 |
| | — |
|
| Proceeds from sales of property, plant and equipment | 28 |
| | 16 |
| | 266 |
|
| Other items, net | 20 |
| | 192 |
| | (3 | ) |
| Net cash provided (used) by investing activities | 18,463 |
| | (3,488 | ) | | (3,572 | ) |
| Financing Activities: | | | | | |
| Proceeds from short-term debt | 8,558 |
| | 8,949 |
| | 4,083 |
|
| Repayment of short-term debt | (9,309 | ) | | (8,200 | ) | | (3,083 | ) |
| Proceeds from long-term debt | 10,953 |
| | — |
| | 9,937 |
|
| Proceeds from issuance of common stock | 497 |
| | 668 |
| | 787 |
|
| Repurchases and retirements of common stock | (1,342 | ) | | (3,923 | ) | | (11,246 | ) |
| Dividends paid | (3,252 | ) | | (2,990 | ) | | (2,880 | ) |
| Incremental tax benefits from share-based compensation | 40 |
| | 8 |
| | 103 |
|
| Other items, net | (266 | ) | | (34 | ) | | 38 |
|
| Net cash provided (used) by financing activities | 5,879 |
| | (5,522 | ) | | (2,261 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 48 |
| | (4 | ) | | (20 | ) |
| Net increase (decrease) in cash and cash equivalents | 29,083 |
| | (1,614 | ) | | (347 | ) |
| Cash and cash equivalents at beginning of period | 5,946 |
| | 7,560 |
| | 7,907 |
|
| Cash and cash equivalents at end of period | $ | 35,029 |
| | $ | 5,946 |
| | $ | 7,560 |
|
See accompanying notes.
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)millions, except per share data) | | | | | | | | | | | | | | | | | |
| Year Ended |
| September 26,
2021 | | September 27,
2020 | | September 29,
2019 |
| Total stockholders’ equity, beginning balance | $ | 6,077 | | | $ | 4,909 | | | $ | 807 | |
| | | | | |
| Common stock and paid-in capital: | | | | | |
| Balance at beginning of period | 586 | | | 343 | | | — | |
| Common stock issued under employee benefit plans | 345 | | | 331 | | | 417 | |
| Repurchases and retirements of common stock | (1,958) | | | (1,042) | | | (910) | |
| Share-based compensation | 1,754 | | | 1,301 | | | 1,104 | |
| Tax withholdings related to vesting of share-based payments | (737) | | | (347) | | | (268) | |
| Stock awards assumed in acquisition | 10 | | | — | | | — | |
| Balance at end of period | — | | | 586 | | | 343 | |
| | | | | |
| Retained earnings: | | | | | |
| Balance at beginning of period | 5,284 | | | 4,466 | | | 542 | |
| Cumulative effect of accounting changes | — | | | — | | | 3,455 | |
| Net income | 9,043 | | | 5,198 | | | 4,386 | |
| Repurchases and retirements of common stock | (1,408) | | | (1,408) | | | (883) | |
| Dividends | (3,097) | | | (2,972) | | | (3,034) | |
| Balance at end of period | 9,822 | | | 5,284 | | | 4,466 | |
| | | | | |
| Accumulated other comprehensive income: | | | | | |
| Balance at beginning of period | 207 | | | 100 | | | 265 | |
| Cumulative effect of accounting changes | — | | | — | | | (51) | |
| Other comprehensive (loss) income | (79) | | | 107 | | | (114) | |
| Balance at end of period | 128 | | | 207 | | | 100 | |
| | | | | |
| Total stockholders’ equity, ending balance | $ | 9,950 | | | $ | 6,077 | | | $ | 4,909 | |
| | | | | |
| Dividends per share announced | $ | 2.66 | | | $ | 2.54 | | | $ | 2.48 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Shares | | Common Stock and Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total Qualcomm Stockholders’ Equity | | Noncontrolling Interests | | Total Stockholders’ Equity |
| Balance at September 28, 2014 | 1,669 |
| | $ | 7,736 |
| | $ | 30,799 |
| | $ | 634 |
| | $ | 39,169 |
| | $ | (3 | ) | | $ | 39,166 |
|
| Total comprehensive income | — |
| | — |
| | 5,271 |
| | (439 | ) | | 4,832 |
| | (3 | ) | | 4,829 |
|
| Common stock issued under employee benefit plans and the related tax benefits | 32 |
| | 871 |
| | — |
| | — |
| | 871 |
| | — |
| | 871 |
|
| Repurchases and retirements of common stock | (172 | ) | | (9,334 | ) | | (1,912 | ) | | — |
| | (11,246 | ) | | — |
| | (11,246 | ) |
| Share-based compensation | — |
| | 1,078 |
| | — |
| | — |
| | 1,078 |
| | — |
| | 1,078 |
|
| Tax withholdings related to vesting of share-based payments | (5 | ) | | (351 | ) | | — |
| | — |
| | (351 | ) | | — |
| | (351 | ) |
| Dividends | — |
| | — |
| | (2,932 | ) | | — |
| | (2,932 | ) | | — |
| | (2,932 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
| Balance at September 27, 2015 | 1,524 |
| | — |
| | 31,226 |
| | 195 |
| | 31,421 |
| | (7 | ) | | 31,414 |
|
| Total comprehensive income | — |
| | — |
| | 5,705 |
| | 233 |
| | 5,938 |
| | (3 | ) | | 5,935 |
|
| Common stock issued under employee benefit plans and the related tax benefits | 30 |
| | 615 |
| | — |
| | — |
| | 615 |
| | — |
| | 615 |
|
| Repurchases and retirements of common stock | (73 | ) | | (974 | ) | | (2,949 | ) | | — |
| | (3,923 | ) | | — |
| | (3,923 | ) |
| Share-based compensation | — |
| | 997 |
| | — |
| | — |
| | 997 |
| | — |
| | 997 |
|
| Tax withholdings related to vesting of share-based payments | (5 | ) | | (224 | ) | | — |
| | — |
| | (224 | ) | | — |
| | (224 | ) |
| Dividends | — |
| | — |
| | (3,046 | ) | | — |
| | (3,046 | ) | | — |
| | (3,046 | ) |
| Balance at September 25, 2016 | 1,476 |
| | 414 |
| | 30,936 |
| | 428 |
| | 31,778 |
| | (10 | ) | | 31,768 |
|
| Total comprehensive income | — |
| | — |
| | 2,466 |
| | (44 | ) | | 2,422 |
| | (1 | ) | | 2,421 |
|
| Common stock issued under employee benefit plans and the related tax benefits | 25 |
| | 499 |
| | — |
| | — |
| | 499 |
| | — |
| | 499 |
|
| Repurchases and retirements of common stock | (23 | ) | | (1,342 | ) | | — |
| | — |
| | (1,342 | ) | | — |
| | (1,342 | ) |
| Share-based compensation | — |
| | 975 |
| | — |
| | — |
| | 975 |
| | — |
| | 975 |
|
| Tax withholdings related to vesting of share-based payments | (4 | ) | | (268 | ) | | — |
| | — |
| | (268 | ) | | — |
| | (268 | ) |
| Dividends | — |
| | — |
| | (3,314 | ) | | — |
| | (3,314 | ) | | — |
| | (3,314 | ) |
| Other | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) | | 11 |
| | 7 |
|
| Balance at September 24, 2017 | 1,474 |
| | $ | 274 |
| | $ | 30,088 |
| | $ | 384 |
| | $ | 30,746 |
| | $ | — |
| | $ | 30,746 |
|
See accompanying notes.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Its Significant Accounting Policies
The Company. QUALCOMM Incorporated,We are a Delaware corporation,global leader in the development and its subsidiaries (collectively the Company or Qualcomm) develop, design, manufacture, have manufactured on its behalf and market digital communications products, which principally consistcommercialization of integrated circuits and system software based on CDMA, OFDMA and otherfoundational technologies for usethe wireless industry. Our technologies and products are used in mobile devices and other wireless networks, devicesproducts, including those used in the Internetinternet of Thingsthings (IoT), broadband gateway equipment, consumer electronic devices and automotive systems for telematics, connectivity and infotainment systems. The Company also grants licenses to use portionsdigital cockpit (also known as infotainment). We derive revenues principally from sales of itsintegrated circuit products and through the licensing of our intellectual property, portfolio, which includes certain patent rights essential to and/or useful in the manufactureincluding patents and sale of certain wireless products and receives fixed license fees (payable in one or more installments) as well as ongoing royalties based on sales by licensees of wireless products incorporating its patented technologies.other rights.
Principles of Consolidation. The Company’s consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries, includingQualcomm and its joint venture RF360 Holdings Singapore Pte. Ltd (RF360 Holdings) (Note 9). In addition, the Company consolidated its investment in an immaterial less than majority-owned variable interest entity as the Company was the primary beneficiary until the end of fiscal 2017. The ownership of the other interest holders of consolidated subsidiariessubsidiaries. Intercompany transactions and the immaterial less than majority-owned variable interest entity is presented separately in the consolidated balance sheets and statements of operations. All significant intercompany accounts and transactionsbalances have been eliminated.
Financial Statement Preparation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’sour consolidated financial statements and the accompanying notes. Examples of the Company’sour significant accounting estimates and policies that may involve a higher degree of judgment and complexity than others include: the determinationestimation of other-than-temporary impairmentssales-based royalty revenues; the impairment of marketable securities and othernon-marketable equity investments; the valuation of inventories; the valuation and assessmentimpairment of the recoverability of goodwill and other indefinite-lived and long-lived assets; the recognition, measurement and disclosure of loss contingencies related to legal and regulatory proceedings; and the calculation of our income tax liabilities,provision, including the recognition and measurement of uncertain tax positions. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
Fiscal Year. The Company operates We operate and reportsreport using a 52-53 week fiscal year ending on the last Sunday in September. The fiscal years ended September 24, 2017,26, 2021, September 25, 201627, 2020 and September 27, 201529, 2019 each included 52 weeks.
Recently Adopted Accounting Pronouncements.
Financial Assets: In June 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance that changed the accounting for recognizing impairments of financial assets (ASC 326). Under the new accounting guidance, credit losses for financial assets held at amortized cost (such as accounts receivable) are estimated based on expected losses rather than the previous incurred loss impairment model. The new accounting guidance also eliminated the concept of other-than-temporary impairment with credit losses related to available-for-sale debt securities recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. We adopted the new accounting guidance in the first quarter of fiscal 2021 under the modified retrospective transition method, except for certain available-for-sale debt securities where the prospective transition method was required, and as a result, prior period results have not been restated. The impact upon adoption was not material to our consolidated financial statements. The future impact of such accounting guidance will largely depend on the future composition and credit quality of our investment portfolio and accounts receivable, as well as future economic conditions.
Leases: In February 2016, the FASB issued new accounting guidance related to leases that outlines a new comprehensive lease accounting model and requires expanded disclosures (ASC 842). Under the new accounting guidance, we are required to recognize right-of-use assets and corresponding lease liabilities on the consolidated balance sheet. We adopted ASC 842 in the first quarter of fiscal 2020 using the modified retrospective approach, with the cumulative effect of initial adoption recorded as an adjustment to our opening consolidated balance sheet at September 30, 2019. We elected to not record leases with a term of 12 months or less on our consolidated balance sheet. In addition, we applied the package of practical expedients permitted under the transition guidance, which among other things, does not require reassessment of lease classification upon adoption. Finance leases were not material for all periods presented. Adoption of the new accounting guidance did not have a material impact on our consolidated statements of operations or cash flows. Results for fiscal 2019 have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods.
Revenue Recognition: In May 2014, the FASB issued new accounting guidance related to revenue recognition (ASC 606). We adopted ASC 606 in the first quarter of fiscal 2019 using the modified retrospective transition method only to those contracts that were not completed as of October 1, 2018. We recognized the cumulative effect of initially applying the new revenue accounting guidance as an adjustment to opening retained earnings.
Income Taxes: In October 2016, the FASB issued new accounting guidance that changes the accounting for the income tax effects of intra-entity transfers of assets other than inventory. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the modified retrospective transition method, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings of $2.6 billion, primarily as the result of establishing a deferred tax asset on the basis difference of certain intellectual property distributed from one of our foreign subsidiaries to a subsidiary in the United States in fiscal 2018.
Cash Equivalents. The Company considers We consider all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents aremay be comprised of money market funds, certificates of deposit, commercial paper, government agencies’ securities, corporate bonds and notes, certain bank time and demand deposits and repurchase agreements fully collateralized by government agencies’ securities. The carrying amounts approximate fair value due to the short maturities of these instruments.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marketable Securities. As a result of the adoption of ASC 326, we revised our accounting policy beginning in fiscal 2021 as follows.
Marketable securities include marketable equity securities, available-for-sale debt securities and, from time-to-time, certain time deposits for which classification is determined at the time of purchase and reevaluated at each balance sheet date. The Company also held trading securities and securities for which the Company had elected the fair value option that would have otherwise been recorded using the equity method. These investments were exited during fiscal 2016, and the related changes in fair value associated with these investments were recognized in investment and other income, net and were negligible in fiscal 2016 and 2015. The Company classifiesdeposits. We classify marketable securities as current or noncurrent based on the nature of the securities and their availability for use in current operations. Marketable securities are stated at fair value. The netvalue with all realized and unrealized gains orand losses on investments in marketable equity securities and realized gains and losses on available-for-sale debt securities recognized in investment and other income, net. Debt securities are classified as available for sale or held to maturity at the time of purchase and reevaluated at each balance sheet date. The realized and unrealized gains and losses on marketable securities are determined using the specific identification method.
If a debt security has an unrealized loss and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record an impairment charge to investment and other income, net for the entire amount of the unrealized loss and adjust the amortized cost basis of the security. For the remaining debt securities, if an unrealized loss exists, we separate the impairment into the portion of the loss related to credit factors and the portion of the loss that is not related to credit factors. Unrealized gains or unrealized losses that are not related to credit factors on available-for-sale debt securities are recorded as a component of accumulated other comprehensive income, net of income taxes. The realized gainsUnrealized losses that are related to credit loss factors on available-for-sale debt securities and subsequent adjustments to the credit loss are recorded as an allowance for credit losses, on marketable securities are determined using the specific identification method.
At each balance sheet date, the Company assesses available-for-sale securitieswhich is included in an unrealizedinvestment and other income, net. In evaluating whether a credit loss position to determine whether the unrealized loss is other than temporary. The Company considersexists, we consider a variety of factors, including:including the significance of the decline in value as compared to the cost basis; underlying factors contributing to a decline in the prices of securities in a single asset class; how long the market value of the security has been less than its cost basis; the security’s relative performance versus its peers, sector or asset class; expected market volatility; the market and economy in general; analyst recommendations and price targets; views of external investment managers; news or financial information that has been released specific to the investee; and the outlook for the overall industry in which the investee operates.
If a debt security’s market value is below amortized costEquity Method and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment and other income, net for the entire amount of the impairment. For the
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
remaining debt securities, if an other-than-temporary impairment exists, the Company separates the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, which is recorded as a charge to investment and other income, net, and the portion of the loss that is not related to credit factors, or the noncredit loss portion, which is recorded as a component of other accumulated comprehensive income, net of income taxes.
For equity securities, the Company considers the loss relative to the expected volatility and the likelihood of recovery over a reasonable period of time. If events and circumstances indicate that a decline in the value of an equity security has occurred and is other than temporary, the Company records a charge to investment and other income, net for the difference between fair value and cost at the balance sheet date. Additionally, if the Company has either the intent to sell the equity security or does not have both the intent and the ability to hold the equity security until its anticipated recovery, the Company records a charge to investment and other income, net for the difference between fair value and cost at the balance sheet date.
Non-marketable Equity and Cost Method Investments. The Company generally accounts for non-marketable equity investments either under the equity or the cost method. Equity investments overfor which the Company haswe have significant influence, but not control, over the investee and isare not the primary beneficiary of the investee’s activities are accounted for under the equity method. Other non-marketable equity investments are accounted for under the cost method. The Company’sOur share of gains and losses in equity method investments are recorded in investment and other income, net. The Company monitorsWe eliminate unrealized profit or loss related to transactions with equity method investees in relation to our ownership interest in the investee, which is recorded as a component of equity in net earnings (losses) in investees in investment and other income, net. Non-marketable equity investments (for which we do not have significant influence or control) are investments without readily determinable fair values that are recorded based on initial cost minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar securities, if any. All gains and losses on investments in non-marketable equity securities, realized and unrealized, are recognized in investment and other income, net. We monitor equity method and non-marketable equity investments for events or circumstances that could indicate the investments are impaired, such as a deterioration in the investee’s financial condition and business forecasts and lower valuations in recently completed or proposedanticipated financings, and recordsrecognize a charge to investment and other income, net for the difference between the estimated fair value and the carrying value.
The carrying values of the Company’s non-marketable equity investments are recorded in other noncurrent assets and were as follows (in millions):
|
| | | | | | | |
| | September 24, 2017 | | September 25, 2016 |
| Equity method investments | $ | 379 |
| | $ | 324 |
|
| Cost method investments | 603 |
| | 531 |
|
| | $ | 982 |
| | $ | 855 |
|
Transactions with For equity method investeesinvestments, we record impairment losses in earnings only when impairments are considered related party transactions. Revenues from certain licensing and services contracts with two of the Company’s equity method investees were $165 million, $196 million and negligible in fiscal 2017, 2016 and 2015, respectively. The Company eliminates unrealized profit or loss related to such transactions in relation to its ownership interest in the investee, which is recorded as a component of equity in net losses in investees in investment and other income, net. Aggregate accounts receivable from these equity method investees were $29 million and $73 million at September 24, 2017 and September 25, 2016, respectively.other-than-temporary.
Derivatives. The Company’s Our primary objectives for holding derivative instruments are to manage interest rate risk on its long-term debt and to manage foreign exchange risk for certain foreign currency revenues, operating expenses, receivables and payables.payables and to manage interest rate risk on our long-term debt. Derivative instruments are recorded at fair value and included in other current or noncurrent assets or other current or noncurrent liabilities based on their maturity dates. Counterparties to the Company’sthese derivative instruments are all major banking institutions.
Foreign Currency Hedges:We manage our exposure to foreign exchange market risks, when deemed appropriate, through the use of derivative instruments, including foreign currency forward and option contracts with financial counterparties, that may or may not be designated as hedging instruments. At September 26, 2021, these derivative instruments have maturity dates between one and 21 months. Gains and losses arising from such contracts that are designated as cash flow hedging instruments are recorded as a component of accumulated other comprehensive income as gains and losses on derivative instruments, net of income taxes. The hedging gains and losses in accumulated other comprehensive income are subsequently reclassified to revenues or costs and expenses, as applicable, in the consolidated statements of operations in the same period in which the underlying transactions affect our earnings. The cash flows associated with derivative instruments designated as cash flow hedging instruments are classified as cash flows from operating activities in the consolidated statements of cash flows, which is the same category as the hedged transaction. The fair values of our foreign currency forward and option contracts used to hedge foreign currency risk designated as cash flow hedges recorded in total assets and in total liabilities were $42 million and negligible, respectively, at September 26, 2021. The fair values of our foreign currency forward and option contracts used to hedge foreign currency risk designated as cash flow hedges recorded in total assets and in total liabilities were $51 million and negligible, respectively, at September 27, 2020.
For foreign currency forward and option contracts not designated as hedging instruments, the changes in fair value are recorded in investment and other income, net in the period of change. The cash flows associated with such derivative instruments not designated as hedging instruments are classified as cash flows from operating activities in the consolidated statements of cash flows, which is the same category as the hedged transaction. The fair values of our foreign currency
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
forward and option contracts not designated as hedging instruments were negligible at September 26, 2021 and September 27, 2020.
Interest Rate Swaps:The Company manages itsFrom time to time, we manage our exposure to certain interest rate risks related to itsour long-term debt through the use of interest rate swaps. Such swaps allow the Companyus to effectively convert fixed-rate payments into floating-rate payments based on LIBOR. These transactions are designated as fair value hedges, and the gains and losses related to changes in the fair value of the interest rate swaps substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to changes in the market interest rates. The net gains and losses on the interest rate swaps, as well as the offsetting gains or losses on the related fixed-rate debt attributable to the hedged risks, are recognized in earnings as interest expense in the current period. The interest settlement payments associated with the interest rate swap agreements are classified as cash flows from operating activities in the consolidated statements of cash flows.
At September 24, 2017 and September 25, 2016, the aggregate fair value of the Company’s There were no outstanding interest rate swaps related to its long-term debt issued in May 2015 was negligible and $65 million, respectively. The fair values of the swaps were recorded in noncurrent assets, other current liabilities and other noncurrent liabilities at September 24, 201726, 2021 and in noncurrent assets at September 25, 2016. The27, 2020.
During fiscal 2021, we entered into forward-starting interest rate swaps had an aggregate notional amountto hedge the variability of $3.0 billion, which effectively converted all of the fixed-rateforecasted interest payments on anticipated debt due in 2018 and approximately 43% and 50% of the fixed-rate debt due in 2020 and 2022,
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respectively, into floating-rate debt. The maturities of the swaps match the Company’s fixed-rate debt due in 2018, 2020 and 2022.
Foreign Currency Hedges:The Company manages its exposure to foreign exchange market risks, when deemed appropriate,issuances through the use of derivative instruments, including foreign currency forward and option contracts with financial counterparties, that may or may not be designated as hedging instruments.2025. These derivative instruments mature between one and twelve months. Gains and losses arising from the effective portion of such contracts thattransactions are designated as cash flow hedging instrumentshedges of a forecasted transaction. The gains and losses arising from such contracts are recorded as a component ofin accumulated other comprehensive income as gains and losses on derivative instruments, net of income taxes. TheWhen the anticipated debt issuances are completed, the hedging gains and losses in accumulated other comprehensive income are subsequently reclassified to revenues or costs and expenses, as applicable, ininterest expense over the consolidated statementsterms of operations in the same period in which the underlying transactions affect the Company’s earnings. Gains and losses arising from the ineffective portion of such contracts are recorded in investment and other income, net as gains and losses on derivative instruments. The cash flows associated with derivative instruments designated as cash flow hedging instruments are classified as cash flows from operating activities in the consolidated statements of cash flows, which is the same category as the hedged transaction. The cash flows associated with the ineffective portion of such derivative instruments are classified as cash flows from investing activities in the consolidated statements of cash flows.related debt issued. The fair values of the Company’s foreign currency forward and option contracts used to hedge foreign currency risk designated as cash flow hedgesour forward-starting interest rate swaps recorded in total assets and in total liabilities were $10$105 million and $22 million, respectively, at September 24, 2017 and negligible at September 25, 2016.26, 2021.
For foreign currency forward and option contracts not designated as hedging instruments, the changes in fair value are recorded in investment and other income, net in the period of change. The cash flows associated with derivative instruments not designated as hedging instruments are classified as cash flows from operating activities in the consolidated statements of cash flows, which is the same category as the hedged transaction. The fair value of the Company’s foreign currency forward and option contracts not designated as hedging instruments was negligible at September 24, 2017. There were no foreign currency forward and option contracts not designated as hedging instruments at September 25, 2016.
Gross Notional Amounts: The gross notional amounts of the Company’sour foreign currency and interest rate and foreign currency derivatives by instrument type were as follows (in millions): | | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 |
| Forwards | $ | 2,449 | | | $ | 1,096 | |
| | | |
| Options | 870 | | | 789 | |
| Swaps | 2,600 | | | — | |
| | | |
| $ | 5,919 | | | $ | 1,885 | |
|
| | | | | | | |
| September 24, 2017 | | September 25, 2016 |
| Forwards | $ | 163 |
| | $ | 108 |
|
| Options | 2,333 |
| | 929 |
|
| Swaps | 3,000 |
| | 3,061 |
|
| | $ | 5,496 |
| | $ | 4,098 |
|
The gross notional amounts of our derivatives by currency were as follows (in millions): | | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 |
| | | |
| Chinese renminbi | $ | 1,627 | | | $ | 1,058 | |
| | | |
| Indian rupee | 1,262 | | | 595 | |
| British pound sterling | 83 | | | — | |
| Japanese yen | 27 | | | 33 | |
| | | |
| United States dollar | 2,920 | | | 199 | |
| | | |
| $ | 5,919 | | | $ | 1,885 | |
Other Hedging Activities. We have designated $1.5 billion of foreign currency-denominated liabilities, excluding accrued interest, related to the fines imposed by the European Commission as hedges of our net investment in certain foreign subsidiaries at September 26, 2021 and September 27, 2020. Gains and losses arising from the portion of these balances that are designated as net investment hedges are recorded as a component of accumulated other comprehensive income as foreign currency translation adjustment. |
| | | | | | | |
| | September 24, 2017 | | September 25, 2016 |
| Chinese renminbi | $ | 1,460 |
| | $ | 325 |
|
| Euro | 146 |
| | 31 |
|
| Indian rupee | 772 |
| | 433 |
|
| Japanese yen | 68 |
| | 97 |
|
| Korean won | 50 |
| | 85 |
|
| United States dollar | 3,000 |
| | 3,045 |
|
| Other | — |
| | 82 |
|
| | $ | 5,496 |
| | $ | 4,098 |
|
Fair Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company.us. Unobservable inputs are inputs that reflect the Company’sour assumptions about the factors that
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
•Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.
•Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument.
•Level 3 includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’sour own assumptions.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities measured at fair value are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviewsmeasurement. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. We recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer to occur.
Cash Equivalents and Marketable Securities: With the exception of auction rate securities, the Company obtainswe obtain pricing information from quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conductsWe conduct reviews of itsour primary pricing vendors to determine whether the inputs used in the vendor’s pricing processes are deemed to be observable. The fair value for interest-bearing securities includes accrued interest.
The fair value of U.S. Treasury securities and government-related securities, corporate bonds and notes and common and preferred stock is generally determined using standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets and/or benchmark securities.
The fair value of debt and equity funds is reported at published net asset values. The Company assesses the daily frequency and size of transactions at published net asset values and/or the funds’ underlying holdings to determine whether fair value is based on observable or unobservable inputs.
The fair value of mortgage- and asset-backed securities is derived from the use of matrix pricing (prices for similar securities) or, in some cases, cash flow pricing models with observable inputs, such as contractual terms, maturity, credit rating and/or securitization structure to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities may require the use of significant unobservable inputs to estimate fair value, such as default likelihood, recovery rates and prepayment speed.
The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction details, such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity, default likelihood and recovery, the future state of the auction rate market and credit valuation adjustments of market participants. Though most of the securities we held by the Company arewere pools of student loans guaranteed by the U.S.United States government, prepayment speeds and illiquidity discounts are considered significant unobservable inputs. These additional inputs, are generally unobservable, and therefore, auction rate securities arewere included in Level 3. During fiscal 2021, we sold all of our investments held in auction rate securities.
Derivative Instruments: Derivative instruments that are traded on an exchange are valued using quoted market prices and are included in Level 1. Derivative instruments that are not traded on an exchange are valued using conventional calculations/models that are primarily based on observable inputs, such as foreign currency exchange rates, volatilities and interest rates, and therefore, such derivative instruments are included in Level 2.
Other Investments and Other Liabilities: Other investments and other liabilities included in Level 1 are comprised of the Company’sour deferred compensation plan liabilityliabilities and related assets, which consist of mutual funds classified as trading securities, and are included in other current assets and other assets. Gains and losses on the revaluation of our deferred compensation plan assets are recorded in investment and other income, net and are not allocated to our segments. Corresponding offsetting amounts related to the revaluation of our deferred compensation plan liabilities are included in unallocated operating expenses. Other investments and other liabilities included in Level 3 are comprised of contingently issuable equity instruments and warrants issued in connection with certain mergers and initial public offerings of our non-marketable equity investees and convertible debt instruments issued by private companies and contingent consideration related to business combinations, respectively. The fair value of convertible debt instruments is estimated by the Company based on the estimated timing and amount of future cash flows, as well as assumptions related to liquidity, default likelihood and recovery. The fair value of contingent consideration related to business combinations is estimated by the Company using a real options approach, which includes inputs, such as projected financial information, market volatility, discount rates and timing of contractual payments.companies. The inputs used by the Companywe use to estimate the fair values of the convertible debtthese instruments and contingent consideration are generally unobservable, and therefore, they are included in Level 3.
AllowancesNonrecurring Fair Value Measurements: We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method and non-marketable equity investments, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inabilitysale or determined to be impaired, all of the Company’s customers to make required payments. The Company considers the following factors when determining if collection of required payments is reasonably assured: customer credit-worthiness; pastwhich are generally measured based on unobservable inputs using an income or market approach.
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transaction history with the customer; current economic industry trends; changes in customer payment terms; and bank credit-worthiness for letters of credit. If the Company has no previous experience with the customer, the Company may request financial information, including financial statements or other documents, to determine that the customer has the means of making payment. The Company may also obtain reports from various credit organizations to determine that the customer has a history of paying its creditors. If these factors do not indicate collection is reasonably assured, revenue is deferred as a reduction to accounts receivable until collection becomes reasonably assured, which is generally upon receipt of cash. If the financial condition of the Company’s customers was to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
Inventories. Inventories are valued at the lower of cost or market (replacement cost, not to exceedand net realizable value)value using the first-in, first-out method. Recoverability of inventories is assessed based on review of future customer demand that considers multiple factors, including committed purchase orders from customers as well as purchase commitment projections provided by customers and our own forecasts of customer demand, among other things.factors. This valuation also requires us to make judgments and assumptions based on information currently available about market conditions, including competition, product pricing, product life cycle, development plans and other broader market conditions that may impact customer demand, such as the impact of certain capacity constraints experienced across the semiconductor industry in fiscal 2021 and the impacts of COVID-19 in fiscal 2020. As we move to smaller geometry process technologies, the manufacturing lead-time increases, resulting in an increased reliance on our own forecasts of customer demand, rather than our customers’ forecasts. If we overestimate demand for our products, the amount of our loss will be impacted by our contractual ability to reduce inventory purchases from our suppliers, including those under our multi-year capacity purchase commitments. Our assumptions of future product demand are inherently uncertain, and changes in our estimates and assumptions may cause us to record additional write-downs in the future if demand forecasted for specific products is greater than actual demand.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives. Upon the retirement or disposition of property, plant and equipment, the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Buildings on owned land are depreciated over 30 years, and building improvements are depreciated over their useful lives ranging from 7 to 15 years. Leasehold improvements and buildings on leased land are amortized over the shorter of their estimated useful lives, not to exceed 15 years and 30 years, respectively, or the remaining term of the related lease. Other property, plant and equipment
QUALCOMM Incorporated
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have useful lives ranging from 2 to 25 years. Leased property meeting certain capital lease criteria is capitalized, and the net present value of the related lease payments is recorded as a liability. Amortization of assets under capital leases is recorded using the straight-line method over the shorter of the estimated useful lives or the lease terms. Maintenance, repairs and minor renewals or betterments are charged to expense as incurred.
Operating Leases. Operating lease assets and liabilities are recognized for leases with lease terms greater than 12 months based on the present value of the future lease payments over the lease term at the commencement date. Operating leases are included in other assets, other current liabilities and other liabilities on our consolidated balance sheet. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. We account for substantially all lease and related non-lease components together as a single lease component. Operating lease expense is recognized on a straight-line basis over the lease term.
Goodwill and Other Intangible Assets. Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. For intangible assets acquired in a non-monetarynonmonetary exchange, the estimated fair values of the assets transferred (or the estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless the values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case the assets received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. An estimate of fair value can be affected by many assumptions that require significant judgment. For example, the income approach generally requires us to use assumptions to estimate future cash flows including those related to total addressable market, pricing and share forecasts, competition, technology obsolescence, future tax rates and discount rates. Our estimate of the fair value of certain assets may differ materially from that determined by others who use different assumptions or utilize different business models and from the future cash flows actually realized.
Impairment of Goodwill, Other Indefinite-Lived Assets and Long-Lived Assets. Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal quarter and in interim periods, if certain events occur indicatingor changes in circumstances indicate that the carrying amountsassets may be impaired. If a qualitative assessment is used and the Company determineswe determine that the fair value of a reporting unit or indefinite-lived intangible asset is more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative impairment test will be performed. If goodwill is quantitatively assessed for impairment and a two-step approach is applied. First, the Company compares the estimatedreporting unit’s carrying value exceeds its fair value, of the reporting unit in which the goodwill resides to its carrying value. The second step, if necessary, measures the amount of impairment, if any, by comparing the implied fair value of goodwill to its carrying value.difference is recorded as an impairment. Other indefinite-lived intangible assets are quantitatively assessed for impairment, if necessary, by comparing their estimated fair values to their carrying values. If the carrying value exceeds the fair value, the difference is recorded as an impairment. Our judgments regarding the existence of impairment indicators and future cash flows related to goodwill and long-lived assets may be based on operational performance of our businesses, market conditions, expected selling price and/or other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use, including estimates of future cash flows and discount rates, are consistent with our internal planning, when appropriate. If these estimates or their related assumptions change in the future, we may be required to record an impairment charge on a portion or all of our goodwill and/or long-lived assets. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on our reported asset values. Future events could cause us to conclude that impairment indicators exist, and that goodwill associated with our acquired businesses are impaired.
Long-lived assets, such as property, plant and equipment and intangible assets subject to amortization, are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated.
Revenue Recognition. The Company derives We derive revenues principally from sales of integrated circuit products and licensing of itsour intellectual property andproperty. We also generatesgenerate revenues through sales of products that connect medical devicesfrom licensing system software and by performing software hosting, software development and other services.services and from other product sales. The timing of revenue recognition and the amount of
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revenue actually recognized in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of the Company’s deliverables and obligations. Unearned revenues consist primarily of license fees for intellectual property with continuingour performance obligations.
Revenues from sales of the Company’sour products are recognized upon transfer of control to the customer, which is generally at the time of shipment, or when title and risk of loss pass to the customer and all other criteria for revenue recognition are met, if later.shipment. Revenues from providing services are typically recognized when earned.over time as our performance obligation is satisfied. Revenues from providing services and licensing system software were each less than 10%5% of total revenues for all periods presented.
The Company grantsWe grant licenses or otherwise providesprovide rights to use portions of itsour intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, and sale or use of certain wireless products. Licensees typically pay a fixed license fee in one or more installments and royalties based on their sales of products incorporating or using the Company’sour licensed intellectual property. License fees are recognized over the estimated period of benefit of theproperty and may also pay a fixed license to the licensee, typically 5 to 15 years. Royaltiesfee in one or more installments. Sales-based royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of complete licensed products, net of certain permissible deductions (including transportation, insurance, packing costs and other items). The CompanyWe broadly providesprovide per unit running royalty caps that apply to certain
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
categories of complete wireless devices, namely smartphones, tablets, laptops and laptops, which in general, effectivelysmartwatches, and provide for a maximum running royalty amount payable per device (i.e., the royalty caps limit the running royalties due on a per unit basis). The Company earnsdevice. We estimate and recognize sales-based royalties on such licensed products sold worldwidein the period in which the associated sales occur, considering all relevant information (historical, current and forecasted) that is reasonably available to us. Our estimates of sales-based royalties are based largely on preliminary royalty estimates provided by itsour licensees and, to a lesser extent, an assessment of the volume of devices supplied into the market that incorporate or use our licensed intellectual property, combined with an estimate of the mix of such sales on a licensee-by-licensee basis, as well as the licensees’ average wholesale prices of such products. We have recognized immaterial differences between preliminary royalty estimates provided to us by licensees and actual amounts reported and paid by licensees, which are generally received the following quarter, as licensees have not completed their royalty reporting process at the time thatestimates are provided to us, and in certain cases, they do not provide all necessary information in order for us to calculate an estimate of royalties due, which requires us to independently estimate certain information. We also consider in our estimates of sales-based royalties any changes in pricing we plan or expect to make and certain constraints on our ability to estimate such royalties. As a result of recognizing revenues in the period in which the licensees’ sales occur. The Company’s licensees, however, dooccur using estimates, adjustments to revenues are required in subsequent periods to reflect changes in estimates as new information becomes available, primarily resulting from actual amounts reported by our licensees.
License agreements that require payment of license fees contain a single performance obligation that represents ongoing access to a portfolio of intellectual property over the license term since such agreements provide the licensee the right to access a portfolio of intellectual property that exists at inception of the license agreement and to updates and new intellectual property that is added to the licensed portfolio during the term of the agreement that are highly interdependent or interrelated. Since we expect to expend efforts to develop and transfer updates to our licensed portfolio on an even basis, license fees are recognized as revenues on a straight-line basis over the estimated period of benefit of the license to the licensee.
We account for a contract with a customer/licensee when it is legally enforceable, the parties are committed to perform their respective obligations, the rights of the parties regarding the goods and/or services to be transferred are identified, payment terms are identified, the contract has commercial substance and collectability of substantially all of the consideration is probable. If all such conditions are not reportmet, revenues and any associated receivables are generally not recognized until such time that the required conditions are met. Cash collected from customers prior to a contract existing is recorded to other customer-related liabilities in other current liabilities.
From time to time, regulatory authorities investigate our business practices, particularly with respect to our licensing business, and institute proceedings against us. Depending on the matter, various remedies that could result from an unfavorable resolution include, among others, the loss of our ability to enforce one or more of our patents; injunctions; monetary damages or fines or other orders to pay money; the issuance of orders to cease certain conduct or modify our business practices, such as requiring us to reduce our royalty rates, reduce the base on which our royalties are calculated, grant patent licenses to chipset manufacturers, sell chipsets to unlicensed original equipment manufacturers (OEMs) or modify or renegotiate some or all of our existing license agreements; and determinations that some or all of our license agreements are invalid or unenforceable. Additionally, from time to time, companies initiate various strategies in an attempt to negotiate, renegotiate, reduce and/or eliminate their need to pay royalties to us for the use of our intellectual property, which may include disputing, underreporting, underpaying, not reporting and/or not paying royalties owed for salesto us under their license agreements with us, or reporting to us in a manner that is not in compliance with their contractual obligations. In such cases, we estimate and recognize licensing revenues only when we have a contract, as defined in the revenue recognition guidance, which includes, among other items, evaluating whether our license agreements remain valid and enforceable and evaluating licensees’ conduct and whether they remain committed to perform their respective obligations. We also estimate and recognize licensing revenues only to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur, which includes, among other items, determining the expected impact, if any, given quarter until afterto revenues of any license agreements that may be renegotiated and/or are newly entered into. We analyze the conclusionrisk of that quarter,a significant revenue reversal considering both the likelihood and magnitude of the reversal and, if necessary, constrain the amount of estimated revenues recognized in order to mitigate this risk, which is generally the following quarter. The Company recognizes royaltymay result in recognizing revenues less than amounts contractually owed to us. These aforementioned estimates may require significant judgment.
We measure revenues (including our estimates of sales-based royalties) based on royalties reported by licensees during the quarter and when all other revenue recognition criteria are met.
The Company recordsamount of consideration we expect to receive in exchange for products or services. We record reductions to revenues for customer incentive arrangements, including volume-related and other pricing rebates and cost reimbursements for marketing and other activities involving certain of the Company’sour products and technologies.technologies, in the period that the related revenues are earned. For certain QCT (Qualcomm CDMA Technologies) customer incentive arrangements, there is complexity in applying certain contractual terms to determine the amount recorded as a reduction to revenues. No significant reversals of revenues have been made related to such amounts previously recorded. The chargesamounts accrued for suchcustomer incentive arrangements are recorded as a reduction to accounts receivable, net or as other current liabilities based on whether we have the Company has theintent and contractual right of offset. The Company recognizesCertain amounts recorded as a reduction to revenues for customer incentive arrangements are considered variable
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consideration and are included in the liabilitytransaction price primarily based on estimating the estimatedmost likely amount expected to be provided to the customer/licensee.
Adjustments made to revenues in subsequent periods to reflect changes in estimates as new information becomes available are included in our disclosure of the incentive, or if not reasonably estimated, the maximum potential liability, at the laterrevenues recognized from previously satisfied performance obligations.
Revenues recognized from sales of the date at which the Company records the related revenues or the date at which the Company offers the incentive or, if payment is contingent, when the contingency is resolved. In certain arrangements, the liabilitiesour products and sales-based royalties are generally included in accounts receivable, net (including unbilled receivables) based on customer forecasts. The Company reverses accrualsour unconditional right to payment for unclaimed incentive amounts to revenues when the unclaimed amounts are no longer subject to payment.satisfied or partially satisfied performance obligations.
Concentrations. Revenues in fiscal 2017 were negatively impacted by the actions of Apple Inc. and Hon Hai Precision Industry Co., Ltd./Foxconn, its affiliates and other suppliers to Apple as well as the dispute with another licensee, who did not report or pay royalties due in the third or fourth quarter of fiscal 2017. Apple’s contract manufacturers did not fully report and did not pay royalties due on sales of Apple products for a portion of the fiscal year, which resulted in higher accounts receivable from those suppliers (Note 2). A significant portion of the Company’sour revenues isare concentrated with a small number of customers/licensees of the Company’sour QCT (Qualcomm CDMA Technologies) and QTL (Qualcomm Technology Licensing) segments. The comparability of customer/licensee concentrations for the periods presented are impacted by the timing of customer/licensees device launches and/or innovation cycles, among other fluctuations in demand. Revenues related to the products of two customers/licensees comprised 18% and 17%from each customer/licensee that were 10% or greater of total consolidated revenues in fiscal 2017, compared to 24% and 16% in fiscal 2016 and 25% and 20% in fiscal 2015. Excluding the unpaid royalty receivables due from suppliers to Apple (Note 2), aggregate accounts receivable from one customer/licensee comprisedwere as follows:
| | | | | | | | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 | | September 29,
2019 |
| Customer/licensee (w) | 23 | % | | 10 | % | | 24 | % |
| Customer/licensee (x) | 14 | | | 19 | | | 15 | |
| Customer/licensee (y) | 13 | | | 12 | | | 10 | |
| | | | | |
| Customer/licensee (z) | * | | 10 | | | * |
* Less than 10% and 14% of accounts receivable at September 24, 2017 and September 25, 2016, respectively.
The Company reliesWe rely on sole- or limited-source suppliers for some products, particularly products in the QCT segment, subjecting the Companyus to possible shortages of raw materials or manufacturing capacity. While the Company has established alternate suppliers for certain technologies that the Company considers critical, theThe loss of a supplier or the inability of a supplier to meet performance or quality specifications or delivery schedules could harm the Company’sour ability to meet itsour delivery obligations and/or negatively impact the Company’sour revenues, business operations and ability to compete for future business.
Shipping and Handling Costs. Costs incurred for shipping and handling are included in cost of revenues. Amounts billed to a customer for shipping and handling are reported as revenues.
Share-Based Compensation. Share-based compensation expense for equity-classified awards, principally related to restricted stock units (RSUs), is measured at the grant date, or at the acquisition date for awards assumed in business combinations, based on the estimated fair value of the award and is recognized over the employee’s requisite service period. Share-based compensation expense is adjusted to exclude amounts related to share-based awards that are expected to be forfeited.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of RSUs are estimated based on the fair market values of the underlying stock on the dates of grant or dates the RSUs are assumed. If RSUs do not have the rightShare-based compensation expense is adjusted to participate in dividends, the fair valuesexclude amounts related to share-based awards that are discounted by the dividend yield. The weighted-average estimated fair values of employee RSUs granted during fiscal 2017, 2016 and 2015 were $66.54, $53.56 and $68.77 per share, respectively. Upon vesting, the Company issues new shares of common stock. For the majority of RSUs, shares are issued on the vesting dates net of the amount of shares needed to satisfy statutory tax withholding requirementsexpected to be paid by the Company on behalf of the employees. As a result, the actual number of shares issued will be fewer than the number of RSUs outstanding. The annual pre-vest forfeiture rate for RSUs was estimated to be approximately 5%, 4% and 3% in fiscal 2017, 2016 and 2015, respectively.forfeited.
Total share-based compensation expense, related to all of the Company’s share-based awards, was comprised as follows (in millions):
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Cost of revenues | $ | 38 |
| | $ | 40 |
| | $ | 42 |
|
| Research and development | 588 |
| | 614 |
| | 659 |
|
| Selling, general and administrative | 288 |
| | 289 |
| | 325 |
|
| Share-based compensation expense before income taxes | 914 |
| | 943 |
| | 1,026 |
|
| Related income tax benefit | (161 | ) | | (190 | ) | | (190 | ) |
| | $ | 753 |
| | $ | 753 |
| | $ | 836 |
|
Legal and Regulatory Proceedings. The Company is We are currently involved in certain legal and regulatory proceedings. The Company disclosesLitigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss in antitrust and trade regulation investigations in particular. Investigations by antitrust and trade regulation agencies are not conducted in a loss contingencyconsistent manner across jurisdictions. Further, each country and agency has different sets of laws, rules and regulations, both substantive and procedural, as well as different legal principles, theories and potential remedies, and some agencies may seek to use the investigation to advance domestic policy goals. Depending on the jurisdiction, these investigations can involve non-transparent procedures under which we may not receive access to evidence relied upon by the enforcement agency or that may be exculpatory and may not be informed of the specific legal theories or evidence considered or relied upon by the agency. Unlike in civil litigation in the United States, in foreign proceedings, we may not be entitled to discovery or depositions, allowed to cross-examine witnesses or confront our accusers. As a result, we may not be aware of, and may not be entitled to know, all allegations against us, or the information or documents provided to, or discovered or prepared by, the agency. Accordingly, we may have little or no idea what an agency’s intent is with respect to liability, penalties or the timing of a decision. In many cases the agencies are given significant discretion, and any available precedent may have limited, if any, predictive value in their jurisdictions, much less in other jurisdictions. Accordingly, we cannot predict the outcome of these matters. A broad range of remedies with respect to our business practices that are deemed to violate applicable laws are potentially available. These remedies may include, among others, injunctions, monetary damages or fines or other orders to pay money and the issuance of orders to cease certain conduct and/or to modify our business practices.
If there is at least a reasonable possibility that a material loss hasmay have been incurred. The Company records itsincurred associated with pending legal and regulatory proceedings, we disclose such fact, and if reasonably estimable, we provide an estimate of the possible loss or range of possible loss. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company recordswe record the minimum estimated liability. As additional information becomes available, the Company assesseswe assess the potential liability related to pending legal and regulatory proceedings and revises itsrevise our estimates and updates itsupdate our disclosures accordingly. The Company’sSignificant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. Our legal costs associated with defending itselfourself are recorded to expense as incurred.
Foreign Currency. Certain foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are recognizedrecorded as a component of accumulated other comprehensive income. Transaction gains or losses related
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations.
Income Taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Tax law and rate changes are reflected in income in the period such changes are enacted. The Company recordsWe record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company includesWe include interest and penalties related to income taxes, including unrecognized tax benefits, within income tax expense. The Company classifiesWe classify all deferred tax assets and liabilities as noncurrent in the consolidated balance sheets.
The Company’sOur income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service (IRS) and other tax authorities. In addition, the calculation of the Company’sour tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizesWe recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it haswe believe we have appropriate support for the positions taken on itsour tax returns, the Companywe regularly assessesassess the potential outcomes of examinations by tax authorities in determining the adequacy of itsour provision for income taxes. The CompanyWe continually assessesassess the likelihood and amount of potential adjustments and adjustsadjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
The Company recognizes windfallWe recognize excess tax benefits and shortfall tax detriments associated with share-based awards directlyin the consolidated statements of operations, as a component of income tax expense, when realized.
We are subject to stockholders’ equity when realized. A windfallincome taxes in the United States and numerous foreign jurisdictions, and the assessment of our income tax benefit occurs whenpositions involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. In addition, the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Significant judgments and estimates are required in determining our provision for income taxes, including those related to special deductions such as FDII (foreign-derived intangible income), tax incentives, intercompany research and development cost-sharing arrangements, transfer pricing, tax credits and the realizability of deferred tax assets. While we believe we have appropriate support for the positions we have taken or that we plan to take on our tax returns, we regularly assess the potential outcomes of examinations by taxing authorities in determining the adequacy of our provision for income taxes. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. We are participating in the IRS Compliance Assurance Process program whereby we endeavor to agree with the IRS on the treatment of all issues prior to filing our federal return. A benefit realizedof participation in this program is that post-filing adjustments by the Company upon an employee’s dispositionIRS are less likely to occur.
Stock Repurchases.To reflect share repurchases in the consolidated balance sheet, we (i) reduce common stock for the par value of a share-based award exceeds the deferred tax asset,shares, (ii) reduce paid-in capital for the amount in excess of par to zero during the quarter in which the shares are repurchased and (iii) record the residual amount, if any, associated with the award that the Company had recorded. The Company records windfall tax benefits to stockholders’ equity. A shortfall occurs when the actual tax benefit realized by theretained earnings.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company upon an employee’s disposition of a share-based award is less than the deferred tax asset, if any, associated with the award that the Company has recorded. The Company records shortfall tax detriments when realized to stockholders’ equity to the extent that previous windfall tax benefits exist (referred to as the APIC windfall pool), with any remainder recognized in income tax expense. The Company had a sufficient APIC windfall pool to absorb all shortfalls that occurred in fiscal 2017. When assessing whether a tax benefit relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.
Earnings (Loss) Per Common Share. Basic earnings (loss) per common share areis computed by dividing net income attributable to Qualcomm(loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share areis computed by dividing net income attributable to Qualcomm by the combination of the weighted-average number of dilutive common share equivalents, comprised of shares issuable under the Company’sour share-based compensation plans and shares subject to written put options and/or accelerated share repurchase agreements,programs, if any, and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents includeThe following table provides information about the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost for future service that the Company has not yet recognized, if any, and the estimated tax benefits that would be recorded in paid-in capital when an award is settled, if any, are assumed to be used to repurchase shares in the current period. The dilutive common share equivalents, calculated using the treasury stock method, for fiscal 2017, 2016 and 2015 were 12,989,000, 13,864,000 and 20,724,000, respectively. Shares of common stock equivalents outstanding that were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period were 2,955,000, 2,435,000 and 4,652,000 during fiscal 2017, 2016 and 2015, respectively.
Recent Accounting Pronouncements. In May 2014, the FASB issued new guidance related to revenue recognition, which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. It defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. The Company will adopt the new guidance in the first quarter of fiscal 2019 and currently expects to apply the modified retrospective approach, which means that the cumulative effect of applying the new guidance is recognized as an adjustment to the opening retained earnings balance. Given the scope of work required to implement the recognition and disclosure requirements under the new guidance, the Company has made progress in the identification of changes to policy, processes, systems and controls, and the Company continues to assess data availability and presentation necessary to meet the additional disclosure requirements of the guidance in the notes to the consolidated financial statements.
The Company currently expects the adoption of this new guidance to most significantly impact its licensing business. Specifically, the Company expects a change in the timing of revenues recognized from sales-based royalties. The Company currently recognizes sales-based royalties as revenues in the period in which such royalties are reported by licensees, which is after the conclusion of the quarter in which the licensees’ sales occur and when all other revenue recognition criteria are met. Under the new guidance, the Company will be required to estimate and recognize sales-based royalties in the period in which the associated sales occur, resulting in an acceleration of revenue recognition compared to the current method. Upon adoption of the new guidance, licenses to use portions of the Company’s intellectual property portfolio will be considered one performance obligation, and license fees will be recognized as revenues on a straight-line basis over the term of the license agreement, which is similar to the recognition of license revenues under the current guidance. The Company currently accounts for customer incentive arrangements in its licensing and semiconductor businesses, including volume-related and other pricing rebates or cost reimbursements for marketing and other activities involving certain of the Company’s products and technologies in part based on the maximum potential liability. Under the new guidance, the Company expects to estimate the amount of all customer incentives. The Company does not otherwise expect the adoption of the new guidance will have a material impact on its businesses.
In January 2016, the FASB issued new guidance on classifying and measuring financial instruments, which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk be recognized separately in other comprehensive income. Additionally, it changes the disclosure requirements for financial instruments. The new guidance will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company does not intend adopt any of thecalculation (in millions): | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Dilutive common share equivalents included in diluted shares | 18 | | | 14 | | | 10 | |
| Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period | — | | | 1 | | | 8 | |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provisions early and is in the process of determining the effects the adoption will have on its consolidated financial statements.
In February 2016, the FASB issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach. The Company will adopt the new guidance in the first quarter of fiscal 2020 and is in the process of determining the effects the adoption will have on its consolidated financial statements.
In March 2016, the FASB issued new guidance that changes the accounting for share-based payments, including income taxes, classification of awards and classification in the statement of cash flows. The new guidance will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. In addition, under the new guidance, excess tax benefits or deficiencies associated with share-based payment awards will be recognized through earnings when the awards vest or settle, rather than in stockholders’ equity. As a result, subsequent to adoption, the Company’s income tax expense and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. The new guidance will be effective for the Company starting in the first quarter of fiscal 2018.
In June 2016, the FASB issued new guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The new guidance will be effective for the Company starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and cash payments on the statement of cash flows. The new guidance will be effective for the Company beginning in the first quarter of fiscal 2019 on a retrospective basis, and early adoption is permitted. The Company does not intend to adopt the new guidance early and is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In October 2016, the FASB issued new guidance that changes the accounting for income tax effects of intra-entity transfers of assets other than inventory. Under the new guidance, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The new guidance will be effective for the Company starting in the first quarter of fiscal 2019 on a modified retrospective basis, and early adoption is permitted. The Company does not intend to adopt the new guidance early and is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2017, the FASB issued new guidance that expands and refines hedge accounting for both financial and non-financial risks, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes targeted improvements related to the assessment of hedge effectiveness. The new guidance also modifies disclosure requirements for hedging activities. The new guidance will be effective for the Company starting in the first quarter of fiscal 2020, and early adoption is permitted in any interim period. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements as well as whether to adopt the new guidance early.
Note 2. Composition of Certain Financial Statement Items | | | | | | | | | | | |
| Accounts Receivable (in millions) | | | |
| September 26,
2021 | | September 27,
2020 |
| Trade, net of allowances for doubtful accounts | $ | 2,214 | | | $ | 2,687 | |
| | | |
| Unbilled | 1,354 | | | 1,305 | |
| Other | 11 | | | 11 | |
| $ | 3,579 | | | $ | 4,003 | |
|
| | | | | | | |
| Accounts Receivable (in millions) | | | |
| | September 24, 2017 | | September 25, 2016 |
| Trade, net of allowances for doubtful accounts of $11 and $1, respectively | $ | 3,576 |
| | $ | 2,194 |
|
| Long-term contracts | 40 |
| | 20 |
|
| Other | 16 |
| | 5 |
|
| | $ | 3,632 |
| | $ | 2,219 |
|
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Approximately 70% of the increase in accounts receivable was dueIn July 2020, we entered into a settlement agreement with Huawei to resolve our prior dispute related to the short paymentlicense agreement that expired on December 31, 2019. We also entered into a new long-term, global patent license agreement that applies to sales of certain wireless products by Huawei beginning on January 1, 2020. As a result, we recorded revenues of $1.8 billion in the secondfourth quarter of fiscal 2017 of royalties reported by and deemed collectible from Apple’s contract manufacturers. This same amount is recorded in customer-related liabilities for Apple, since the Company does not have the contractual right to offset these amounts. The remaining increase in accounts receivable resulted from the accounts receivable relating2020 related to the Company’s recently formed RF360 Holdings joint venture (Note 9), increased revenuesfull amount due from Huawei under the settlement agreement and amounts paid for the March 2020 and June 2020 quarters under the new global patent license agreement. Accounts receivable at September 27, 2020 included approximately $1.3 billion, excluding the impact of foreign withholding taxes, from Huawei related to integrated circuitsthe remaining amounts due under the settlement agreement and estimated royalties for sales made in the timing ofSeptember 2020 quarter. Since September 27, 2020, Huawei paid all such amounts, including the collection of payments from certain offinal installment under the Company’s other licensees.settlement agreement in accordance with the agreed upon payment schedule.
| | | | | | | | | | | |
| Inventories (in millions) | | | |
| September 26,
2021 | | September 27,
2020 |
| Raw materials | $ | 267 | | | $ | 94 | |
| Work-in-process | 1,475 | | | 1,155 | |
| Finished goods | 1,486 | | | 1,349 | |
| $ | 3,228 | | | $ | 2,598 | |
|
| | | | | | | |
| Inventories (in millions) | | | |
| | September 24, 2017 | | September 25, 2016 |
| Raw materials | $ | 103 |
| | $ | 1 |
|
| Work-in-process | 799 |
| | 847 |
|
| Finished goods | 1,133 |
| | 708 |
|
| | $ | 2,035 |
| | $ | 1,556 |
|
| | | Property, Plant and Equipment (in millions) | September 24, 2017 | | September 25, 2016 | Property, Plant and Equipment (in millions) | |
| | | September 26,
2021 | | September 27,
2020 |
| Land | $ | 195 |
| | $ | 192 |
| Land | $ | 172 | | | $ | 173 | |
| Buildings and improvements | 1,595 |
| | 1,545 |
| Buildings and improvements | 1,642 | | | 1,606 | |
| Computer equipment and software | 1,609 |
| | 1,426 |
| Computer equipment and software | 1,483 | | | 1,427 | |
| Machinery and equipment | 3,528 |
| | 2,454 |
| Machinery and equipment | 6,420 | | | 5,095 | |
| Furniture and office equipment | 109 |
| | 77 |
| Furniture and office equipment | 94 | | | 90 | |
| Leasehold improvements | 310 |
| | 254 |
| Leasehold improvements | 374 | | | 320 | |
| Construction in progress | 73 |
| | 92 |
| Construction in progress | 269 | | | 134 | |
| | 7,419 |
| | 6,040 |
| | 10,454 | | | 8,845 | |
| Less accumulated depreciation and amortization | (4,203 | ) | | (3,734 | ) | Less accumulated depreciation and amortization | (5,895) | | | (5,134) | |
| | $ | 3,216 |
| | $ | 2,306 |
| | $ | 4,559 | | | $ | 3,711 | |
Depreciation and amortization expense related to property, plant and equipment for fiscal 2017, 20162021, 2020 and 20152019 was $684 million, $624$1.0 billion, $772 million and $625$674 million, respectively. The gross book values of property under capital leases included in buildings and improvements were negligible at September 24, 2017 and September 25, 2016.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill and Other Intangible Assets. The Company allocates We allocate goodwill to itsour reporting units for annual impairment testing purposes. The following table presents the goodwill allocated to the Company’sour reportable and nonreportable segments, as described in Note 8, as well as the changes in the carrying amounts of goodwill during fiscal 20172021 and 20162020 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| | QCT | | QTL | | Nonreportable Segments | | Total |
| Balance at September 29, 2019 | | $ | 5,565 | | | $ | 717 | | | $ | — | | | $ | 6,282 | |
| | | | | | | | |
| | | | | | | | |
| Foreign currency translation adjustments | | 40 | | | 1 | | | — | | | 41 | |
| Balance at September 27, 2020 (1) | | 5,605 | | | 718 | | | — | | | 6,323 | |
| Acquisitions | | 912 | | | 5 | | | — | | | 917 | |
| | | | | | | | |
| Foreign currency translation adjustments | | 6 | | | — | | | — | | | 6 | |
| Balance at September 26, 2021 (1) | | $ | 6,523 | | | $ | 723 | | | $ | — | | | $ | 7,246 | |
(1) Cumulative goodwill impairments were $812 million at both September 26, 2021 and September 27, 2020. |
| | | | | | | | | | | | | | | |
| | QCT | | QTL | | Nonreportable Segments | | Total |
| Balance at September 27, 2015 | $ | 4,461 |
| | $ | 718 |
| | $ | 300 |
| | $ | 5,479 |
|
| Acquisitions | 172 |
| | — |
| | — |
| | 172 |
|
| Impairments | — |
| | — |
| | (17 | ) | | (17 | ) |
| Other (1) | 41 |
| | — |
| | 4 |
| | 45 |
|
| Balance at September 25, 2016 (2) | 4,674 |
| | 718 |
| | 287 |
| | 5,679 |
|
| Acquisitions | 841 |
| | 23 |
| | 11 |
| | 875 |
|
| Impairments | — |
| | — |
| | — |
| | — |
|
| Other (1) | 66 |
| | — |
| | 3 |
| | 69 |
|
| Balance at September 24, 2017 (2) | $ | 5,581 |
| | $ | 741 |
| | $ | 301 |
| | $ | 6,623 |
|
| |
(1) | Includes changes in goodwill amounts resulting from foreign currency translation, purchase accounting adjustments and, in fiscal 2016, the sale of the Company’s business that provided augmented reality applications. |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
(2) | Cumulative goodwill impairments were $537 million at both September 24, 2017andSeptember 25, 2016.
|
The components of other intangible assets, net were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 26, 2021 | | September 27, 2020 |
| Gross Carrying
Amount | | Accumulated
Amortization | | Weighted-average amortization period
(years) | | Gross Carrying
Amount | | Accumulated
Amortization | | Weighted-average amortization period
(years) |
| Technology-based | $ | 5,385 | | | $ | (3,971) | | | 11 | | $ | 5,556 | | | $ | (3,958) | | | 11 |
| Other | 93 | | | (49) | | | 10 | | 105 | | | (50) | | | 9 |
| $ | 5,478 | | | $ | (4,020) | | | 11 | | $ | 5,661 | | | $ | (4,008) | | | 11 |
|
| | | | | | | | | | | | | | | | | | | |
| | September 24, 2017 | | September 25, 2016 |
| | Gross Carrying Amount | | Accumulated Amortization | | Weighted-average amortization period (years) | | Gross Carrying Amount | | Accumulated Amortization | | Weighted-average amortization period (years) |
| Wireless spectrum | $ | 1 |
| | $ | — |
| | 20 | | $ | 2 |
| | $ | (2 | ) | | 5 |
| Marketing-related | 77 |
| | (52 | ) | | 4 | | 119 |
| | (77 | ) | | 8 |
| Technology-based | 6,413 |
| | (2,818 | ) | | 10 | | 5,900 |
| | (2,459 | ) | | 10 |
| Customer-related | 149 |
| | (33 | ) | | 9 | | 21 |
| | (4 | ) | | 7 |
| | $ | 6,640 |
| | $ | (2,903 | ) | | 10 | | $ | 6,042 |
| | $ | (2,542 | ) | | 10 |
All of these intangible assets are subject to amortization, other than acquired in-process research and development withwhich had a carrying valuesvalue of $74$247 million atSeptember 26, 2021. At September 27, 2020, there was no in-process research and $83 million at September 24, 2017 and September 25, 2016, respectively.development. Amortization expense related to these intangible assets was $777$537 million, $804$621 million and $591$727 million for fiscal 2017, 20162021, 2020 and 2015,2019, respectively. Amortization expense related to these intangible assets and acquired in-process research and development, beginning upon the expected completion of the underlying projects, is expected to be $780$449 million, $734$340 million, $622$186 million, $507$153 million and $415$132 million for each of the subsequent five years from fiscal 20182022 through 2022,2026, respectively, and $679$198 million thereafter.
|
| | | | | | | |
| Other Current Liabilities (in millions) | | | |
| | September 24,
2017 | | September 25,
2016 |
| Customer incentives and other customer-related liabilities | $ | 2,804 |
| | $ | 1,710 |
|
| Accrual for TFTC fine (Note 7) | 778 |
| | — |
|
| Other | 1,174 |
| | 551 |
|
| | $ | 4,756 |
| | $ | 2,261 |
|
Customer incentivesEquity Method and Non-marketable Equity Investments. The carrying values of our equity method and non-marketable equity investments are recorded in other customer-related liabilities substantially consist of amounts payable to customers for incentiveassets and other arrangements, including volume-related and other pricing rebates and cost reimbursements for marketing and other activities involving certain of the Company’s products and technologies. The corresponding charges for such arrangements were recorded as a reduction to revenues.
Accumulated Other Comprehensive Income. Changes in the components of accumulated other comprehensive income, net of income taxes, in Qualcomm stockholders’ equity during fiscal 2017 were as follows (in millions):
| | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 |
| Equity method investments | $ | 214 | | | $ | 161 | |
| Non-marketable equity investments | 1,051 | | | 821 | |
| $ | 1,265 | | | $ | 982 | |
| | | | | | | | | | | |
| Other Current Liabilities (in millions) | | | |
| September 26,
2021 | | September 27,
2020 |
| Customer incentives and other customer-related liabilities | $ | 1,974 | | | $ | 1,721 | |
| Accrual for EC fines (Note 7) | 1,522 | | | 1,487 | |
| Income taxes payable | 862 | | | 549 | |
| | | |
| Other | 656 | | | 546 | |
| $ | 5,014 | | | $ | 4,303 | |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues. We disaggregate our revenues by segment (Note 8), by product and service (as presented on our consolidated statements of operations) and for our QCT segment by revenue stream, which is based on the industry and application in which our products are sold (as presented below). In certain cases, the determination of QCT revenues by industry and application requires the use of certain assumptions. Substantially all of QCT’s revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s revenues represent licensing revenues that are recognized over time and are principally from royalties generated through our licensees’ sales of mobile handsets. QCT revenue streams were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2021 | | 2020 | | 2019 |
| Handsets (1) | | | | | | | | | $ | 16,830 | | | $ | 10,461 | | | $ | 9,793 | |
| RFFE (2) | | | | | | | | | 4,158 | | | 2,362 | | | 1,478 | |
| Automotive (3) | | | | | | | | | 975 | | | 644 | | | 640 | |
| IoT (internet of things) (4) | | | | | | | | | 5,056 | | | 3,026 | | | 2,728 | |
| Total QCT revenues | | | | | | | | | $ | 27,019 | | | $ | 16,493 | | | $ | 14,639 | |
(1) Includes revenues from products sold for use in mobile handsets, excluding RFFE (radio frequency front-end) components. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Noncredit Other-than-Temporary Impairment Losses and Subsequent Changes in Fair Value for Certain Available-for-Sale Debt Securities | | Net Unrealized Gain (Loss) on Other Available-for-Sale Securities | | Net Unrealized Gain (Loss) on Derivative Instruments | | Other Gains | | Total Accumulated Other Comprehensive Income |
| Balance at September 25, 2016 | $ | (161 | ) | | $ | 6 |
| | $ | 532 |
| | $ | 51 |
| | $ | — |
| | $ | 428 |
|
| Other comprehensive (loss) income before reclassifications | 309 |
| | 6 |
| | (102 | ) | | (49 | ) | | 4 |
| | 168 |
|
| Reclassifications from accumulated other comprehensive income | (1 | ) | | 11 |
| | (212 | ) | | (10 | ) | | — |
| | (212 | ) |
| Other comprehensive (loss) income | 308 |
| | 17 |
| | (314 | ) | | (59 | ) | | 4 |
| | (44 | ) |
| Balance at September 24, 2017 | $ | 147 |
| | $ | 23 |
| | $ | 218 |
| | $ | (8 | ) | | $ | 4 |
| | $ | 384 |
|
Reclassifications(3) Includes revenues from accumulated other comprehensive incomeproducts sold for use in automobiles, including telematics, connectivity and digital cockpit.
(4) Primarily includes products sold for use in the following industries and applications: consumer (including computing, voice and music and XR), industrial (including handhelds, retail, transportation and logistics and utilities) and edge networking (including mobile broadband and wireless access points).
Revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| 2021 (1) | | 2020 (2) | | 2019 (3) |
| Revenues recognized from previously satisfied performance obligations | $ | 283 | | | $ | 1,480 | | | $ | 4,080 | |
(1) Primarily related to net gains on available-for-sale securities of $201 million, $83 million and $212 million during fiscal 2017, 2016 and 2015, respectively, were recorded in investment and other income, net (Note 2). Reclassifications from accumulated other comprehensive incomecertain QCT customer incentives, QTL revenues recognized related to foreign currency translation lossesdevices sold in prior periods (including adjustments to prior period royalty estimates, which includes the impact of $21 million during fiscal 2016 were recorded in selling, generalthe reporting by our licensees of actual royalty due) and administrative expenses and other operating expenses. Reclassifications from accumulated other comprehensive incomethe release of a variable constraint against revenues not previously allocated to our segment results (Note 8).
(2) Primarily related to foreign currency translation adjustments during fiscal 2017 and 2015 were negligible. Reclassifications from accumulated other comprehensive income related to derivative instruments of $10 million for fiscal 2017 were recorded inlicensing revenues cost of revenues, research and development expenses and selling, general and administrative expenses. Reclassifications from accumulated other comprehensive income related to derivative instruments during fiscal 2016 and 2015 were negligible.
Other Income, Costs and Expenses. Other expenses in fiscal 2017 consisted of a $927 million charge related to the KFTC fine (Note 7), including related foreign currency losses, a $778 million charge related to the TFTC fine (Note 7) and $37 million in restructuring and restructuring-related charges related to the Company’s Strategic Realignment Plan (Note 10).
Other income for fiscal 2016 included a gain of $380 million on the sale of wireless spectrumrecognized in the United Kingdom that was held by the QSI (Qualcomm Strategic Initiatives) segment in the firstfourth quarter of fiscal 20162020 (a portion of which was attributable to fiscal 2020) resulting from the settlement with Huawei and, to a lesser extent, QTL royalties recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, which includes the impact of the reporting by our licensees of actual royalties due) and certain QCT customer incentives.
(3) Primarily related to licensing revenues recognized in the third quarter of fiscal 2019 (a portion of which was attributable to fiscal 2019) resulting from the settlement with Apple and its contract manufacturers in April 2019.
Unearned revenues (which are considered contract liabilities) consist primarily of license fees for $232intellectual property with continuing performance obligations. In fiscal 2021 and fiscal 2020, we recognized revenues of $557 million in cash and $275$540 million, in deferred payments due in 2020 to 2023, whichrespectively, that were recorded as unearned revenues at their present values in other assets. Other income for fiscal 2016 also included $202 million in restructuringSeptember 27, 2020 and restructuring-related charges, which were partially offset by a $48 million gain on the sale of the Company’s business that provided augmented reality applications,September 29, 2019, respectively.
Remaining performance obligations, substantially all of which related toare included in unearned revenues, represent the Company’s Strategic Realignment Plan.
On February 9, 2015, the Company announced that it had reached a resolution with the China National Development and Reform Commission (NDRC) regarding its investigation of the Company relating to China’s Anti-Monopoly Law (AML) and the Company’s licensing business and certain interactions between the Company’s licensing business and its semiconductor business. The NDRC issued an Administrative Sanction Decision finding that the Company had violated the AML, and the Company agreed to implement a rectification plan that modified certain of its business practices in China. In addition, the NDRC imposed a fine on the Company of 6.088 billion Chinese renminbi (approximately $975 million), which the Company paid. The Company recorded theaggregate amount of the fine intransaction price of certain customer contracts yet to be recognized as revenues as of the second quarterend of fiscal 2015 in other expenses. Other expenses in fiscal 2015 also included $255the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At September 26, 2021, we had $1.1 billion of remaining performance obligations, of which $653 million, $308 million, $84 million, $31 million and $11$2 million in impairment charges on goodwillis expected to be recognized as revenues for each of the subsequent five years from fiscal 2022 through 2026, respectively, and intangible assets, respectively,no amounts expected thereafter.
Share-based Compensation Expense. Total share-based compensation expense, related to the Company’s content and push-to-talk services and display businesses and $190 million in restructuring and restructuring-related charges related to the Company’s Strategic Realignment Plan, partially offset by $138 million in gains on salesall of certain property, plant and equipment.our share-based awards, was comprised as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cost of revenues | | | | | | | | | $ | 47 | | | $ | 34 | | | $ | 35 | |
| Research and development | | | | | | | | | 1,234 | | | 872 | | | 725 | |
| Selling, general and administrative | | | | | | | | | 389 | | | 306 | | | 277 | |
| Share-based compensation expense before income taxes | | | | | | | | | 1,670 | | | 1,212 | | | 1,037 | |
| Related income tax benefit | | | | | | | | | (435) | | | (238) | | | (184) | |
| | | | | | | | | $ | 1,235 | | | $ | 974 | | | $ | 853 | |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| Investment and Other Income, Net (in millions) | | | | | |
| | 2017 | | 2016 | | 2015 |
| Interest and dividend income | $ | 619 |
| | $ | 611 |
| | $ | 527 |
|
| Net realized gains on marketable securities | 456 |
| | 239 |
| | 451 |
|
| Net realized gains on other investments | 74 |
| | 49 |
| | 49 |
|
| Impairment losses on marketable securities | (131 | ) | | (112 | ) | | (163 | ) |
| Impairment losses on other investments | (46 | ) | | (60 | ) | | (37 | ) |
| Net gains (losses) on derivative instruments | 32 |
| | (8 | ) | | 17 |
|
| Equity in net losses of investees | (74 | ) | | (84 | ) | | (32 | ) |
| Net losses on foreign currency transactions | (30 | ) | | — |
| | — |
|
| Net gains on deconsolidation of subsidiaries | — |
| | — |
| | 3 |
|
| | $ | 900 |
| | $ | 635 |
| | $ | 815 |
|
There were no net impairment losses on marketable securitiesOther Income, Costs and Expenses. Other expenses in fiscal 2020 consisted of $28 million in gains related to a favorable legal settlement. Other expenses in fiscal 2019 consisted of a $275 million charge related to a fine imposed by the European Commission (EC) related to the noncreditIcera complaint (2019 EC fine) (Note 7) and $213 million in net charges related to our Cost Plan that concluded in fiscal 2019 (primarily related to certain asset impairment charges and also included a $52 million net gain from the sale of certain assets related to wireless electric vehicle charging applications and the sale of our mobile health nonreportable segment), partially offset by a $43 million gain due to the partial recovery of a fine imposed in 2009 resulting from our appeal of the Korea Fair Trade Commission (KFTC) decision and a $31 million gain related to a favorable legal settlement.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Investment and Other Income, Net (in millions) | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | 2021 | | 2020 | | 2019 |
| Interest and dividend income | | | | | | | | $ | 83 | | | $ | 156 | | | $ | 300 | |
| | | | | | | | | | | | |
| Net gains on marketable securities | | | | | | | | 427 | | | 198 | | | 295 | |
| Net gains on other investments | | | | | | | | 470 | | | 108 | | | 68 | |
| Net gains on deferred compensation plan assets | | | | | | | | 130 | | | 47 | | | 9 | |
| Impairment losses on other investments | | | | | | | | (33) | | | (405) | | | (135) | |
| | | | | | | | | | | | |
| Net (losses) gains on derivative instruments | | | | | | | | (14) | | | 8 | | | (14) | |
| Equity in net earnings (losses) of investees | | | | | | | | 13 | | | (21) | | | (93) | |
| Net (losses) gains on foreign currency transactions | | | | | | | | (32) | | | (25) | | | 11 | |
| | | | | | | | $ | 1,044 | | | $ | 66 | | | $ | 441 | |
In fiscal 2020, the rapid, global spread of COVID-19 and associated containment and mitigation measures negatively impacted the condition of economies and financial markets globally, which negatively impacted certain companies in which we hold non-marketable equity investments, including those accounted for under the equity method and, to a lesser extent, non-marketable debt securities. As a result, certain of our investments were impaired and written down to their estimated fair values in fiscal 2020 (a significant portion of losses on debt securities recognizedwhich related to the full impairment of our investment in other comprehensive incomeOneWeb, who filed for bankruptcy in the second quarter of fiscal 2017, and such losses were $37 million and $23 million in fiscal 2016 and 2015, respectively. The ending balance of the credit loss portion of other-than-temporary impairments on debt securities held by the Company was negligible and $55 million at September 24, 2017 and September 25, 2016, respectively.2020).
Note 3. Income Taxes
The components of the income tax provision were as follows (in millions):
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current provision (benefit): | | | | | |
| Federal | $ | 72 |
| | $ | 4 |
| | $ | (67 | ) |
| State | 3 |
| | 4 |
| | 4 |
|
| Foreign | 1,256 |
| | 1,411 |
| | 1,307 |
|
| | 1,331 |
| | 1,419 |
| | 1,244 |
|
| Deferred (benefit) provision: | | | | | |
| Federal | (586 | ) | | (184 | ) | | (9 | ) |
| State | 4 |
| | 6 |
| | 1 |
|
| Foreign | (194 | ) | | (110 | ) | | (17 | ) |
| | (776 | ) | | (288 | ) | | (25 | ) |
| | $ | 555 |
| | $ | 1,131 |
| | $ | 1,219 |
|
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Current provision (benefit): | | | | | |
| Federal | $ | 942 | | | $ | 210 | | | $ | 1,563 | |
| State | 8 | | | 1 | | | 2 | |
| Foreign | 518 | | | 526 | | | (407) | |
| 1,468 | | | 737 | | | 1,158 | |
| Deferred (benefit) provision: | | | | | |
| Federal | (251) | | | (192) | | | 2,037 | |
| State | 2 | | | 2 | | | 17 | |
| Foreign | 12 | | | (26) | | | (117) | |
| (237) | | | (216) | | | 1,937 | |
| $ | 1,231 | | | $ | 521 | | | $ | 3,095 | |
The foreign component of the income tax provision consisted primarily ofincluded foreign withholding taxes on royalty feesrevenues included in United StatesU.S. earnings.
The components of income before income taxes by United StatesU.S. and foreign jurisdictions were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| United States | $ | 8,781 | | | $ | 5,004 | | | $ | 7,042 | |
| Foreign | 1,493 | | | 715 | | | 439 | |
| $ | 10,274 | | | $ | 5,719 | | | $ | 7,481 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| United States | $ | (762 | ) | | $ | 3,032 |
| | $ | 2,993 |
|
| Foreign | 3,782 |
| | 3,801 |
| | 3,494 |
|
| | $ | 3,020 |
| | $ | 6,833 |
| | $ | 6,487 |
|
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The foreign component of income before income taxes in foreign jurisdictions consists primarily of income earned in Singapore.
The following is a reconciliation of the expected statutory federal income tax provision to the Company’sour actual income tax provision (in millions):millions, except percentages). Substantially all of our income is in the U.S., of which a significant portion qualifies for preferential treatment as FDII at a 13% effective tax rate. | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Expected income tax provision at federal statutory tax rate | $ | 2,158 | | | $ | 1,201 | | | $ | 1,571 | |
| Benefit from FDII deduction | (550) | | | (381) | | | (419) | |
| Excess tax benefit associated with share-based awards | (265) | | | (83) | | | (27) | |
| Benefit related to research and development tax credits | (195) | | | (125) | | | (110) | |
| Derecognition of deferred tax asset on distributed intellectual property | — | | | — | | | 2,472 | |
| Benefit from establishing new U.S. net deferred tax assets | — | | | — | | | (570) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 83 | | | (91) | | | 178 | |
| $ | 1,231 | | | $ | 521 | | | $ | 3,095 | |
| Effective tax rate | 12 | % | | 9 | % | | 41 | % |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Expected income tax provision at federal statutory tax rate | $ | 1,057 |
| | $ | 2,392 |
| | $ | 2,270 |
|
| State income tax provision, net of federal benefit | 8 |
| | 19 |
| | 18 |
|
| Foreign income taxed at other than U.S. rates | (963 | ) | | (1,068 | ) | | (937 | ) |
| Research and development tax credits | (81 | ) | | (143 | ) | | (148 | ) |
| Worthless stock deduction of domestic subsidiary | — |
| | (101 | ) | | — |
|
| Nondeductible charges related to the KFTC and TFTC investigations | 363 |
| | — |
| | — |
|
| Impact of changes in tax reserves and audit settlements for prior year tax positions | 111 |
| | — |
| | (61 | ) |
| Other | 60 |
| | 32 |
| | 77 |
|
| | $ | 555 |
| | $ | 1,131 |
| | $ | 1,219 |
|
DuringIn fiscal 2017, the Company recorded charges2019, several of $927 million and $778 million relatedour foreign subsidiaries made elections to the fines imposed by the KFTC and the TFTC, respectively (Note 7), which are not deductiblebe treated as U.S. branches for federal income tax purposes (commonly referred to as “check-the-box” elections) effective beginning in fiscal 2018 and are attributable to both the United States and2019. As a foreign jurisdiction.
During fiscal 2016, the Companyresult of making these check-the-box elections, we recorded a tax benefit of $101$570 million in the first quarter of fiscal 2019 due to establishing new U.S. net deferred tax assets resulting from a worthless stock deduction on a domestic subsidiarythe difference between the GAAP basis and the U.S. federal tax carryover basis of the existing assets and liabilities of those foreign subsidiaries, primarily related to customer incentive liabilities that have not been deducted for tax purposes. Additionally, during fiscal 2018, one of our foreign subsidiaries distributed certain intellectual property to a U.S. subsidiary resulting in a difference between the Company’s former display businesses. Also, duringGAAP basis and the U.S. federal tax basis of the distributed intellectual property. Upon adoption of new accounting guidance in the first quarter of fiscal 2016,2019, which changed the accounting for the income tax effects of intra-entity transfers of assets other than inventory, we recorded a deferred tax asset of approximately $2.6 billion primarily related to the distributed intellectual property, with an adjustment to opening retained earnings. During the third quarter of fiscal 2019, the United States government permanently reinstatedTreasury Department issued new temporary regulations that resulted in a change to the federal research and development tax credit retroactively to January 1, 2015.deductibility of dividend income received by a U.S. stockholder from a foreign corporation. As a result of this change, pursuant to an agreement with the reinstatement,IRS, we relinquished the Company recorded afederal tax benefitbasis step-up of $79 millionintellectual property that was distributed in fiscal 2016 related to fiscal 2015. During fiscal 2015, the NDRC imposed a fine2018 by one of $975 million (Note 2), which was not deductible for tax purposes and was substantially attributableour foreign subsidiaries to a foreign jurisdiction. Additionally, duringU.S. subsidiary. Therefore, the related deferred tax asset was derecognized, resulting in a $2.5 billion charge to income tax expense in fiscal 2015, the Company recorded a tax benefit of $101 million related to2019.
In fiscal 2014 resulting from the United States government reinstating the federal research and development tax credit retroactively to January 1, 2014 through December 31, 2014. The effective tax rate for fiscal 2015 also reflected the United States federal research and development tax credit generated through December 31, 2014, the date on which the credit expired, and a $61 million tax benefit2019, as a result of certain court rulings in Korea, among other factors, we decided to apply for a favorablepartial refund claim for taxes previously withheld from licensees in Korea on payments due under their license agreements to which we have claimed a foreign tax audit settlement withcredit in the Internal Revenue Service (IRS) related to Qualcomm Atheros, Inc.’s pre-acquisition 2010 and 2011 tax returns.
The Company’s QCT segment’s non-United States headquarters is located in Singapore. The Company has obtained tax incentives in Singapore that commenced in March 2012, which are effective through March 2027, that result in a tax exemption for the first five years provided that the Company meets specified employment and investment criteria.United States. As a result, $1.9 billion and $1.6 billion was recorded as a noncurrent income taxes receivable (recorded in other assets) at September 26, 2021 and September 27, 2020, respectively, and $1.9 billion and $1.6 billion was recorded as a noncurrent liability for uncertain tax benefits (recorded in other liabilities) at September 26, 2021 and September 27, 2020, respectively.
At September 26, 2021, we estimated remaining future payments of the expiration$1.9 billion for a one-time repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next five years. At September 26, 2021, $196 million was recorded in other current liabilities, reflecting the next installment due in January 2022.
We continue to assert that certain of these incentives, the Company’s Singapore tax rate increased in fiscal 2017 and will increase again in fiscal 2027 upon the expiration of the remaining incentives. Had the Company established QCT’s non-United States headquarters in Singapore without these tax incentives, the Company’s income tax expense would have been higher and impactedour foreign earnings per share attributable to Qualcomm as follows (in millions, except per share amounts):
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Additional income tax expense | $ | 493 |
| | $ | 487 |
| | $ | 656 |
|
| Reduction to diluted earnings per share | $ | 0.33 |
| | $ | 0.32 |
| | $ | 0.40 |
|
The Company considers the operating earnings of certain non-United States subsidiaries to beare not indefinitely reinvested outside the United States based on the Company’s plans for use and/or investment outside the United States and the Company’s belief that its sources of cash and liquidity in the United States will be sufficient to meet future domestic cash needs. The Company hasreinvested. At September 26, 2021, we had not recorded a deferred tax liability of approximately $13.7 billion$63 million related to the United States federal and state income taxes and foreign withholding taxes on approximately $39.0 billion$761 million of undistributed earnings of certain non-United States subsidiaries that we continue to consider to be indefinitely reinvested outside the United States. Should the Companywe decide to no longer indefinitely reinvest such earnings outside the United States, the CompanyU.S., we would have to adjust the income tax provision in the period management makeswe make such determination.
We have tax incentives in Singapore that require we meet specified employment and other criteria. Although our profit in Singapore has declined as a result of our 2018 restructuring and such tax incentives were not significant for all periods presented, failure to meet these incentive requirements through March 2022 could require us to refund previously realized material tax benefits for 2017 and 2018.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The CompanyWe had deferred tax assets and deferred tax liabilities as follows (in millions): | | | | | | | | | | | |
| September 26,
2021 | | September 27,
2020 |
| Unused tax credits | $ | 1,504 | | | $ | 1,311 | |
| Customer incentives | 762 | | | 537 | |
| Unused net operating losses | 663 | | | 576 | |
| Accrued liabilities and reserves | 483 | | | 275 | |
| Operating lease liabilities | 188 | | | 107 | |
| Unearned revenues | 181 | | | 262 | |
| Share-based compensation | 175 | | | 151 | |
| Unrealized losses on other investments and marketable securities | 106 | | | 235 | |
| Other | 165 | | | 141 | |
| Total gross deferred tax assets | 4,227 | | | 3,595 | |
| Valuation allowance | (1,926) | | | (1,728) | |
| Total net deferred tax assets | 2,301 | | | 1,867 | |
| Unrealized gains on other investments and marketable securities | (215) | | | (97) | |
| Intangible assets | (198) | | | (181) | |
| Operating lease assets | (174) | | | (100) | |
| Property, plant and equipment | (111) | | | (162) | |
| Other | (76) | | | (32) | |
| Total deferred tax liabilities | (774) | | | (572) | |
| Net deferred tax assets | $ | 1,527 | | | $ | 1,295 | |
| Reported as: | | | |
| | | |
| Non-current deferred tax assets | $ | 1,591 | | | $ | 1,351 | |
| | | |
| Non-current deferred tax liabilities (1) | (64) | | | (56) | |
| $ | 1,527 | | | $ | 1,295 | |
(1) Non-current deferred tax liabilities were included in other liabilities in the consolidated balance sheets.
|
| | | | | | | |
| | September 24, 2017 | | September 25, 2016 |
| Unused tax credits | $ | 1,798 |
| | $ | 1,256 |
|
| Accrued liabilities and reserves | 888 |
| | 409 |
|
| Unearned revenues | 886 |
| | 920 |
|
| Share-based compensation | 241 |
| | 277 |
|
| Unused net operating losses | 208 |
| | 218 |
|
| Unrealized losses on other investments and marketable securities | 151 |
| | 254 |
|
| Other | 21 |
| | 55 |
|
| Total gross deferred tax assets | 4,193 |
| | 3,389 |
|
| Valuation allowance | (863 | ) | | (754 | ) |
| Total net deferred tax assets | 3,330 |
| | 2,635 |
|
| Intangible assets | (535 | ) | | (502 | ) |
| Unrealized gains on other investments and marketable securities | (33 | ) | | (194 | ) |
| Other | (95 | ) | | (78 | ) |
| Total deferred tax liabilities | (663 | ) | | (774 | ) |
| Net deferred tax assets | $ | 2,667 |
| | $ | 1,861 |
|
| Reported as: | | | |
| Non-current deferred tax assets | 2,900 |
| | 2,030 |
|
| Non-current deferred tax liabilities (1) | (233 | ) | | (169 | ) |
| | $ | 2,667 |
| | $ | 1,861 |
|
| |
(1) | Non-current deferred tax liabilities were included in other liabilities in the consolidated balance sheets. |
At September 24, 2017, the Company26, 2021, we had unused federal net operating loss carryforwards of $245$214 million, expiringof which $150 million expire from 20212022 through 2035 and $64 million may be carried forward indefinitely, unused state net operating loss carryforwards of $858$474 million expiring from 20182022 through 20372040 and unused foreign net operating loss carryforwards of $215 million,$2.3 billion, of which substantially all may be carried forward indefinitely. At September 24, 2017, the Company26, 2021, we had unused state tax credits of $763 million,$1.3 billion, of which substantially all may be carried forward indefinitely, unused federal tax credits of $1.0 billion$215 million expiring from 20252026 through 20372031 and unused tax credits of $28$51 million in foreign jurisdictions expiring from 2033 through 2037. The Company does2041. We do not expect itsour federal net operating loss carryforwards to expire unused.
At September 24, 2017, the Company has26, 2021, we have provided a valuation allowance on certain state tax credits, foreign deferred tax assets and state net operating losses of $752 million, $69$1.3 billion, $607 million and $42$13 million, respectively. The valuation allowances reflectallowance reflects the uncertainties surrounding the Company’sour ability to generate sufficient future taxable income in certain foreign and state tax jurisdictions to utilize itsour net operating losses and the Company’s ability to generate sufficient capital gains to utilize all capital losses. The Company believes,We believe, more likely than not, that itwe will have sufficient taxable income after deductions related to share-based awards to utilize itsour remaining deferred tax assets.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the changes in the amount of unrecognized tax benefits for fiscal 2017, 20162021, 2020 and 20152019 follows (in millions): | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Beginning balance of unrecognized tax benefits | $ | 1,901 | | | $ | 1,705 | | | $ | 217 | |
| Additions based on prior year tax positions | 56 | | | 20 | | | 1,238 | |
| Reductions for prior year tax positions and lapse in statute of limitations | (13) | | | (2) | | | (3) | |
| Additions for current year tax positions | 213 | | | 192 | | | 253 | |
| Settlements with taxing authorities | (21) | | | (14) | | | — | |
| Ending balance of unrecognized tax benefits | $ | 2,136 | | | $ | 1,901 | | | $ | 1,705 | |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Beginning balance of unrecognized tax benefits | $ | 271 |
| | $ | 40 |
| | $ | 87 |
|
| Additions based on prior year tax positions | 92 |
| | 20 |
| | 31 |
|
| Reductions for prior year tax positions and lapse in statute of limitations | (11 | ) | | (6 | ) | | (70 | ) |
| Additions for current year tax positions | 23 |
| | 218 |
| | 5 |
|
| Settlements with taxing authorities | (3 | ) | | (1 | ) | | (13 | ) |
| Ending balance of unrecognized tax benefits | $ | 372 |
| | $ | 271 |
| | $ | 40 |
|
The Company believesOf the $2.1 billion of unrecognized tax benefits, $1.9 billion has been recorded to other liabilities. We believe that it is reasonably possible that certain unrecognized tax benefits recorded at September 24, 201726, 2021 may result in a significant cash payment in fiscal 2018.2022. Unrecognized tax benefits at September 24, 201726, 2021 included $289$146 million for tax positions that, if recognized, would impact the effective tax rate. The unrecognized tax benefits differ from the amount that would affect the Company’sour effective tax rate primarily because the unrecognized tax benefits were included on a gross basis and did not reflect related receivables or secondary impacts, such as the federal deduction for state taxes, adjustments to deferred tax assets and the valuation allowance that might be required if the Company’sour tax positions are sustained. The increase in unrecognized tax benefits in fiscal 2017for all periods presented was primarily due to expected refunds of Korean withholding tax positions relatedpreviously paid (which had an insignificant impact to transfer pricing. The increaseour income tax provision). If successful, the refund will result in unrecognizeda corresponding reduction in U.S. foreign tax benefits in fiscal 2016 was primarily due to tax positions related to classification of income. The Company believescredits. We believe that it is reasonably possiblelikely that the total amount of unrecognized tax benefits at September 24, 2017 may26, 2021 will increase or decrease in fiscal 2018.2022 as licensees in Korea continue to withhold taxes on future payments due under their licensing agreements at a rate higher than we believe is owed; such increase is not expected to have a significant impact on our income tax provision. At September 26, 2021, total interest and penalties related to unrecognized tax benefits accrued in other current liabilities and other liabilities was $184 million, with a corresponding noncurrent income taxes receivable of $107 million recorded in other assets for expected refunds of certain tax benefits.
The Company filesWe file income tax returns in the United StatesU.S. federal jurisdiction and various state and foreign jurisdictions. The Company isWe are currently a participant in the IRS Compliance Assurance Process (CAP) Program, whereby we and the IRS and the Company endeavor to agree on the treatment of all tax issues prior to the tax return being filed. The IRS completed its examination of the Company’s tax return for fiscal 2015 and issued a no change letter in February 2017, resulting in no change to the income tax provision. The Company isWe are no longer subject to United StatesU.S. federal income tax examinations for years prior to fiscal 2014. The Company is subject to examination by the California Franchise Tax Board for fiscal years after 2011. The Company is2018. We are also subject to examination in other taxing jurisdictions in the United StatesU.S. and numerous foreign jurisdictions, most notably in countries where the Company earns a routine return and tax authorities believe substantial value-add activities are performed.jurisdictions. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds, many of which are open for periods after fiscal 2000. The Company2001. We continually assessesassess the likelihood and amount of potential adjustments and adjustsadjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. As ofAt September 24, 2017, the Company believes26, 2021, we believe that adequate amounts have been reserved for based on facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in the Company’sour income tax provision and the related accruals.
Cash amounts paid for income taxes, net of refunds received, were $1.0$1.5 billion, $1.3 billion$830 million and $1.2$1.1 billion for fiscal 2017, 20162021, 2020 and 2015,2019, respectively.
Note 4. Capital Stock
Stock Repurchase Program. On March 9, 2015, the CompanyJuly 26, 2018, we announced a stock repurchase program authorizing itus to repurchase up to $15$30.0 billion of the Company’sour common stock. On October 12, 2021, we announced a new $10.0 billion stock repurchase authorization, which is in addition to the remaining repurchase authority of $0.9 billion under the aforementioned program. The stock repurchase program hasprograms have no expiration date. During fiscal 2015, the Company entered into two accelerated share repurchase agreements (ASR Agreements) with two financial institutions under which the Company paid an aggregate of $5.0 billion to the financial institutions and received from them a total of 78,276,000 shares of the Company’s common stock based on the average daily volume weighted-average stock price of the Company’s common stock during the respective terms of the ASR Agreements, less a discount. The shares were retired and recorded as a reduction to stockholders’ equity.
During fiscal 2017, 2016 and 2015, the CompanySince September 26, 2021, we repurchased and retired an additional 22,792,000, 73,782,000 and 94,159,0005.4 million shares of common stock respectively, for $1.3 billion, $3.9 billion and $6.2 billion, respectively, before commissions. To reflect share repurchases in the consolidated balance sheet, the Company (i) reduces$703 million.
Shares Outstanding. Shares of common stock for the par value of the shares, (ii) reduces paid-in capital for the amount in excess of par to zero during the quarter in which the shares are repurchased and (iii) records the residual amount to retained earnings. Atoutstanding at September 24, 2017, $1.6 billion remained authorized for repurchase under the Company’s stock repurchase program.26, 2021 were as follows (in millions): | | | | | |
| 2021 |
| Balance at beginning of period | 1,131 | |
| Issued | 18 | |
| Repurchased | (24) | |
| Balance at end of period | 1,125 | |
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends. On October 10, 2017, the Company13, 2021, we announced a cash dividend of $0.57$0.68 per share on the Company’sour common stock, payable on December 15, 201716, 2021 to stockholders of record as of the close of business on November 29, 2017. Dividends charged to retained earnings in fiscal 2017, 2016 and 2015 were as follows (in millions, except per share data):December 2, 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | Per Share | | Total | | Per Share | | Total | | Per Share | | Total |
| First quarter | $ | 0.53 |
| | $ | 801 |
| | $ | 0.48 |
| | $ | 730 |
| | $ | 0.42 |
| | $ | 710 |
|
| Second quarter | 0.53 |
| | 798 |
| | 0.48 |
| | 726 |
| | 0.42 |
| | 702 |
|
| Third quarter | 0.57 |
| | 858 |
| | 0.53 |
| | 794 |
| | 0.48 |
| | 771 |
|
| Fourth quarter | 0.57 |
| | 857 |
| | 0.53 |
| | 796 |
| | 0.48 |
| | 749 |
|
| | $ | 2.20 |
| | $ | 3,314 |
| | $ | 2.02 |
| | $ | 3,046 |
| | $ | 1.80 |
| | $ | 2,932 |
|
Note 5. Employee Benefit Plans
Employee Savings and Retirement Plan. The Company has a 401(k) plan that allows eligible employees to contribute up to 85% of their eligible compensation, subject to annual limits. The Company matches a portion of the employee contributions and may, at its discretion, make additional contributions based upon earnings. The Company’s contribution expense was $76 million, $74 million and $81 million in fiscal 2017, 2016 and 2015, respectively.
Equity Compensation Plans. On March 8, 2016, the Company’s10, 2020, our stockholders approved the amended and restated Qualcomm Incorporated 2016 Long-Term Incentive Plan (the 2016 Plan), which replacedincluding an increase in the Qualcomm Incorporated 2006 Long-Term Incentive Plan (the Prior Plan). Effective on and after that date, no new awards will be granted under the Prior Plan, although all outstanding awards under the Prior Plan will remain outstanding according to their terms and the terms of the Prior Plan.share reserve by 75 million shares. The 2016 Plan provides for the grant of incentive and nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance units, performance shares, deferred compensation awardsRSUs and other stock-based awards. The share reserve under the 2016 Plan is equal to 90,000,000 shares, plus approximately 20,120,000 shares that were available for future grant under the Prior Plan on March 8, 2016, for a total of approximately 110,120,000 shares available for grant under the 2016 Plan on that date. This share reserve is automatically increased as provided in the 2016 Plan by the number of shares subject to stock options granted under the Prior Plan and outstanding as of March 8, 2016, which after that date expire or for any reason are forfeited, canceled or terminated, and by two times the number of shares subject to any awards other than stock options granted under the Prior Plan and outstanding as of March 8, 2016, which after that date expire, are forfeited, canceled or terminated, fail to vest, are not earned due to any performance goal that is not met, are otherwise reacquired without having become vested, or are paid in cash, exchanged by a participant or withheld by the Company to satisfy any tax withholding or tax payment obligations related to such award. The Board of Directors of the Company may amend or terminate the 2016 Plan at any time. Certain amendments, including an increase in the share reserve, require stockholder approval. As ofAt September 24, 2017,26, 2021, approximately 95,485,00071 million shares were available for future grant under the 2016 Plan.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RSUs are share awards that entitle the holder to receive shares of the Company’sour common stock upon vesting. The RSUs generally include dividend-equivalent rights and vest over periods of three years from the date of grant. A summary of RSU transactions under our 2016 Plan that contain only service requirements to vest follows: | | | | | | | | | | | | | |
| Number of Shares
(in millions) | | Weighted-Average
Grant Date Fair Value | | |
| | | | | |
| RSUs outstanding at September 27, 2020 | 32 | | | $ | 74.99 | | | |
| RSUs granted | 16 | | | 124.22 | | | |
| RSUs assumed in acquisition | 1 | | | 133.65 | | | |
| RSUs canceled/forfeited | (2) | | | 97.81 | | | |
| RSUs vested | (18) | | | 73.51 | | | |
| RSUs outstanding at September 26, 2021 | 29 | | | 102.83 | | | |
The weighted-average estimated grant date fair values of employee RSUs under our 2016 Plan that contain only service requirements to vest granted during fiscal 2020 and 2019 were $82.57 and $63.10 per share, respectively. Upon vesting, we issue new shares of common stock. For the majority of RSUs, shares are issued on the vesting dates net of the amount of shares needed to satisfy statutory tax withholding requirements to be paid by us on behalf of the employees. As a result, the actual number of shares issued will be fewer than the number of RSUs outstanding. The annual pre-vest forfeiture rate for all equity compensation plans follows:
|
| | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value | | Aggregate Intrinsic Value |
| | (In thousands) | | | | (In billions) |
| RSUs outstanding at September 25, 2016 | 26,078 |
| | $ | 61.42 |
| | |
| RSUs granted | 12,525 |
| | 66.54 |
| | |
| RSUs canceled/forfeited | (1,793 | ) | | 63.17 |
| | |
| RSUs vested | (12,106 | ) | | 64.34 |
| | |
| RSUs outstanding at September 24, 2017 | 24,704 |
| | $ | 62.46 |
| | $ | 1.3 |
|
At September 24, 2017,26, 2021, total unrecognized compensation expense related to such non-vested RSUs granted prior to that date was $911 million,$2.0 billion, which is expected to be recognized over a weighted-average period of 1.61.7 years. The total vest-date fair
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of such RSUs that vested during fiscal 2017, 20162021, 2020 and 20152019 was $820$2.6 billion, $1.3 billion and $977 million, $685 million and $1.0 billion, respectively. The total shares withheld to satisfy statutory tax withholding requirements related to all share-based awards were approximately 4,247,000, 4,300,000 and 5,043,0005 million in fiscal 2017, 20162021 and 2015, respectively,4 million in fiscal 2020 and 2019, and were based on the value of the awards on their vesting dates as determined by the Company’sour closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $268 million, $224 million and $351 million in fiscal 2017, 2016 and 2015, respectively, and were included as a reduction to net cash provided by operating activities in the consolidated statements of cash flows.
The Board of Directors may grant stock options to employees, directors and consultants to the Company to purchase shares of the Company’s common stock at an exercise price not less than the fair market value of the stock at the date of grant. Stock options vest over periods not exceeding five years and are exercisable for up to ten years from the grant date. A summary of stock option transactions for all equity compensation plans follows:
|
| | | | | | | | | | | | |
| | Number of Shares | | Weighted- Average Exercise Price | | Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (In thousands) | | | | (Years) | | (In millions) |
| Stock options outstanding at September 25, 2016 | 17,979 |
| | $ | 40.96 |
| | | | |
| Stock options canceled/forfeited/expired | (52 | ) | | 27.33 |
| | | | |
| Stock options exercised | (5,542 | ) | | 41.02 |
| | | | |
| Stock options outstanding at September 24, 2017 | 12,385 |
| | $ | 40.99 |
| | 1.3 | | $ | 139 |
|
| Exercisable at September 24, 2017 | 12,382 |
| | $ | 41.00 |
| | 1.3 | | $ | 139 |
|
The total intrinsic value of stock options exercised during fiscal 2017, 2016 and 2015 was $118 million, $147 million and $371 million, respectively, and the amount of cash received from the exercise of stock options was $236 million, $436 million and $519 million, respectively. Upon option exercise, the Company issues new shares of stock.
The total tax benefits realized, including the excess tax benefits, related to share-based awards during fiscal 2017, 20162021, 2020 and 2015 was $3012019 were $567 million, $253$273 million and $437$237 million, respectively.
Employee Stock Purchase Plan. The Company has We have an employee stock purchase plan for eligible employees to purchase shares of common stock at 85% of the lower of the fair market value on the first or the last day of each offering period, which is generally six months. Employees may authorize the Companyus to withhold up to 15% of their compensation during any offering period, subject to certain limitations. The employee stock purchase plan includes a non-423(b) plan. The shares authorizedreserved for future issuance under the employee stock purchase plan were approximately 71,709,00025 million at September 24, 2017. The shares reserved for future issuance were approximately 14,648,000 at September 24, 2017.26, 2021. During fiscal 2017, 20162021, 2020 and 2015, approximately 5,746,000, 5,966,0002019, 3 million, 5 million and 4,977,0006 million shares, respectively, were issued under the plan at an average price of $45.29, $38.89$107.48, $66.53 and $53.92$42.13 per share, respectively. At September 24, 2017,26, 2021, total unrecognized compensation expense related to non-vested purchase rights granted prior to that date was $26$35 million. The CompanyWe recorded cash received from the exercise of purchase rights of $260$343 million, $232$306 million and $268$257 million during fiscal 2017, 2016 and 2015, respectively.
Note 6. Debt
Revolving Credit Facility. In November 2016, the Company amended and restated its existing Revolving Credit Facility that provides for unsecured revolving facility loans, swing line loans and letters of credit (Amended and Restated Revolving Credit Facility) to increase the aggregate amount available to $5.0 billion, of which $530 million and $4.47 billion will expire in February2021, 2020 and November 2021,2019, respectively. The Company had not previously borrowed any funds under the existing Revolving Credit Facility. Proceeds from the Amended and Restated Revolving Credit Facility are expected to be used for general corporate purposes. Loans under the Amended and Restated Revolving Credit Facility will bear interest, at the option of the Company, at either the reserve-adjusted Eurocurrency Rate (determined in accordance with the Amended and Restated Revolving Credit Facility) or the Base Rate (determined in accordance with the Amended and Restated Revolving Credit Facility), in each case plus an applicable margin based on the Company’s long-term unsecured senior, non-credit enhanced debt ratings. The initial margins over the reserve-adjusted Eurocurrency Rate and the Base Rate will be 0.70% and 0.00% per annum, respectively. The Amended and Restated Revolving Credit Facility has a facility fee, which initially accrues at a rate of 0.05% per annum. At September 24, 2017, the Company had not borrowed any funds under the Amended and Restated Revolving Credit Facility.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Debt
Commercial Paper Program. The Company has an unsecured commercial paper program, which provides for the issuance of up to $5.0 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. Maturities of commercial paper can range from 1 day to up to 397 days. At September 24, 2017 and September 25, 2016, the Company had $999 million and $1.7 billion, respectively, of outstanding commercial paper recorded as short-term debt with a weighted-average interest rate of 1.19% and 0.52%, respectively, which included fees paid to the commercial paper dealers, and weighted-average remaining days to maturity of 45 days and 36 days, respectively. The carrying value of the outstanding commercial paper approximated its estimated fair value at September 24, 2017 and September 25, 2016.
Bridge Loan Facility. In October 2016, the Company entered into commitment letters pursuant to which the Company received commitments for senior unsecured bridge facility loans in an aggregate principal amount up to $13.6 billion (Bridge Loan Facility). Proceeds from the Bridge Loan Facility, if drawn, were intended to be used to finance, in part, the proposed acquisition of NXP Semiconductors N.V. (NXP) by Qualcomm River Holdings B.V., a wholly owned subsidiary of the Company (Qualcomm River Holdings) (Note 9). Subsequently, the commitments available under the Bridge Loan Facility were reduced to $7.1 billion upon the Company entering into a $4.0 billion Term Loan Facility, described below, and the sale of certain assets by NXP for estimated net cash proceeds of $2.5 billion in February 2017. In May 2017, in connection with the Company’s issuance of an aggregate principal amount of $11.0 billion of unsecured floating-rate and fixed-rate notes, described below, the commitments available under the Bridge Loan Facility were reduced such that there were no remaining commitments available, and the Bridge Loan Facility was terminated. The Company had not previously borrowed any funds under the Bridge Loan Facility. The Bridge Loan Facility had a ticking fee, which accrued at a rate of 0.05% per annum commencing on December 26, 2016.
Term Loan Facility. In November 2016, the Company entered into a Credit Agreement that provides for senior unsecured delayed-draw term facility loans in an aggregate amount of $4.0 billion (Term Loan Facility). Proceeds from the Term Loan Facility, if drawn, will be used to finance the proposed acquisition of NXP. Commitments under the Term Loan Facility will expire on the first to occur of (i) the consummation of the proposed acquisition of NXP without using loans under the Term Loan Facility, (ii) the termination of Qualcomm River Holdings’s obligation to consummate the proposed acquisition of NXP and (iii) January 25, 2018 (which reflects the automatic extension of the original expiration date of October 27, 2017 in accordance with the NXP purchase agreement, and as such date may be further extended in accordance with the NXP purchase agreement). Loans under the Term Loan Facility will mature on the third anniversary of the date on which they are funded and will bear interest at either the reserve-adjusted Eurocurrency Rate (determined in accordance with the Term Loan Facility) or the Base Rate (determined in accordance with the Term Loan Facility), in each case plus an applicable margin based on the Company’s long-term unsecured senior, non-credit enhanced debt ratings. The initial margins over the reserve-adjusted Eurocurrency Rate and the Base Rate will be 0.875% and 0.00% per annum, respectively. The Term Loan Facility has a ticking fee, which initially accrues at a rate of 0.05% per annum commencing on December 26, 2016. At September 24, 2017, the Company had not borrowed any funds under the Term Loan Facility.
Long-term Debt. In May 2015, the Company issued an aggregate principal amount of $10.0 billion of unsecured floating- and fixed-rate notes (May 2015 Notes) with varying maturities. The proceeds from the May 2015 Notes of $9.9 billion, net of underwriting discounts and offering expenses, were used to fund the ASR Agreements (Note 4) and also for other general corporate purposes. In May 2017, the Company issued an aggregate principal amount of $11.0 billion of unsecured floating- and fixed-rate notes (May 2017 Notes) with varying maturities. The proceeds from the May 2017 Notes of $10.95 billion, net of underwriting discounts and offering expenses, are intended to be used to finance, in part, the Company’s proposed acquisition of NXP and other related transactions and for general corporate purposes. The following
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
table provides a summary of the Company’sour long-term debt (in millions except percentages): |
| | | | | | | | | | | | |
| | | September 24, 2017 | | September 25, 2016 |
| | |
Amount | | Effective Rate | | Amount | | Effective Rate |
| May 2015 Notes | | | | | | | |
| | Floating-rate three-month LIBOR plus 0.27% notes due May 18, 2018 | $ | 250 |
| | 1.65% | | $ | 250 |
| | 1.14% |
| | Floating-rate three-month LIBOR plus 0.55% notes due May 20, 2020 | 250 |
| | 1.92% | | 250 |
| | 1.42% |
| | Fixed-rate 1.40% notes due May 18, 2018 | 1,250 |
| | 1.93% | | 1,250 |
| | 0.93% |
| | Fixed-rate 2.25% notes due May 20, 2020 | 1,750 |
| | 2.20% | | 1,750 |
| | 1.69% |
| | Fixed-rate 3.00% notes due May 20, 2022 | 2,000 |
| | 2.65% | | 2,000 |
| | 2.04% |
| | Fixed-rate 3.45% notes due May 20, 2025 | 2,000 |
| | 3.46% | | 2,000 |
| | 3.46% |
| | Fixed-rate 4.65% notes due May 20, 2035 | 1,000 |
| | 4.74% | | 1,000 |
| | 4.74% |
| | Fixed-rate 4.80% notes due May 20, 2045 | 1,500 |
| | 4.71% | | 1,500 |
| | 4.71% |
| May 2017 Notes | | | | | | | |
| | Floating-rate three-month LIBOR plus 0.36% notes due May 20, 2019 | 750 |
| | 1.80% | | — |
| | |
| | Floating-rate three-month LIBOR plus 0.45% notes due May 20, 2020 | 500 |
| | 1.86% | | — |
| | |
| | Floating-rate three-month LIBOR plus 0.73% notes due January 30, 2023 | 500 |
| | 2.11% | | — |
| | |
| | Fixed-rate 1.85% notes due May 20, 2019 | 1,250 |
| | 2.00% | | — |
| | |
| | Fixed-rate 2.10% notes due May 20, 2020 | 1,500 |
| | 2.19% | | — |
| | |
| | Fixed-rate 2.60% notes due January 30, 2023 | 1,500 |
| | 2.70% | | — |
| | |
| | Fixed-rate 2.90% notes due May 20, 2024 | 1,500 |
| | 3.01% | | — |
| | |
| | Fixed-rate 3.25% notes due May 20, 2027 | 2,000 |
| | 3.46% | | — |
| | |
| | Fixed-rate 4.30% notes due May 20, 2047 | 1,500 |
| | 4.47% | | — |
| | |
| | Total principal | 21,000 |
| | | | 10,000 |
| | |
| | Unamortized discount, including debt issuance costs | (106 | ) | | | | (57 | ) | | |
| | Hedge accounting fair value adjustments | — |
| | | | 65 |
| | |
| | Total long-term debt | $ | 20,894 |
| | | | $ | 10,008 |
| | |
| Reported as: | | | | | | | |
| | Short-term debt | $ | 1,496 |
| | | | $ | — |
| | |
| | Long-term debt | 19,398 |
| | | | 10,008 |
| | |
| | Total | $ | 20,894 |
| | | | $ | 10,008 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 26, 2021 | | September 27, 2020 |
| Maturities | | Amount
(in millions) | | Effective Rate | | Maturities | | Amount
(in millions) | | Effective Rate |
| May 2015 Notes | 2022 - 2045 | | $ | 5,405 | | | 2.63% - 4.73% | | 2022 - 2045 | | $ | 5,405 | | | 2.62% - 4.73% |
| May 2017 Notes | 2023 - 2047 | | 5,860 | | | 0.92% - 4.46% | | 2023 - 2047 | | 5,860 | | | 1.06% - 4.46% |
| May 2020 Notes | 2030 - 2050 | | 2,000 | | | 2.31% - 3.30% | | 2030 - 2050 | | 2,000 | | | 2.31% - 3.30% |
| August 2020 Notes | 2028 - 2032 | | 2,207 | | | 1.98% - 2.66% | | 2028 - 2032 | | 2,207 | | | 1.96% - 2.65% |
| Total principal | | | 15,472 | | | | | | | 15,472 | | | |
| Unamortized discount, including debt issuance costs | | (234) | | | | | | | (260) | | | |
| Hedge accounting adjustments | | 7 | | | | | | | 14 | | | |
| Total long-term debt | | | $ | 15,245 | | | | | | | $ | 15,226 | | | |
| Reported as: | | | | | | | | | | | |
| Short-term debt | | | $ | 1,544 | | | | | | | $ | — | | | |
| Long-term debt | | | 13,701 | | | | | | | 15,226 | | | |
| Total | | | $ | 15,245 | | | | | | | $ | 15,226 | | | |
At September 24, 2017,26, 2021, future principal payments were $1.5 billion in fiscal 2018, $2.02022, $1.5 billion in fiscal 2019, $4.02023, $914 million in fiscal 2024, $1.4 billion in fiscal 2020, $2.0 billion in fiscal 20222025 and $11.5$10.2 billion after fiscal 2022; no principal payments are due in fiscal 2021.2026. At September 26, 2021, the aggregate fair value of the notes, based on Level 2 inputs, was approximately $17.0 billion.
The Company’s 2019At September 26, 2021, with the exception of $500 million of outstanding unsecured floating-rate notes 2020 floating-rate notes, 2019due January 30, 2023, all of our outstanding long-term debt is comprised of unsecured fixed-rate notes and 2020 fixed-rate notes issued in May 2017 for an aggregate principal amount of $4.0 billion are subject to a special mandatory redemption at a price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the date of such mandatory redemption. The redemption is required on the first to occur of (i) the termination of the NXP purchase agreement or (ii) January 25, 2018 (which reflects the automatic extension of the original expiration date of October 27, 2017 in accordance with the NXP purchase agreement, and as such date may be further extended in accordance with the NXP purchase agreement to a date on or prior to June 1, 2018).
The Companynotes. We may redeem the outstanding fixed-rate notes at any time in whole, or from time to time in part, at specified make-whole premiums as defined in the applicable form of note. The CompanyWe may not redeem the outstanding floating-rate notes prior to maturity. The obligations under the notes rank equally in right of payment with all of the Company’sour other senior unsecured indebtedness and will effectively rank junior to all liabilities of the Company’sour subsidiaries. At September 24, 2017 and September 25, 2016, the aggregate fair value of the notes, based on Level 2 inputs, was approximately $21.5 billion and $10.6 billion, respectively.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with issuance of the May 2015 Notes, the Company entered into interest rate swaps with an aggregate notional amount of $3.0 billion, which effectively converted all of the fixed-rate notes due in 2018 and approximately 43% and 50% of the fixed-rate notes due in 2020 and 2022, respectively, into floating-rate notes. The net gains and losses on the interest rate swaps, as well as the offsetting gains or losses on the related fixed-rate notes attributable to the hedged risks, are recognized in earnings in interest expense in the current period. The Company did not enter into similar interest rate swaps in connection with issuance of the May 2017 Notes.
The effective interest rates for the notes include the interest on the notes, amortization of the discount, which includes debt issuance costs, and if applicable, adjustments related to hedging. Interest is payable in arrears quarterly for the floating-rate notes and semi-annually for the fixed-rate notes. Cash interest paid related to the Company’sour commercial paper program and long-term debt, net of cash received from the related interest rate swaps, was $313$477 million, $282$507 million and negligible$563 million during fiscal 2017, 20162021, 2020 and 2015,2019, respectively.
Debt Covenants.Commercial Paper Program. We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion. Net proceeds from this program are used for general corporate purposes. Maturities of commercial paper can range from 1 to up to 397 days. At September 26, 2021 and September 27, 2020, we had $500 million of outstanding commercial paper recorded as short-term debt with a weighted-average interest rate of 0.13% and 0.21%, respectively, which included fees paid to the commercial paper dealers. At September 26, 2021 and September 27, 2020, the weighted-average remaining days to maturity were 39 days and 37 days, respectively. The carrying value of the outstanding commercial paper approximated its estimated fair value at September 26, 2021.
Revolving Credit Facility. On December 8, 2020, we entered into a Revolving Credit Facility replacing our prior Amended and Restated Revolving Credit Facility. There were no outstanding borrowings under the Amended and Restated Revolving Credit Facility at the time of termination and the Term Loan Facility require, and the Bridge Loan Facility and priorSeptember 27, 2020. The Revolving Credit Facility required,provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5 billion, which expires on December 8, 2025. At September 26, 2021, no amounts were outstanding under the Revolving Credit Facility.
Debt Covenants. The Revolving Credit Facility requires that the Companywe comply with certain covenants, including one financial covenant tothat we maintain aan interest coverage ratio of consolidated earnings before interest, taxes, depreciation and amortization to consolidated interest expense, as defined in each of the respective agreements, of not less than three to one at the end of each fiscal quarter. The Company isagreement. We are not subject to any financial covenants under the notes nor any covenants that would prohibit the Companyus from incurring additional indebtedness ranking equal to the notes, paying dividends, issuing securities or repurchasing securities issued by itus or itsour subsidiaries. At September 24, 2017 and September 25, 2016, the Company was26, 2021, we were in compliance with the applicable covenants under each facility outstanding at such time.the Revolving Credit Facility.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Commitments and Contingencies
Legal and Regulatory Proceedings.
ParkerVision, Inc. v. QUALCOMM Incorporated: On May 1, 2014, ParkerVision filed a complaint against the Company in the United States District Court for the Middle District of Florida alleging that certain of the Company’s products infringe certain ParkerVision patents. On August 21, 2014, ParkerVision amended the complaint, now captioned ParkerVision, Inc. v. QUALCOMM Incorporated, Qualcomm Atheros, Inc., HTC Corporation, HTC America, Inc., Samsung Electronics Co., LTD., Samsung Electronics America, Inc. and Samsung Telecommunications America, LLC, broadening the allegations. ParkerVision alleged that the Company infringes 11 ParkerVision patents and seeks damages and injunctive and other relief. On December 3, 2015, ParkerVision dismissed six patents from the lawsuit and granted the Company and all other defendants a covenant not to assert those patents against any existing products. On February 2, 2016, after agreement among the parties, the District Court stayed the remainder of the case pending the resolution of the complaint filed by ParkerVision against the Company and other parties with the United States International Trade Commission (ITC) described below. Subsequently, ParkerVision announced that it had reached a settlement with Samsung which dismissed the Samsung entities from the District Court case. The Company had previously filed Inter-Partes Review petitions with the United States Patent and Trademark Office (USPTO) to invalidate all asserted claims of several of the remaining patents. On March 7, 2017, the USPTO decided in the Company’s favor with respect to all asserted claims of one such patent. After the ITC action described below was closed, and upon agreement among the parties, on May 24, 2017, the District Court further stayed the District Court case pending ParkerVision’s appeals of the USPTO’s invalidation decisions.
On December 14, 2015, ParkerVision filed another complaint against the Company in the United States District Court for the Middle District of Florida alleging patent infringement. Apple Inc., Samsung Electronics Co., LTD., Samsung Electronics America, Inc., Samsung Telecommunications America, LLC, Samsung Semiconductor, Inc., LG Electronics, Inc., LG Electronics U.S.A., Inc. and LG Electronics MobileComm U.S.A., Inc. are also named defendants. The complaint asserts that certain of the Company’s products infringe four additional ParkerVision patents and seeks damages and other relief. On December 15, 2015, ParkerVision filed a complaint with the ITC pursuant to Section 337 of the Tariff Act of 1930 against the same parties asserting the same four patents. The complaint seeks an exclusion order barring the importation of products that use either of two Company transceivers or one Samsung transceiver and a cease and desist order preventing the Company and the other defendants from carrying out commercial activities within the United States related to such products. On January 13, 2016, the Company served its answer to the District Court complaint. On January 15, 2016, the ITC instituted an investigation. On February 12, 2016, the District Court case was stayed pending completion of the ITC investigation. Subsequently, ParkerVision announced that it had reached a settlement with Samsung which dismissed the Samsung entities from the ITC investigation and related District Court case. On February 2, 2017, the ITC granted ParkerVision’s motion to drop all but one patent and one accused product from the ITC investigation. On March 12, 2017, one day before the ITC hearing was scheduled to begin, ParkerVision moved to withdraw its ITC complaint in its entirety. The Company and the
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other defendants did not oppose the withdrawal of the complaint. On April 28, 2017, the ITC formally closed the investigation. On May 4, 2017, ParkerVision filed a motion to reopen the related District Court Case, and on May 26, 2017, the District Court granted the motion. On July 19, 2017, the District Court set an approximate date of mid-January 2018 for a claim construction hearing. A trial date has not been set.
Apple Inc. (Apple) v. QUALCOMM Incorporated: On January 20, 2017, Apple filed a complaint against the Company in the United States District Court for the Southern District of California seeking declarations with respect to several of the Company’s patents and alleging that the Company breached certain agreements and violated federal antitrust and California state unfair competition laws. In its initial complaint, Apple sought declaratory judgments of non-infringement by Apple of nine of the Company’s patents, or in the alternative, a declaration of royalties Apple must pay for the patents. Apple further sought a declaration that the Company’s sale of baseband chipsets exhausts the Company’s patent rights for patents embodied in those chipsets. Separately, Apple sought to enjoin the Company from seeking excessive royalties from Apple and to disgorge royalties paid by Apple’s contract manufacturers that the court finds were not fair, reasonable and non-discriminatory (FRAND). Apple also claimed that the Company’s refusal to make certain payments to Apple under a Business Cooperation and Patent Agreement (Cooperation Agreement) constitutes a breach of contract in violation of California law and sought damages in the amount of the unpaid payments, alleged to be approximately $1 billion. In addition, Apple claimed that the Company has refused to deal with competitors in contravention of the Company’s agreements with applicable standard setting organizations, has used its market position to impose contractual obligations on Apple that prevented Apple from challenging the Company’s licensing practices, has tied the purchase of the Company’s CDMA-enabled and “premium” LTE-enabled chipsets to licensing certain of the Company’s patents and has required Apple to purchase baseband chipsets exclusively from the Company as a condition of the Company’s payment to Apple of certain rebates, in violation of Section 2 of the Sherman Act and the California Unfair Competition Law. Apple sought injunctive relief with respect to these claims and a judgment awarding its expenses, costs and attorneys’ fees.
On April 10, 2017, the Company filed its Answer and Counterclaims (amended on May 24, 2017) in response to Apple’s complaint denying Apple’s claims and asserting claims against Apple. The counterclaims against Apple include tortious interference with the Company’s long-standing Subscriber Unit License Agreements (SULAs) with third-party contract manufacturers of Apple devices, causing those contract manufacturers to withhold certain royalty payments owed to the Company and violate their audit obligations; breach of contract and the implied covenant of good faith and fair dealing relating to the parties’ Cooperation Agreement; unjust enrichment and declaratory relief relating to the Cooperation Agreement; breach of contract based on Apple’s failure to pay amounts owed to the Company under a Statement of Work relating to a high-speed feature of the Company’s chipsets; breach of the parties’ software agreement; and violation of California Unfair Competition Law based on Apple’s threatening the Company to prevent it from promoting the superior performance of the Company’s own chipsets. The Company also seeks declaratory judgments that the Company has satisfied its FRAND commitments with respect to Apple, and that the Company’s SULAs with the contract manufacturers do not violate either competition law or the Company’s FRAND commitments. On June 19, 2017, Apple filed a Partial Motion to Dismiss the Company’s counterclaim for violation of the California Unfair Competition Law. A hearing on that motion was held on October 13, 2017. The court has not yet ruled on the motion. On June 20, 2017, Apple filed an Answer and Affirmative Defenses to the rest of the Company’s counterclaims, and also filed an Amended Complaint reiterating all of the original claims and adding claims for declaratory judgments of invalidity of the nine patents that are subject to declaratory judgment claims in the original complaint, adding new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for nine more patents. Apple also added claims for declaratory judgments that certain of the Company’s agreements are unenforceable. On July 21, 2017, the Company filed an Answer to Apple’s Amended Complaint as well as a motion to dismiss the new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for the nine additional patents. A hearing on that motion was also held on October 13, 2017. The court has not yet ruled on the motion. On July 18, 2017, Apple filed a motion to consolidate this action with QUALCOMM Incorporated v. Compal Electronics, Inc., et al., discussed below, and on September 13, 2017, the court granted that motion.
Consolidated Securities Class Action Lawsuit:On January 23, 2017 an Apple subsidiary in China filed twoand January 26, 2017, securities class action complaints against the Company in the Beijing Intellectual Property Court. On March 31, 2017, the court granted an application by Apple Inc. to join the actions as a plaintiff, and Apple amended the complaints. One of the complaints alleges a violation of China’s Anti-Monopoly Law (AML complaint); the other complaint requests a determination of the terms of a patent license between the Company and Apple (FRAND complaint). The AML complaint alleges that (i) the Company has abused its dominant position in communication standard-essential patents licensing markets and certain global baseband chipset markets by charging and offering royalty terms that were excessively high; (ii) the Company refused to license certain implementers of standardized technologies, including Apple and baseband chipset manufacturers; (iii) the Company forced Apple to use only the Company’s products and services; and (iv) the Company bundled licenses to standard-essential patents with licenses to non-standard-essential patents and
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
imposed other unreasonable or discriminatory trading terms on Apple in violation of the AML. The AML complaint seeks a decree that the Company cease the alleged abuse of dominance, as well as damages in the amount of 1 billion Chinese Renminbi (approximately $152 million based on the exchange rate on September 24, 2017). The FRAND complaint makes allegations similar to the AML complaint and further alleges that the Company refused to offer licensing terms for the Company’s cellular standard-essential patents consistent with the Company’s FRAND licensing commitments and failed to provide to Apple certain information about the Company’s patents. The FRAND complaint seeks (i) a declaration that the license terms offered to Apple by the Company for its mobile communication standard essential patents are not compliant with FRAND; (ii) an order that the Company cease its actions that allegedly violate the Company’s FRAND obligations, including pricing on unfair, unreasonable and excessive terms, refusing to deal, imposing unreasonable trade conditions and failing to provide information on the Company’s patents; and (iii) a determination of FRAND-compliant license terms for the Company’s Chinese standard-essential patents. Apple also seeks its expenses in each of the cases. On August 3, 2017, the Company received three additional complaints filed by an Apple subsidiary and Apple Inc. against the Company in the Beijing Intellectual Property Court. The complaints seek declaratory judgmentspurported stockholders of non-infringement of three Qualcomm patents.
On February 16, 2017, Apple and one of its Japanese subsidiaries filed four complaints against the Company in the Tokyo District Court. In three of the complaints, Apple seeks declaratory judgment of non-infringement by Apple of three of the Company’s patents. Apple further seeks a declaration that the Company’s patent rights with respect to those three patents are exhausted by the Company’s SULAs with the contract manufacturers of Apple’s devices as well as the Company’s sale of baseband chipsets. Apple also seeks an award of fees. On May 15, 2017, the Company learned of the fourth complaint. In that complaint, Apple and one of its Japanese subsidiaries seek damages of 100 million Japanese Yen (approximately $1 million based on the exchange rate on September 24, 2017) from the Company based on allegations that the Company violated the Japanese Antimonopoly Act and the Japanese Civil Code. In particular, the fourth complaint alleges that (i) the Company holds a monopoly position in the market for baseband processor chipsets that implement certain cellular standards; (ii) the Company collects double royalties through its license agreements and the sale of chipsets; (iii) the Company refused to grant Apple a license on FRAND terms and forced Apple to execute a rebate agreement under unreasonable conditions; (iv) the Company refused to grant Apple a direct license; and (v) the Company demanded a license fee based on the market value of the total device. The Company has filed answers to all four of the complaints.
On March 2, 2017, the Company learned that Apple and certain of its European subsidiaries issued a Claim Form against the Company in the UK High Court of Justice, Chancery Division, Patents Court on January 23, 2017. Apple subsequently filed an Amended Claim Form and Particulars of Claim. Both the Amended Claim Form and the Particulars of Claim allege several European competition law claims, including refusal to license competing chipmakers, failure to offer Apple a direct license to the Company’s standard-essential patents on FRAND terms, demanding excessive royalties for the Company’s standard-essential patents, and demanding excessive license fees for the use of the Company’s standard-essential patents in connection with chipsets purchased from the Company. Apple also seeks declarations that the Company is obliged to offer a direct patent license to Apple in respect of standard-essential patents actually practiced on fair, reasonable and non-discriminatory terms and that using the Company’s chipsets does not infringe any of the Company’s patents because the Company exhausted its patent rights. Finally, Apple seeks declarations that five of the Company’s European (UK) patents are invalid and not essential, and an order that each of those patents be revoked.
On April 20, 2017, the Company was informed that on April 18, 2017, Apple and one of its Taiwanese subsidiaries filed a complaint against the Company in the Taiwan Intellectual Property Court alleging that the Company has abused a dominant market position in licensing wireless standard-essential patents and selling baseband chipsets, including improper pricing, refusal to deal, exclusive dealing, tying, imposing unreasonable trade terms and discriminatory treatment. The complaint seeks rulings that the Company not use the sales price of the terminal device as the royalty base for standard-essential patents; not leverage its cellular standard-essential patents to obtain licenses of its non-standard-essential patents or demand cross-licenses without proper compensation; not refuse, reduce, delay or take any other action to limit the supply of its baseband chipsets to non-licensees; that the Company must license its standard-essential patents on FRAND terms; and that the Company shall not, based on standard-essential patents, seek injunctions. The complaint also seeks damages of 10 million Taiwan Dollars (less than $1 million based on the exchange rate on September 24, 2017), among other relief.
On July 14, 2017, the Company filed a motion for anti-suit injunction in the United States District Court for the Southern District of California, asking the court to enjoin Apple from pursuing its foreign actions in the UK, China, Japan and Taiwan and from initiating other duplicative foreign actions, while the action in the Southern District of California is pending. On September 7, 2017, the court denied this motion.
The Company believes Apple’s claims in the above matters are without merit.
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QUALCOMM Incorporated v. Compal Electronics, Inc. et al.: On May 17, 2017, the Company filed a complaintus in the United States District Court for the Southern District of California against Compal Electronics, Inc. (Compal), FIH Mobile, Ltd., Hon Hai Precision Industry Co., Ltd. (together with FIH Mobile, Ltd., Foxconn), Pegatron Corporation (Pegatron) and Wistron Corporation (Wistron) asserting claims for injunctive relief, specific performance, declaratory relief and damages stemming from the defendants’ breach of contracts by ceasing the payment of royalties for iPhones and other devices which they manufacture for Apple. On May 24, 2017, the Company filed a Motion for Preliminary Injunction seeking to enjoin each of the defendants from violating their license agreements during the pendency of the litigation. On July 17, 2017, Compal, Foxconn, Pegatron and Wistron each filed third-party complaints for contractual indemnity against Apple seeking to join Apple as a party to the action. On July 18, 2017, Apple filed an answer to these third party complaints acknowledging its indemnity agreements and consenting to be joined. On that same date, the defendants and Apple filed papers opposing the motion for preliminary injunction. On August 18, 2017, a hearing on the preliminary injunction motion was held, and on September 7, 2017, the court denied the motion. Also on July 18, 2017, the defendants filed an Answer and Counterclaims to the complaint, asserting defenses and counterclaims similar to allegations previously made by Apple in the Apple Inc. v. QUALCOMM Incorporated case in the Southern District of California discussed above. In addition, the defendants asserted certain new claims, including claims under Section 1 of the Sherman Act and California’s Cartwright Act. The defendants seek damages, declaratory relief, injunctive relief, restitution of certain royalties and other relief. On July 18, 2017, Apple filed a motion to consolidate this action with the Apple Inc. v. QUALCOMM Incorporated case in the Southern District of California. On September 13, 2017, the court granted Apple’s consolidation motion.
The Company believes Compal’s, Foxconn’s, Pegatron’s and Wistron’s claims in the above matter are without merit.
QUALCOMM Incorporated v. Apple Inc.: On July 6, 2017, the Company filed a complaint against Apple in the United States District Court for the Southern District of California asserting claims for damages and injunctive relief for infringement of six of the Company’s patents directed to a variety of features found in iPhone models. On July 7, 2017, the Company filed a complaint against Apple in the United States International Trade Commission (ITC) requesting that the ITC institute an investigation pursuant to Section 337 of the Tariff Act of 1930 based on Apple’s infringement of the same six patents. The Company is seeking a limited exclusion order and cease and desist order against importation of iPhone models that do not contain a Qualcomm brand baseband processor. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple filed an Answer and Counterclaims in the District Court case on September 26, 2017, but no schedule has been set in that case. On August 8, 2017, the ITC issued a notice of institution of an investigation. On August 25, 2017, the Company withdrew allegations as to one patent in both the ITC investigation and the District Court case. A claim construction hearing is scheduled in the ITC investigation for January 22-23, 2018. The ITC investigation is scheduled for evidentiary hearing by the Administrative Law Judge (ALJ) from June 18-26, 2018. The ALJ’s Initial Determination on the merits is due on September 14, 2018, and the target date for final determination by the ITC is set for January 14, 2019.
On July 17, 2017, the Company filed complaints against Appleus and certain of its subsidiaries in the Federal Republic of Germany, asserting infringement of one patent in the Mannheim District Court and infringement of another patent in the Munich District Court. On October 2, 2017, the Company filed claim extensions in these actions against Apple and certain of its subsidiaries, asserting infringement of two additional patents in the Mannheim District Court and infringement of five additional patents in the Munich District Court. The complaints seek remedies including, among other relief, declaratory relief confirming liability on the merits for damages and injunctive relief. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms.
On September 29, 2017, the Company filed three complaints against Apple and certain of its subsidiaries in the Beijing (China) Intellectual Property Court, asserting infringement of three patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms.
On November 1, 2017, the Company filed a complaint against Apple in San Diego Superior Court for breach of the Master Software Agreement between the companies. The complaint recounts instances when Apple failed to protect the Company’s software as required by the agreement and failed to provide sufficient information to which the Company is entitled under the agreement in order to understand whether other breaches have occurred. The complaint seeks specific performance of Apple’s obligations to cooperate with an audit of its handling of the Company’s software, damages and injunctive relief. No case schedule has yet been set.
3226701 Canada, Inc. v. QUALCOMM Incorporated et al: On November 30, 2015, plaintiffs filed a securities class action complaint against the Company and certain of itsour current and former officers in the United States District Court for the
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Southern District of California. On April 29, 2016, plaintiffs filed an amended complaint. On January 27, 2017, the court dismissed the amended complaint in its entirety, granting leave to amend. On March 17, 2017, plaintiffs filed a second amended complaint, allegingand directors. The complaints alleged, among other things, that the Company and certain of its current and former officerswe violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making false and misleading statements regarding the Company’s business outlook and product development between November 19, 2014 and July 22, 2015. The second amended complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On May 8, 2017, the Company filed a motion to dismiss the second amended complaint, and on October 20, 2017, the court entered an order granting in part and denying in part the Company’s motion to dismiss. The court dismissed all claims as to all defendants other than the Company and Steve Mollenkopf with prejudice. The court also limited the case to two statements which it found, at least for pleading purposes, had stated a claim that could be explored in the discovery process. The Company believes the plaintiffs’ claims are without merit.
Consolidated Securities Class Action Lawsuit: On January 23, 2017 and January 26, 2017, respectively, two securities class action complaints were filed by purported stockholders of the Company in the United States District Court for the Southern District of California against the Company and certain of its current and former officers and directors. The complaints alleged, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact in connection with certain allegations that the Company iswe are or waswere engaged in anticompetitive conduct. The complaints sought unspecified damages, interest, fees and costs. On May 4, 2017, the court consolidated the two actions and appointed lead plaintiffs.actions. On July 3, 2017, the lead plaintiffs filed a consolidated amended complaint asserting the same basic theories of liability and requesting the same basic relief. On September 1, 2017, the defendantswe filed a motion to dismiss the consolidated amended complaint.complaint, and on March 18, 2019, the court denied our motion. On January 15, 2020, we filed a motion for judgment on the pleadings. The hearingcourt has not yet ruled on that motion is scheduled for December 4, 2017. The Company believesour motion. We believe the plaintiffs’ claims are without merit.
In re Qualcomm/Broadcom Merger Securities Litigation: On June 8, 2018 and June 26, 2018, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and two of our then current officers. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by failing to disclose that we had submitted a notice to the Committee on Foreign Investment in the United States (CFIUS) in January 2018. The complaints sought unspecified damages, interest, fees and costs. On March 18, 2019, the plaintiffs filed a consolidated complaint asserting the same basic theories of liability and requesting the same basic relief. On May 10, 2019, we filed a motion to dismiss the consolidated complaint, and on March 10, 2020, the court granted our motion. On May 11, 2020, the plaintiffs filed a second amended complaint, and on October 8, 2020, the court granted our motion to dismiss the case with prejudice. On November 7, 2020, the plaintiffs filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit (Ninth Circuit). A hearing on the appeal is scheduled for November 16, 2021. We believe the plaintiffs’ claims are without merit.
Consumer Class Action Lawsuit: Lawsuits: Since January 18, 2017, a number of consumer class action complaints have been filed against the Companyus in the United States District Courts for the Southern and Northern Districts of California, each on behalf of a putative class of purchasers of cellular phones and other cellular devices. Twenty-four such cases remain outstanding. In April 2017, the Judicial Panel on Multidistrict Litigation transferred the cases that had been filed in the Southern District of California to the Northern District of California. On May 15, 2017, the court entered an order appointing the plaintiffs’ co-lead counsel, and on May 25, 2017, set a trial date of April 29, 2019. On July 11, 2017, the plaintiffs filed a consolidated amended complaint alleging that the Companywe violated California and federal antitrust and unfair competition laws by, among other things, refusing to license standard-essential patents to itsour competitors, conditioning the supply of certain of itsour baseband chipsets on the purchaser first agreeing to license the Company’sour entire patent portfolio, entering into exclusive deals with companies, including Apple Inc., and charging unreasonably high royalties that do not comply with the Company’sour commitments to standard setting organizations. The complaint seeks unspecified damages and disgorgement and/or restitution, as well as an order that the Companywe be enjoined from further unlawful conduct. On August 11, 2017, the Companywe filed a motion to dismiss the consolidated amended complaint. On November 10, 2017, the court denied our motion, except to the extent that certain claims seek damages under the Sherman Antitrust Act. On July 5, 2018, the plaintiffs filed a motion for class certification, and on September 27, 2018, the court granted that motion. On January 23, 2019, the Ninth Circuit granted us permission to appeal the court’s class certification order, and on January 24, 2019, the court stayed the case pending our appeal. On December 2, 2019, a hearing on our appeal of the class certification order was held before the Ninth Circuit. On September 29, 2021, the Ninth Circuit vacated the district court’s class certification order, ruling that the court had failed to correctly assess the propriety of applying California law to a nationwide class. The Company believesNinth Circuit remanded the case to the district court and instructed the court to consider the effect of United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated (which the Ninth Circuit decided in favor of Qualcomm in August 2020) on this case. We believe the plaintiffs’ claims are without merit.
Japan Fair Trade Commission (JFTC) Complaint:Since November 2017, several other consumer class action complaints have been filed against us in Canada (in the Ontario Superior Court of Justice, the Supreme Court of British Columbia and the Quebec Superior Court), Israel (in the Haifa District Court) and the United Kingdom (in the Competition Appeal Tribunal), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging violations of certain of those countries’ competition and consumer protection laws. The JFTC received unspecifiedclaims in these complaints are similar to those in the U.S. consumer class action complaints. The complaints seek damages. We believe the plaintiffs’ claims are without merit.
ParkerVision, Inc. v. QUALCOMM Incorporated: On May 1, 2014, ParkerVision filed a complaint against us in the United States District Court for the Middle District of Florida alleging that certain of our products infringed seven ParkerVision patents. On August 21, 2014, ParkerVision amended the Company’s business practicescomplaint, alleging that we infringed 11 ParkerVision patents and sought damages and injunctive and other relief. ParkerVision has subsequently reduced the number of patents asserted to three. The asserted patents are in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a ceasenow expired, and desist order concluding that the Company’s Japanese licensees were forcedinjunctive relief is no longer available. ParkerVision continues to cross-license patentsseek damages related to the Company on a royalty-free basissale of many of our radio frequency (RF) products sold between 2008 and were forced2018. On March 26, 2021, the court issued an order stating that trial is extremely unlikely to accept a provision under which they agreed not to assert their essential patents against the Company’s other licensees who made a similar commitment in their license agreements with the Company. The cease and desist order seeks to require the Company to modify its existing license agreements with Japanese companies to eliminate these provisions while preserving the license of the Company’s patents to those companies. The Company disagrees with the conclusionsoccur before November or December 2021, if then. We believe that it forced its Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese Antimonopoly Act. The Company has invoked its right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted the Company’s motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC has held hearings on 37 different dates. No further hearingsParkerVision’s claims are currently scheduled.without merit.
Korea Fair Trade Commission (KFTC) Complaint: On January 4, 2010, the KFTC issued a written decision finding that the Company had violated Korean law by offering certain discounts and rebates for purchases of its CDMA chipsets and for including in certain agreements language requiring the continued payment of royalties after all licensed patents have expired. The KFTC levied a fine, which the Company paid and recorded as an expense in fiscal 2010. The Company appealed to the Seoul High Court, and on June 19, 2013, the Seoul High Court affirmed the KFTC’s decision. On July 4, 2013, the Company
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filed an appeal with the Korea Supreme Court. There have been no material developments since then with respect to this matter.
Korea Fair Trade Commission (KFTC) Investigation (2015): On March 17, 2015, the KFTC notified the Companyus that it was conducting an investigation of the Companyus relating to the Korean Monopoly Regulation and Fair Trade Act (MRFTA). On December
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27, 2016, the KFTC announced that it had reached a decision in the investigation, finding that the Company haswe violated provisions of the MRFTA. On January 22, 2017, the Companywe received the KFTC’s formal written decision, which findsfound that the following conducts violate the MRFTA: (i) refusing to license, or imposing restrictions on licenses for, cellular communications standard-essential patents with competing modem chipset makers; (ii) conditioning the supply of modem chipsets to handset suppliers on their execution and performance of license agreements with the Company;us; and (iii) coercing agreement terms including portfolio license terms, royalty terms and free cross-grant terms in executing patent license agreements with handset makers. The KFTC’s decision orders the Companyus to: (i)(a) upon request by modem chipset companies, engage in good-faith negotiations for patent license agreements, without offering unjustifiable conditions, and if necessary submit to a determination of terms by an independent third party; (ii)(b) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chips; (iii)chipsets; (c) not demand unjustifiable conditions in the Company’sour license agreements with handset companies and, upon request, renegotiate existing patent license agreements; and (iv)(d) notify modem chipset companies and handset companies of the decision and order imposed on the Companyus and report to the KFTC new or amended agreements. According to the KFTC’s decision, the foregoing will apply to transactions between the Companyus and the following enterprises: (i)(1) handset manufacturers headquartered in Korea and their affiliate companies; (ii)(2) enterprises that sell handsets in or to Korea and their affiliate companies; (iii)(3) enterprises that supply handsets to companies referred to in (ii)(2) above and the affiliate companies of such enterprises; (iv)(4) modem chipset manufacturers headquartered in Korea and their affiliate companies; and (v)(5) enterprises that supply modem chipsets to companies referred to in (i)(1), (ii)(2) or (iii)(3) above and the affiliate companies of such enterprises. The KFTC’s decision also imposed a fine of approximately 1.03 trillion Korean Wonwon (approximately $927 million), which waswe paid on March 30, 2017. The Company believes that its business practices do not violate the MRFTA, and on
On February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. The Seoul High Court has not ruledheld hearings concluding on August 14, 2019 and, on December 4, 2019, announced its judgment affirming certain portions of the Company’sKFTC’s decision and finding other portions of the KFTC’s decision unlawful. The Seoul High Court cancelled the KFTC’s remedial orders described in (c) above, and solely insofar as they correspond thereto, the Seoul High Court cancelled the KFTC’s remedial orders described in (d) above. The Seoul High Court dismissed the remainder of our action to cancel the KFTC’s decision. On December 19, 2019, we filed a notice of appeal to the same day, the Company filed an application withKorea Supreme Court challenging those portions of the Seoul High Court decision that are not in our favor. The KFTC filed a notice of appeal to stay the decision’s remedial order pendingKorea Supreme Court challenging the Seoul High Court’s final judgment on the Company’s action to cancel the KFTC’s decision. The Seoul High Court held hearings on the Company’s application to stay the decision’s remedial order on July 10, 2017 and July 14, 2017. On September 4, 2017,portions of the Seoul High Court denieddecision that are not in its favor. Both we and the Company’s application to stayKFTC have filed briefs on the remedial order.merits. The Company has appealed the Seoul High Court’s decision to the Korea Supreme Court. The Supreme Court has not yet ruled on the Company’sour appeal or that of the stay decision.KFTC. We believe that our business practices do not violate the MRFTA.
Icera Complaint to the EuropeanKorea Fair Trade Commission (Commission)(KFTC) Investigation (2020): On June 7, 2010,8, 2020, the Commission notified andKFTC informed us that it was conducting an investigation of us relating to the MRFTA. The KFTC has not provided a formal notice on the Companyscope of its investigation, but we believe it concerns our business practices in connection with a redacted copyour sale of a complaint filedradio frequency front-end (RFFE) components. We continue to cooperate with the Commission by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that the Company has engaged in anticompetitive activity. The Company was asked by the Commission to submit a preliminary response to the portions of the complaint disclosed toKFTC as it and the Company submittedconducts its response in July 2010. Subsequently, the Company provided additional documents and information as requested by the Commission. On July 16, 2015, the Commission announced that it had initiated formal proceedings in this matter. On December 8, 2015, the Commission announced that it had issued a Statement of Objections expressing its preliminary view that between 2009 and 2011, the Company engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost, with the intention of hindering competition. A Statement of Objections informs the subject of the investigation of the allegations against it and provides an opportunity to respond to such allegations. It is not a determination of the final outcome of the investigation. On August 15, 2016, the Company submitted its response to the Statement of Objections. If a violation is found, a broad range of remedies is potentially available to the Commission,KFTC, including imposing a fine (of up to 3% of our sales in the relevant markets during the alleged period of violation) and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the Commission. The Company believesKFTC. We believe that itsour business practices do not violate the EU competition rules.MRFTA.
Icera Complaint to the European Commission (Commission) Investigation(EC):On June 7, 2010, the EC notified and provided us with a redacted copy of a complaint filed with the EC by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that we were engaged in anticompetitive activity. On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On July 18, 2019, the EC issued a decision finding that between 2009 and 2011, we engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost with the intention of hindering competition and imposed a fine of approximately 242 million euros. On October 1, 2019, we filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the European Union (EU) competition rules.
In the third quarter of fiscal 2019, we recorded a charge of $275 million to other expenses related to this EC fine. We provided a financial guarantee in the first quarter of fiscal 2020 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. In the fourth quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At September 26, 2021, the liability, including related foreign currency losses and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other income, net), was $292 million and included in other current liabilities.
European Commission (EC) Investigation: On October 15, 2014, the CommissionEC notified the Companyus that it iswas conducting an investigation of the Companyus relating to Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (TFEU). On July 16, 2015,January 24, 2018, the Commission announced that it had initiated formal proceedings in this matter. On December 8, 2015, the Commission announced that it hadEC issued a Statement of Objections expressing its preliminary viewdecision finding that since 2011 the Company haspursuant to an agreement with Apple Inc. we paid significant amounts to a customerApple on the condition that it exclusively use the Company’sour baseband chipsets in its smartphones and tablets. This conduct has allegedly reduced the customer’stablets, reducing Apple’s incentives to source baseband chipsets from the Company’sour competitors and harmedharming competition and innovation for certain baseband chipsets. A Statementchipsets, and imposed a fine of Objections informs the subject997 million euros. On April 6, 2018, we filed an appeal of the investigationEC’s decision with the General Court of the allegations against it and provides anEuropean Union. From May 4, 2021 to May 6, 2021, a hearing on our appeal was held before the court. The court has not yet issued a ruling. We believe that our business practices do not violate the EU competition rules.
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opportunityIn the first quarter of fiscal 2018, we recorded a charge of $1.2 billion to respondother expenses related to such allegations. Itthis EC fine. We provided financial guarantees in the third quarter of fiscal 2018 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is notaccruing interest at a determinationrate of 1.50% per annum while it is outstanding. In the first quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the final outcome offoreign currency translation adjustment. At September 26, 2021, the investigation. On June 27, 2016, the Company submitted its responseliability, including related foreign currency gains and accrued interest (which, to the Statement of Objections. If a violation is found, a broad range of remedies is potentially availableextent they were not related to the Commission, including imposing a fine and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the Commission. The Company believes that its business practices do not violate the EU competition rules.
United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated: On September 17, 2014, the FTC notified the Company that it is conducting an investigation of the Company relating to Section 5 of the Federal Trade Commission Act (FTCA). On January 17, 2017, the FTC filed a complaint against the Companynet investment hedge, were recorded in the United States District Court for the Northern District of California alleging that the Company engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the FTCA by conditioning the supply of baseband processors on the purchaser first agreeing to a license to the Company’s standard-essential patents, paying incentives to purchasers of baseband processors to induce them to accept certain license terms, refusing to license its standard-essential patents to the Company’s competitors and entering into alleged exclusive dealing arrangements with Apple Inc. The complaint seeks a permanent injunction against the Company’s alleged violations of the FTCAinvestment and other unspecified ancillary equitable relief. The Company filed a motion to dismiss the FTC’s complaint on April 3, 2017, which the court denied on June 26, 2017. On April 19, 2017, the court set a trial date for January 4, 2019. The Company believes the FTC’s claims are without merit.income, net), was $1.2 billion and included in other current liabilities.
Taiwan Fair Trade Commission (TFTC) Investigation: On December 4, 2015, the TFTC notified the Company that it was conducting an investigation into whether the Company’s patent licensing practices violate the Taiwan Fair Trade Act (TFTA). On April 27, 2016, the TFTC specified that the allegations under investigation include whether: (i) the Company jointly licensed its patents rather than separately licensing standard-essential patentsContingent Losses and non-standard-essential patents; (ii) the Company’s royalty charges are unreasonable; (iii) the Company unreasonably required licensees to grant it cross-licenses; (iv) the Company failed to provide lists of licensed patents to licensees; (v) the Company violated a FRAND licensing commitment by declining to grant licenses to chipset makers; (vi) the Company declined to sell chipsets to unlicensed potential customers; and (vii) the Company provided royalty rebates to certain companies in exchange for their exclusive use of the Company’s chipsets. On October 11, 2017, the TFTC announced that it had reached a decision in the investigation, finding that the Company has violated the TFTA. On October 23, 2017, the Company received TFTC’s formal written decision, which finds that the following conducts violate the TFTA: (i) refusing to license and demanding restrictive covenants from chip competitors; (ii) refusing to supply baseband processors to companies that do not have an executed license; and (iii) providing a royalty discount to Apple in exchange for its exclusive use of the Company’s chipsets. The TFTC’s decision orders the Company to: (1) cease the following conduct within 60 days of the day after receipt of the decision: (a) applying the clauses in an agreement entered into with a competing chip supplier requesting it to provide sensitive sales information such as chip prices, customers, sales volumes, product types and serial numbers; (b) applying clauses in component supply agreements entered into with handset manufacturers relating to the refusal to sell chips to unlicensed manufacturers; and (c) applying discount clauses in the exclusive agreement entered into with a relevant enterprise; (2) notify competing chip companies and handset manufacturers in writing within 30 days after receipt of the decision that those companies may request to amend or enter into patent license agreements and other relevant agreements within 60 days of the day following the day such notices are received, and upon receipt of such requests, the Company shall commence negotiation in good faith; (3) submit status reports to the TFTC on any such negotiations every six months beginning from the day after receipt of the decision, as well as to submit a report to the TFTC within 30 days after amendments to any license agreements or newly signed license agreements are executed. The TFTC’s decision also imposed a fine of 23.4 billion Taiwan Dollars (approximately $778 million based on the exchange rate at September 24, 2017), which is due on or before November 7, 2017. The Company believes that its business practices do not violate the TFTA and intends to seek a stay of, and to file an action to revoke, the TFTC’s decision.
Contingent losses: The CompanyOther Considerations: We will continue to vigorously defend itselfourselves in the foregoing matters. However, litigation and investigations are inherently uncertain. Accordingly, the Company cannot predict the outcomeuncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of these matters.possible loss in antitrust and trade regulation investigations in particular. Other than with respect to the TFTC fine, the Company hasEC fines, we have not recorded any accrual at September 24, 201726, 2021 for contingent losses associated with these matters based on itsour belief that losses, while reasonably possible, are not probable. Further, any possible amount or range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’sour business, results of operations, financial condition or cash flows. The Company isWe are engaged in numerous other legal actions not described above arising in the ordinary course of itsour business (for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights) and, while there can be no assurance, believeswe believe that the ultimate outcome of these other legal actions will not have a material adverse effect on itsour business, results of operations, financial condition or cash flows.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indemnifications. The Company We generally doesdo not indemnify itsour customers, licensees and licenseessuppliers for losses sustained from infringement of third-party intellectual property rights. However, the Company iswe are contingently liable under certain product sales, services, license and other agreements to defend and/or indemnify certain customers, chipset foundrieslicensees and semiconductor assembly and test service providerssuppliers against certain types of liability and/or damages arising from qualifying claimsthe infringement of patent, copyright, trademark or trade secret infringement by products or services sold or provided by the Company, or bythird-party intellectual property provided by the Company to chipset foundries and semiconductor assembly and test service providers. The Company’srights. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Companywe may have recourse against third parties for certain payments made by the Company.us.
Through September 24, 2017, the Company has received a number of claims from its directClaims and indirect customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by its products. Reimbursementsreimbursements under indemnification arrangements have not been material to the Company’sour consolidated financial statements. The Company hasWe have not recorded any accrualaccruals for contingent liabilities at September 24, 2017 associated with thesecertain claims under indemnification arrangements based on the Company’sour belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time.
Purchase Obligations. The Company has We have agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Obligations under these agreements at September 24, 2017 for eachDuring fiscal 2021, we entered into several multi-year capacity purchase commitments with certain suppliers of the subsequent five years from fiscal 2018 through 2022 were $4.3 billion, $1.0 billion, $376 million, $120 million and $27 million, respectively, and there were no obligations thereafter. Of these amounts, for each of the subsequent five years from fiscal 2018 through 2022, commitments to purchaseour integrated circuit product inventories comprised $3.5 billion, $846 million, $286 million, $72 million and $27 million, respectively, and there were no purchase commitments thereafter.products. Integrated circuit product inventory obligations represent purchase commitments (including those under multi-year capacity purchase commitments to the extent such minimum amounts are both fixed and determinable) for raw materials, semiconductor die, finished goods and manufacturing services, such as wafer bump, probe, assembly and final test. Under the Company’sour manufacturing relationships with itsour foundry suppliers and assembly and test service providers, cancelationcancellation of outstanding purchase commitments is generally allowed but requiresmay result in the payment of costs incurred through the date of cancelation,cancellation, and in some cases, incremental fees and/or the loss of amounts paid in advance related to capacity underutilization.underutilization and the failure to meet future minimum purchase volumes under multi-year capacity purchase commitments. Obligations under our purchase agreements, which primarily relate to integrated circuit product inventory obligations, at September 26, 2021 totaled $23.5 billion of which, $12.9 billion is expected to be paid in the next 12 months.
Operating Leases. The Company leasesLeases. We lease certain of itsour land, facilities and equipment under noncancelable operating leases, with terms ranging from less than one year to 2120 years, some of which include options to extend for up to 20 years. As of September 26, 2021 and September 27, 2020, the weighted-average remaining lease term for operating leases were 7 years and with provisions in certain leases for cost-of-living increases. Rental6 years, respectively. Operating lease expense for fiscal 2017, 20162021, 2020 and 20152019 was $129$203 million, $116$181 million and $99$146 million, respectively. Future minimumAt September 26, 2021, other assets included $513 million of operating lease payments at September 24, 2017 for eachassets, with corresponding lease liabilities of the subsequent five years from fiscal 2018 through 2022 were $98$126 million $102recorded in other current liabilities and $428 million $82 million, $66 million and $42 million, respectively, and $55 million thereafter.
Other Commitmentsrecorded in other liabilities. At September 24, 2017, the Company was committed to fund certain strategic investments up to $51427, 2020, other assets included $460 million of which $69operating lease assets, with corresponding lease liabilities of $134 million is expected to be fundedrecorded in both fiscal 2018other current liabilities and fiscal 2021. The remaining commitments do not have fixed funding dates and are subject to certain conditions. Commitments represent the maximum amounts to be funded$371 million recorded in other liabilities.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 26, 2021, future lease payments under these arrangements; actual funding may be in lesser amounts or not at all.our operating leases were as follows (in millions): | | | | | | | |
| | | September 26,
2021 |
| 2022 | | | $ | 141 | |
| 2023 | | | 102 | |
| 2024 | | | 80 | |
| 2025 | | | 55 | |
| 2026 | | | 49 | |
| Thereafter | | | 250 | |
| Total future lease payments | | | 677 | |
| Imputed interest | | | (123) | |
| Total lease liability balance | | | $ | 554 | |
Note 8. Segment Information
The Company isWe are organized on the basis of products and services and hashave three reportable segments. The Company conductsOur operating segments reflect the way our businesses and management/reporting structure are organized internally and the way our Chief Operating Decision Maker (CODM), who is our CEO, reviews financial information, makes operating decisions and assesses business performance. We also consider, among other items, the way budgets and forecasts are prepared and reviewed and the basis on which executive compensation is determined, as well as the similarity of activities within our operating segments, such as the nature of products, the level of shared products, technology and other resources, production processes and customer base. We conduct business primarily through itsour QCT (Qualcomm CDMA Technologies) semiconductor business and itsour QTL (Qualcomm Technology Licensing) licensing business. QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA3G/4G/5G and other technologies, including RFFE, for use in mobile devices, automotive systems for telematics, connectivity and digital cockpit and IoT including wireless networks, devices used in the Internet of Things (IoT), broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems.industrial devices. QTL grants licenses or otherwise provides rights to use portions of itsour intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. The Company’sOur QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments and includes revenues and related costs associated with development contracts with an equity method investee. The Companyinvestments. We also hashave nonreportable segments, including its mobile health, data center, small cellQGOV and our cloud AI inference processing initiative and other wireless technology and service initiatives.
The CompanyOur CODM allocates resources to and evaluates the performance of itsour segments based on revenues and earnings (loss) before income taxes (EBT). Segment EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in the Company’sour management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and charges include certain interest expense;expense, certain net investment income;income, certain share-based compensation;compensation, gains and losses on our deferred compensation plan liabilities and related assets and certain research and development expenses, certain selling, general and administrative expenses and other expenses or income that were deemed to be not directly related to the businesses of the segments. Additionally, unallocated charges include recognition of
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the step-up of inventories and property, plant and equipment to fair value, amortization of certain intangible assets and certain other acquisition-related charges, third-party acquisition and integration services costs and certain other items, which may include major restructuring and restructuring-related costs, goodwill and long-lived asset impairment charges and litigationawards, settlements and/or damages. Additionally, starting with acquisitions in the second quarter of fiscal 2017, unallocated charges include recognition of the depreciation related to the step-up of property, plant and equipment to fair value. Such charges related to acquisitions that were completed prior to the second quarter of fiscal 2017 continue to be allocated to the respective segment, and such amounts aredamages arising from legal or regulatory matters. Our CODM does not material. All of the costs related to the initial research of 5G (fifth generation) technology are included in unallocated corporate research and development expenses, whereas initial costs related to the research of 3G (third generation) and 4G (fourth generation) technology were recorded in both the QCT segment and unallocated corporate research and development expenses based on the nature of the activity. Fiscal 2016 and 2015 results have not been revised as such costs were incurred prior to fiscal 2014.evaluate our operating segments using discrete asset information.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents revenues EBT and total assetsEBT for reportable segments (in millions): |
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Revenues | | | | | |
| QCT | $ | 16,479 |
| | $ | 15,409 |
| | $ | 17,154 |
|
| QTL | 6,445 |
| | 7,664 |
| | 7,947 |
|
| QSI | 113 |
| | 47 |
| | 4 |
|
| Reconciling Items | (746 | ) | | 434 |
| | 176 |
|
| Total | $ | 22,291 |
| | $ | 23,554 |
| | $ | 25,281 |
|
| EBT | | | | | |
| QCT | $ | 2,747 |
| | $ | 1,812 |
| | $ | 2,465 |
|
| QTL | 5,175 |
| | 6,528 |
| | 6,882 |
|
| QSI | 65 |
| | 386 |
| | (74 | ) |
| Reconciling Items | (4,967 | ) | | (1,893 | ) | | (2,786 | ) |
| Total | $ | 3,020 |
| | $ | 6,833 |
| | $ | 6,487 |
|
| Assets | | | | | |
| QCT | $ | 3,830 |
| | $ | 2,995 |
| | $ | 2,923 |
|
| QTL | 1,735 |
| | 644 |
| | 438 |
|
| QSI | 1,037 |
| | 910 |
| | 812 |
|
| Reconciling Items | 58,884 |
| | 47,810 |
| | 46,623 |
|
| Total | $ | 65,486 |
| | $ | 52,359 |
| | $ | 50,796 |
|
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Revenues | | | | | |
| QCT | $ | 27,019 | | | $ | 16,493 | | | $ | 14,639 | |
| QTL | 6,320 | | | 5,028 | | | 4,591 | |
| QSI | 45 | | | 36 | | | 152 | |
| Reconciling items | 182 | | | 1,974 | | | 4,891 | |
| Total | $ | 33,566 | | | $ | 23,531 | | | $ | 24,273 | |
| EBT | | | | | |
| QCT | $ | 7,763 | | | $ | 2,763 | | | $ | 2,143 | |
| QTL | 4,627 | | | 3,442 | | | 2,954 | |
| QSI | 916 | | | (11) | | | 344 | |
| Reconciling items | (3,032) | | | (475) | | | 2,040 | |
| Total | $ | 10,274 | | | $ | 5,719 | | | $ | 7,481 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The Company reportsnet book value of long-lived tangible assets located outside of the U.S. was $2.9 billion and $2.3 billion at September 26, 2021 and September 27, 2020, respectively. The net book value of long-lived tangible assets located in the U.S. was $2.2 billion and $1.9 billion at September 26, 2021 and September 27, 2020, respectively.
We report revenues from external customers by country based on the location to which itsour products or services are delivered, which for QCT is generally the country in which itsour customers manufacture their products, orand for licensing revenues, the invoiced addresses of itsour licensees. As a result, the revenues by country presented herein are not necessarily indicative of either the country in which the devices containing the Company’sour products and/or intellectual property are ultimately sold to consumers or the country in which the companies that sell the devices are headquartered. For example, China revenues could include revenues related to shipments of integrated circuits tofor a company that is headquartered in South Korea but that manufactures devices in China, which devices are then sold to consumers in Europe and/or the United States. Revenues by country were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| China (including Hong Kong) | $ | 22,512 | | | $ | 14,001 | | | $ | 11,610 | |
| South Korea | 2,368 | | | 2,964 | | | 2,400 | |
| United States | 1,406 | | | 1,129 | | | 2,774 | |
| Ireland | 1,160 | | | 867 | | | 2,957 | |
| Other foreign | 6,120 | | | 4,570 | | | 4,532 | |
| $ | 33,566 | | | $ | 23,531 | | | $ | 24,273 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| China (including Hong Kong) | $ | 14,579 |
| | $ | 13,503 |
| | $ | 13,337 |
|
| South Korea | 3,538 |
| | 3,918 |
| | 4,107 |
|
| United States | 513 |
| | 386 |
| | 246 |
|
| Other foreign | 3,661 |
| | 5,747 |
| | 7,591 |
|
| | $ | 22,291 |
| | $ | 23,554 |
| | $ | 25,281 |
|
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment assets are comprised of accounts receivable and inventories for all reportable segments other than QSI. QSI segment assets include certain non-marketable equity instruments and other investments and a receivable from the sale of wireless spectrum in fiscal 2016 (Note 2). QSI assets at September 24, 2017, September 25, 2016 and September 27, 2015 included $254 million, $162 million and $163 million, respectively, related to investments in equity method investees. The increase in QCT segment assets resulted primarily from the Company’s recently formed RF360 Holdings joint venture in the second quarter of fiscal 2017 (Note 9). The increase in QTL segment assets was due to an increase in accounts receivable (Note 2). Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable securities, property, plant and equipment, deferred tax assets, intangible assets and assets of nonreportable segments. The net book values of long-lived tangible assets located outside of the United States were $1.4 billion, $404 million and $414 million at September 24, 2017, September 25, 2016 and September 27, 2015, respectively. The increase in fiscal 2017 was primarily from the RF360 Holdings joint venture, which has substantially all of its operations outside the United States. The net book values of long-lived tangible assets located in the United States were $1.8 billion, $1.9 billion and $2.1 billion at September 24, 2017, September 25, 2016 and September 27, 2015, respectively.
Reconciling items for revenues and EBT in thea previous table were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2021 | | 2020 | | 2019 |
| Revenues | | | | | | | | | | | | |
| Nonreportable segments | | | | | | | | $ | 128 | | | $ | 133 | | | $ | 168 | |
| Unallocated revenues (Note 2) | | | | | | | | 54 | | | 1,841 | | | 4,723 | |
| | | | | | | | $ | 182 | | | $ | 1,974 | | | $ | 4,891 | |
| EBT | | | | | | | | | | | | |
| Unallocated revenues (Note 2) | | | | | | | | $ | 54 | | | $ | 1,841 | | | $ | 4,723 | |
| Unallocated cost of revenues | | | | | | | | (277) | | | (340) | | | (430) | |
| Unallocated research and development expenses | | | | | | | | (1,820) | | | (1,046) | | | (989) | |
| Unallocated selling, general and administrative expenses | | | | | | | | (538) | | | (401) | | | (413) | |
| Unallocated other income (expenses) (Note 2) | | | | | | | | — | | | 28 | | | (414) | |
| Unallocated interest expense | | | | | | | | (559) | | | (599) | | | (619) | |
| Unallocated investment and other income, net | | | | | | | | 166 | | | 105 | | | 243 | |
| Nonreportable segments | | | | | | | | (58) | | | (63) | | | (61) | |
| | | | | | | | $ | (3,032) | | | $ | (475) | | | $ | 2,040 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Revenues | | | | | |
| Nonreportable segments | $ | 311 |
| | $ | 438 |
| | $ | 181 |
|
| BlackBerry arbitration | (962 | ) | | — |
| | — |
|
| Unallocated other revenues | (95 | ) | | — |
| | — |
|
| Intersegment eliminations | — |
| | (4 | ) | | (5 | ) |
| | $ | (746 | ) | | $ | 434 |
|
| $ | 176 |
|
| EBT | | | | | |
| BlackBerry arbitration | $ | (962 | ) | | $ | — |
| | $ | — |
|
| Unallocated other revenues | (95 | ) | | — |
| | — |
|
| Unallocated cost of revenues | (517 | ) | | (495 | ) | | (314 | ) |
| Unallocated research and development expenses | (1,056 | ) | | (799 | ) | | (809 | ) |
| Unallocated selling, general and administrative expenses | (647 | ) | | (478 | ) | | (497 | ) |
| Unallocated other expense, net | (1,742 | ) | | (154 | ) | | (1,289 | ) |
| Unallocated interest expense | (488 | ) | | (292 | ) | | (101 | ) |
| Unallocated investment and other income, net | 913 |
| | 667 |
| | 855 |
|
| Nonreportable segments | (373 | ) | | (342 | ) | | (630 | ) |
| Intersegment eliminations | — |
| | — |
| | (1 | ) |
| | $ | (4,967 | ) | | $ | (1,893 | ) | | $ | (2,786 | ) |
In May 2017, in connection with the arbitration decision, BlackBerry Limited (BlackBerry) and the Company entered into a Joint Stipulation Regarding Final Award Agreement agreeing that the Company would pay BlackBerry $940 million to cover the award amount, pre-judgment interest and attorneys’ fees. This amount, which was paid in the third quarter of fiscal 2017, also reflected $22 million that was owed to the Company by BlackBerry, which was recorded asCertain revenues in the QTL segment. The remaining amount was recorded as an adjustment to revenues related to the arbitration decision, which waswere not allocated to QTLour segments in the Company’sour management reports because it willthey were not be considered in evaluating segment results. Unallocated other revenues in fiscal 2021 were comprised of the release of a variable constraint against revenues not previously allocated to our segment results. Unallocated revenues in fiscal 2020 were comprised of licensing revenues from Huawei resulting from the settlement agreement signed in July 2020 and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent license agreement signed in July 2020. Unallocated revenues in fiscal 2019 were comprised of licensing revenues resulting from the settlement with Apple and its contract manufacturers in April 2019.
Note 9. Acquisitions
On March 16, 2021 (the Closing Date), we completed the acquisition of NuVia, Inc. (NUVIA) for $1.1 billion (net of cash acquired), substantially all of which was paid in cash. In connection with the acquisition, we assumed or replaced unvested NUVIA stock awards with Qualcomm stock awards with an estimated fair value of $258 million, for which $10 million was attributable to pre-acquisition services and included in the purchase price, and the remaining amount is recognized as compensation expense over the related post-acquisition requisite service period of up to four years.
NUVIA has certain in-process technologies and is comprised of a reduction to revenues related to the portion of a business arrangement under negotiation that resolves a legal dispute. Unallocated other expense, netCPU (central processing unit) and technology design team with expertise in fiscal 2017 was comprised of charges related to the fines imposed by the KFTChigh performance processors, SoC (system-on-chip) and the TFTC (Note 7), as well as restructuring and restructuring-related charges related to the Company’s Strategic Realignment Plan, which was substantially implemented in fiscal 2016 (Note 10). Unallocated other expense, netpower management for fiscal 2016 was comprised of net restructuring and restructuring-related charges related to the Company’s Strategic Realignment Plan (Note 10). Unallocated other expense, net for fiscal 2015 was comprised of a charge related to the resolution reached with the NDRC, goodwill and intangible asset impairment charges related to three of the Company’s nonreportable segments and restructuring and restructuring-related charges related to the Company’s Strategic Realignment Plan, partially offset by a gain on the sale of certain property, plant and equipment (Note 2).
Unallocated acquisition-related expenses were comprised as follows (in millions):
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Cost of revenues | $ | 437 |
| | $ | 434 |
| | $ | 272 |
|
| Research and development expenses | 20 |
| | 10 |
| | 14 |
|
| Selling, general and administrative expenses | 272 |
| | 99 |
| | 72 |
|
Note 9. Acquisitions
Completed. On February 3, 2017 (the Closing Date), the Company and TDK Corporation (TDK) completed the formation of a joint venture, under the name RF360 Holdings, to enable delivery of radio frequency front-end (RFFE) modules and radio frequency (RF) filters into fully integrated products for mobilecompute-intensive devices and Internetapplications. Upon completion of Things (IoT) applications, among others. The joint venture is owned 51% by Qualcomm Global Trading Pte. Ltd. (Qualcomm Global Trading), a Singapore corporation and wholly-owned subsidiary of the Company, and 49% by EPCOS AG (EPCOS), a German wholly-owned subsidiary of TDK. RF360 Holdings is a Singapore corporation with research and development, and manufacturing and/or sales locations in the United States, Europe and Asia and its headquarters in Munich, Germany. Certain intellectual property, patents and filter and module design and manufacturing assets were carved out of existing TDK businesses andNUVIA’s technologies are owned by the joint venture, andexpected to be integrated into certain assets were acquired directly by affiliates of the Company. Qualcomm Global Trading has the option to acquire (and EPCOS has an option to sell) EPCOS’s interest in the joint venture for $1.15 billion (Settlement Amount) 30 months after the Closing Date (the Put and Call Option).QCT products.
EPCOS is entitled to up to a total of $200 million in payments based on sales of RF filter functions over the three-year period after the Closing Date, which is a substitute for and in lieu of the right of EPCOS to receive any profit sharing, distributions, dividends or other payments of any kind or nature. Such contingent consideration was recorded as a liability at fair value at close based on significant inputs that were not observable, with future changes in fair value recorded in earnings. Such fair value adjustments recorded in fiscal 2017 were negligible.
RF360 Holdings is a variable interest entity, and its results of operations and statement of financial position are included in the Company’s consolidated financial statements (on a one-month reporting lag) as the governance structure of RF360 Holdings provides the Company with the power to direct the activities of the joint venture that most significantly impact its economic performance, such as operating decisions related to research and development, manufacturing and sales and marketing of its products. Since the Put and Call Option is considered a financing of the Company’s purchase of EPCOS’s interest in RF360 Holdings, noncontrolling interest is not recorded in the Company’s consolidated financial statements. Therefore, the Put and Call Option was recorded as a liability at fair value at close and included in other noncurrent liabilities. The liability is being accreted to the Settlement Amount, with the offset recorded as interest expense. The carrying value of the Put and Call Option approximated its estimated fair value at September 24, 2017.
The total purchase price consisted of the following (in millions): |
| | | |
| Cash paid to TDK at close | $ | 1,463 |
|
| Fair value of Put and Call Option | 1,112 |
|
| Fair value of contingent consideration and other deferred payments | 496 |
|
| Total purchase price | $ | 3,071 |
|
The Company has not finalized the accounting for this business acquisition related to certain tax matters, and therefore, such amounts are subject to change during the remainder of the one year measurement period. The allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values was as follows (in millions):
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | |
| Cash and cash equivalents | $ | 306 |
|
| Accounts receivable | 303 |
|
| Inventories | 261 |
|
| Intangible assets subject to amortization: | |
| Technology-based intangible assets | 738 |
|
| Customer-related intangible assets | 87 |
|
| Marketing-related intangible assets | 8 |
|
| In-process research and development (IPR&D) | 75 |
|
| Property, plant and equipment | 821 |
|
| Goodwill | 829 |
|
| Other assets | 42 |
|
| Total assets | 3,470 |
|
| Liabilities | (399 | ) |
| | $ | 3,071 |
|
The Company recognized $829 million in goodwill related to this transaction, of which $386 million is expected to be deductible for tax purposes. The goodwill recognized was allocated to the QCT segment for annual impairment testing purposes. The goodwill is primarily attributable to the assembled workforce and synergies expected to arise after the acquisition. Each category of intangible assets acquired will be amortized on a straight-line basis over the weighted-average useful lives of seven years for technology-based intangible assets, nine years for customer-related intangible assets and one year for marketing-related intangible assets. At September 24, 2017, the remaining IPR&D of $61 million consisted of two projects, which are expected to be completed over the next year. Upon completion, the IPR&D projects will be amortized over their useful lives, which are estimated to be six years. The estimated fair values of the intangible assets and the property, plant and equipment acquired were primarily determined using the income approach and cost approach, respectively, both of which were based on significant inputs that were not observable.
The Company’s results of operations for fiscal 2017 included the operating results of RF360 Holdings on a one-month reporting lag since the date of acquisition, the amounts of which were not material. The following table presents the unaudited pro forma results for fiscal 2017 and fiscal 2016. The unaudited pro forma financial information combines the results of operations of Qualcomm and RF360 Holdings as though the companies had been combined as of the beginning of fiscal 2016. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time. The unaudited pro forma results presented below include adjustments for the step-up of inventories to fair value, amortization and depreciation of identified intangible assets and property, plant and equipment, adjustments for certain acquisition-related charges, interest expense related to the Put and Call Option and related tax effects (in millions):
|
| | | | | | | |
| | (Unaudited) |
| | 2017 | | 2016 |
| Pro forma revenues | $ | 22,806 |
| | $ | 24,731 |
|
| Pro forma net income attributable to Qualcomm | 2,614 |
| | 5,791 |
|
During fiscal 2017, the Company acquired three other businesses for total cash consideration of $35 million, net of cash acquired, and up to a total of $94 million in certain contingent payments, which were recorded as a liability at fair value. The Company recognized $47 million in goodwill related to these transactions, of which $12 million is expected to be deductible for tax purposes. Goodwill of $23 million, $12 million and $11 million was assigned to the Company’s QTL, QCT and nonreportable segments, respectively.
During fiscal 2016, the Company acquired four businesses for total cash consideration of $392 million, net of cash acquired. Technology-based intangible assets of $257 million were recognized with a weighted-average useful life of four years. The Company recognized $172 million in goodwill related to these transactions, all of which was assigned to the Company’s QCT segment and of which $24 million is expected to be deductible for tax purposes.
On August 13, 2015, the Company acquired CSR plc, which was renamed CSR Limited (CSR), for total cash consideration of $2.3 billion (net of $176 million of cash acquired). CSR is an innovator in the development of multifunction
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
semiconductor platforms and technologies for the automotive, consumer and voice and music categories. The acquisition complemented the Company’s current offerings by adding products, channels and customers in the growth categories of the IoT and automotive infotainment. CSR was integrated into the QCT segment. The $2.4 billion total purchase price was allocated as follows: $1.0 billion to amortizable intangible assets, $969 million to goodwill, $182 million to IPR&D and $280 million to other net assets. | | | | | |
| Cash | $ | 174 | |
| In-process research and development (IPR&D) | 247 | |
| Goodwill | 885 | |
| Other assets | 26 | |
| Total assets | 1,332 | |
| Liabilities | (68) | |
| Net assets acquired | $ | 1,264 | |
Goodwill recognized in this transaction is not deductible for tax purposes and was allocated to theour QCT segment for annual impairment testing purposes. Goodwill is primarily attributable to assembled workforce and certain revenue and cost synergies expected to arise after the acquisition. Each categoryIPR&D is related to a single project, which is expected to be completed in fiscal 2023 and, upon completion, will be amortized over its useful life, which is expected to be seven years. The estimated fair value of intangible assetsthe IPR&D asset acquired are being amortizedwas determined using an income approach based on a straight-line basis over their weighted-average useful lives of five years for technology-based intangible assets and four years for customer-related and marketing-related intangible assets.significant inputs that were not observable.
The Company’sOur results of operations for fiscal 20152021 included the operating results of CSRNUVIA since the date of acquisition,Closing Date, the amounts of which were not material. Unaudited proPro forma revenues and net income attributable to Qualcomm for fiscal 2015, presenting the results of operations have not been presented because the effects of Qualcomm and CSR as though the companies had been combined as of the beginning of fiscal 2014,this acquisition were $25.9 billion and $5.2 billion, respectively. This unaudited pro forma information is provided for informational purposes only and is not indicative of thematerial to our consolidated results of operations that would have been achieved if the acquisition had taken place as of the beginning of fiscal 2014.
During fiscal 2015, the Company acquired four other businesses for total cash consideration of $405 million, net of cash acquired. Technology-based intangible assets of $84 million were recognized with a weighted-average useful life of eight years. The Company recognized $289 million in goodwill related to these transactions, of which $35 million is expected to be deductible for tax purposes. Goodwill of $29 million, $6 million and $254 million was assigned to the Company’s QCT, QTL and nonreportable segments, respectively.
Proposed. On October 27, 2016, the Company announced a definitive agreement under which Qualcomm River Holdings, B.V. (Qualcomm River Holdings), an indirect, wholly owned subsidiary of QUALCOMM Incorporated, will acquire NXP Semiconductors N.V. (NXP). Pursuant to the definitive agreement, Qualcomm River Holdings has commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, for estimated total cash consideration to be paid to NXP’s shareholders of $38 billion. NXP is a leader in high-performance, mixed-signal semiconductor electronics in automotive, broad-based microcontrollers, secure identification, network processing and RF power products.
The transaction is subject to receipt of regulatory approvals in various jurisdictions and other closing conditions, including the tender of at least 80% of the issued and outstanding common shares of NXP in the offer (provided that the minimum tender threshold may be reduced to a percentage not less than 70% with the prior written consent of NXP). At an Extraordinary General Meeting of NXP’s shareholders held on January 27, 2017, NXP’s shareholders approved certain matters relating to the transaction, including the appointment of designees of Qualcomm River Holdings to NXP’s board of directors (effective upon the closing of the transaction) and certain transactions that are intended to be consummated after the completion of the tender offer.
In May 2017, the Company issued an aggregate principal amount of $11.0 billion of unsecured floating- and fixed-rate notes with varying maturities, of which a portion will be used to fund the purchase price and other related transactions. In addition, the Company has secured $4.0 billion in committed financing through a Term Loan Facility, which is expected to be drawn on at the close of the NXP transaction (Note 6). The remaining amount will be funded with cash held by foreign entities.
Qualcomm River Holdings and NXP may terminate the definitive agreement under certain circumstances. If the definitive agreement is terminated by NXP in certain circumstances, NXP will be required to pay Qualcomm River Holdings a termination fee of $1.25 billion. If the definitive agreement is terminated by Qualcomm River Holdings under certain circumstances involving the failure to obtain the required regulatory approvals or the failure of NXP to complete certain pre-closing reorganization steps in all material respects, Qualcomm River Holdings will be required to pay NXP a termination fee of $2.0 billion. In November 2016, as required by the definitive agreement, Qualcomm River Holdings entered into four letters of credit for an aggregate amount of $2.0 billion related to the potential termination fee payable to NXP. Pursuant to the terms of each letter of credit, NXP will have the right to draw amounts to fund certain termination compensation owed by Qualcomm River Holdings to NXP if the definitive agreement is terminated under certain circumstances. The letters of credit expire on June 30, 2018 or if drawn on by NXP or surrendered by Qualcomm River Holdings. Each letter of credit is required to be fully cash collateralized in an amount equal to 100% of its face value through deposits with the issuers of the letters of credit. Qualcomm River Holdings is restricted from using the funds deposited as collateral while the letters of credit areoperations.
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outstanding. At September 24, 2017, the letters of credit were fully collateralized through bank time deposits and money market funds, which were recorded as other noncurrent assets.
Note 10. Strategic Realignment Plan
On July 22, 2015, the Company announced a Strategic Realignment Plan designed to improve execution, enhance financial performance and drive profitable growth as the Company works to create sustainable long-term value for stockholders. As part of this, among other actions, the Company implemented a cost reduction plan, which included a series of targeted reductions across the Company’s businesses, particularly in QCT, and a reduction to its annual share-based compensation grants. Restructuring activities were initiated in the fourth quarter of fiscal 2015, the cost reduction initiatives were achieved by the end of fiscal 2016 and other activities under the plan were completed by the end of fiscal 2017. During fiscal 2017, 2016 and 2015, the Company recorded restructuring and restructuring-related charges of $37 million, $202 million (which was partially offset by a $48 million gain on the sale of the Company’s business that provided augmented reality applications) and $190 million, respectively.
Note 11.10. Fair Value Measurements
The following table presents the Company’sour fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 24, 201726, 2021 (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 4,303 | | | $ | 1,378 | | | $ | — | | | $ | 5,681 | |
| Marketable securities: | | | | | | | |
| Corporate bonds and notes | — | | | 4,459 | | | — | | | 4,459 | |
| Equity securities | 682 | | | — | | | — | | | 682 | |
| Mortgage- and asset-backed securities | — | | | 147 | | | — | | | 147 | |
| U.S. Treasury securities and government-related securities | — | | | 10 | | | — | | | 10 | |
| | | | | | | |
| Total marketable securities | 682 | | | 4,616 | | | — | | | 5,298 | |
| Derivative instruments | — | | | 42 | | | — | | | 42 | |
| Other investments | 685 | | | — | | | 41 | | | 726 | |
| Total assets measured at fair value | $ | 5,670 | | | $ | 6,036 | | | $ | 41 | | | $ | 11,747 | |
| Liabilities | | | | | | | |
| Derivative instruments | $ | — | | | $ | 111 | | | $ | — | | | $ | 111 | |
| Other liabilities | 685 | | | — | | | — | | | 685 | |
| Total liabilities measured at fair value | $ | 685 | | | $ | 111 | | | $ | — | | | $ | 796 | |
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 21,016 |
| | $ | 12,933 |
| | $ | — |
| | $ | 33,949 |
|
| Marketable securities | | | | | | | |
| U.S. Treasury securities and government-related securities | 969 |
| | 13 |
| | — |
| | 982 |
|
| Corporate bonds and notes | — |
| | 2,285 |
| | — |
| | 2,285 |
|
| Mortgage- and asset-backed and auction rate securities | — |
| | 93 |
| | 40 |
| | 133 |
|
| Equity and preferred securities and equity funds | 36 |
| | — |
| | — |
| | 36 |
|
| Debt funds | — |
| | 109 |
| | — |
| | 109 |
|
| Total marketable securities | 1,005 |
| | 2,500 |
| | 40 |
| | 3,545 |
|
| Derivative instruments | — |
| | 14 |
| | — |
| | 14 |
|
| Other investments | 369 |
| | — |
| | 125 |
| | 494 |
|
| Total assets measured at fair value | $ | 22,390 |
| | $ | 15,447 |
| | $ | 165 |
| | $ | 38,002 |
|
| Liabilities | | | | | | | |
| Derivative instruments | $ | — |
| | $ | 27 |
| | $ | — |
| | $ | 27 |
|
| Other liabilities | 369 |
| | — |
| | 196 |
| | 565 |
|
| Total liabilities measured at fair value | $ | 369 |
| | $ | 27 |
| | $ | 196 |
| | $ | 592 |
|
Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during fiscal 2017 and 2016.
The following table includes the activity for marketable securities, other investments and other liabilities classified within Level 3 of the valuation hierarchy (in millions):
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Marketable Securities | | Other Investments | | Other Liabilities | | Marketable Securities | | Other Investments |
| Beginning balance of Level 3 | $ | 43 |
| | $ | 37 |
| | $ | — |
| | $ | 224 |
| | $ | 13 |
|
| Total realized and unrealized gains or losses: | | | | | | | | | |
| Included in selling, general and administrative expenses | — |
| | — |
| | (7 | ) | | — |
| | — |
|
| Included in investment and other income, net | — |
| | 3 |
| | — |
| | (4 | ) | | (23 | ) |
| Included in other comprehensive income (loss) | — |
| | 8 |
| | — |
| | (1 | ) | | 15 |
|
| Issuances | — |
| | — |
| | 203 |
| | — |
| | — |
|
| Purchases | — |
| | 111 |
| | — |
| | 2 |
| | 40 |
|
| Sales | — |
| | — |
| | — |
| | (106 | ) | | — |
|
| Settlements | (3 | ) | | (34 | ) | | — |
| | (45 | ) | | (8 | ) |
| Transfers into Level 3 | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers out of Level 3 | — |
| | — |
| | — |
| | (27 | ) | | — |
|
| Ending balance of Level 3 | $ | 40 |
| | $ | 125 |
| | $ | 196 |
| | $ | 43 |
| | $ | 37 |
|
The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs. Transfers out of Level 3 during fiscal 2016 for marketable securities primarily consisted of debt securities with significant upgrades in credit ratings or for which there were observable inputs.
Nonrecurring Fair Value Measurements. The Company measures certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During fiscal 2015, the Company updated the business plans and related internal forecasts related to certain of the Company’s businesses, resulting in impairment charges to write down certain property, plant and equipment, intangible assets and goodwill (Note 2). The Company determined the fair values using cost, income and market approaches. The estimation of fair value and cash flows used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. During fiscal 2017, 2016 and 2015, the Company did not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Note 12.11. Marketable Securities
MarketableOur marketable securities were comprised as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Current | | Noncurrent (1) |
| September 26,
2021 | | September 27,
2020 | | September 26,
2021 | | September 27,
2020 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Available-for-sale debt securities: | | | | | | | |
| Corporate bonds and notes | $ | 4,459 | | | $ | 4,049 | | | $ | — | | | $ | — | |
| Mortgage- and asset-backed and auction rate securities | 147 | | | 66 | | | — | | | 35 | |
| U.S. Treasury securities and government-related securities | 10 | | | 10 | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total available-for-sale debt securities | 4,616 | | | 4,125 | | | — | | | 35 | |
| | | | | | | |
| | | | | | | |
| Equity securities | 682 | | | 352 | | | — | | | — | |
| Time deposit (2) | — | | | 30 | | | — | | | — | |
| Total marketable securities | $ | 5,298 | | | $ | 4,507 | | | $ | — | | | $ | 35 | |
(1) Noncurrent marketable securities were included in other assets. |
| | | | | | | | | | | | | | | |
| | Current | | Noncurrent |
| | September 24,
2017 | | September 25,
2016 | | September 24,
2017 | | September 25,
2016 |
| Available-for-sale: | | | | | | | |
| U.S. Treasury securities and government-related securities | $ | 23 |
| | $ | 1,116 |
| | $ | 959 |
| | $ | 1,099 |
|
| Corporate bonds and notes | 2,014 |
| | 10,159 |
| | 271 |
| | 8,584 |
|
| Mortgage- and asset-backed and auction rate securities | 93 |
| | 1,363 |
| | 40 |
| | 534 |
|
| Equity and preferred securities and equity funds | 36 |
| | 64 |
| | — |
| | 1,682 |
|
| Debt funds | 109 |
| | — |
| | — |
| | 1,803 |
|
| Total available-for-sale | 2,275 |
| | 12,702 |
| | 1,270 |
| | 13,702 |
|
| Time deposits | 4 |
| | — |
| | — |
| | — |
|
| Total marketable securities | $ | 2,279 |
| | $ | 12,702 |
| | $ | 1,270 |
| | $ | 13,702 |
|
During fiscal 2016, the Company exited an investment in a debt fund for which the Company elected the fair value option. The investment would have otherwise been recorded using the equity method. Changes in fair value associated with this investment were recognized in investment and other income, net. During fiscal 2016 and 2015, the net decrease in fair
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value associated with this investment was negligible and $10 million, respectively.(2) At September 24, 2017,27, 2020, marketable securities also included $4 milliona time deposit with an original maturity of time deposits with original maturities that range from 94 to 285greater than 90 days.
At September 24, 2017, theThe contractual maturities of available-for-sale debt securities were as follows (in millions):
|
| | | |
| | September 24,
2017 |
| Years to Maturity: | |
| Less than one year | $ | 2,189 |
|
| One to five years | 1,079 |
|
| Five to ten years | — |
|
| Greater than ten years | — |
|
| No single maturity date | 241 |
|
| Total | $ | 3,509 |
|
| | | | | |
| September 26,
2021 |
| Years to Maturity: | |
| Less than one year | $ | 1,241 | |
| One to five years | 3,219 | |
| Five to ten years | 9 | |
| No single maturity date | 147 | |
| Total | $ | 4,616 | |
Debt securities with no single maturity date included debt funds, mortgage- and asset-backed securities and auction rate securities.
The Company recorded realized gains and losses on sales of available-for-sale securities as follows (in millions):
|
| | | | | | | | | | | |
| | Gross Realized Gains | | Gross Realized Losses | | Net Realized Gains |
| 2017 | $ | 553 |
| | $ | (127 | ) | | $ | 426 |
|
| 2016 | 277 |
| | (37 | ) | | 240 |
|
| 2015 | 540 |
| | (52 | ) | | 488 |
|
Available-for-sale securities were comprised as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| September 24, 2017 | | | | | | | |
| Equity securities | $ | 8 |
| | $ | 28 |
| | $ | — |
| | $ | 36 |
|
| Debt securities (including debt funds) | 3,497 |
| | 13 |
| | (1 | ) | | 3,509 |
|
| | $ | 3,505 |
| | $ | 41 |
| | $ | (1 | ) | | $ | 3,545 |
|
| September 25, 2016 | | | | | | | |
| Equity securities | $ | 1,554 |
| | $ | 204 |
| | $ | (12 | ) | | $ | 1,746 |
|
| Debt securities (including debt funds) | 24,363 |
| | 388 |
| | (93 | ) | | 24,658 |
|
| | $ | 25,917 |
| | $ | 592 |
| | $ | (105 | ) | | $ | 26,404 |
|
The following table shows the gross unrealized losses and fair values of the Company’s investments in individual securities that are classified as available-for-sale and have been in a continuous unrealized loss position deemed to be temporary for less than 12 months and for more than 12 months, aggregated by investment category (in millions):
|
| | | | | | | | | | | | | | | |
| | September 24, 2017 |
| | Less than 12 months | | More than 12 months |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| Corporate bonds and notes | $ | 330 |
| | $ | (1 | ) | | $ | 21 |
| | $ | — |
|
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | |
| | September 25, 2016 |
| | Less than 12 months | | More than 12 months |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. Treasury securities and government-related securities | $ | 444 |
| | $ | (5 | ) | | $ | 16 |
| | $ | — |
|
| Corporate bonds and notes | 2,775 |
| | (12 | ) | | 1,033 |
| | (65 | ) |
| Mortgage- and asset-backed and auction rate securities | 337 |
| | (3 | ) | | 211 |
| | (2 | ) |
| Equity and preferred securities and equity funds | 312 |
| | (4 | ) | | 130 |
| | (8 | ) |
| Debt funds | — |
| | — |
| | 309 |
| | (6 | ) |
| | $ | 3,868 |
| | $ | (24 | ) | | $ | 1,699 |
| | $ | (81 | ) |
In October 2021, we and SSW Partners, a New York-based investment partnership, entered into a definitive agreement (the Merger Agreement) to acquire Veoneer, Inc. (Veoneer) for $37.00 per share in cash, which values the estimated total cash consideration to be paid to Veoneer’s shareholders, inclusive of amounts expected to be paid at closing for Veoneer’s outstanding equity awards and convertible senior notes due 2024, at approximately $4.5 billion. At closing, SSW Partners will acquire all of the outstanding capital stock of Veoneer, shortly after which it will sell Veoneer’s Arriver business to Qualcomm and retain Veoneer’s Tier-1 automotive supplier businesses. Following close of the Arriver business sale, we intend to incorporate Arriver’s computer vision, drive policy and driver assistance technologies into our Snapdragon automotive platform to deliver an open and competitive ADAS (advanced driver assistance systems) platform for automakers and Tier-1 automotive suppliers. The acquisition is subject to a number of conditions, including receipt of United States and other regulatory approvals and the approval of Veoneer’s shareholders, and is not required to be completed by Qualcomm and SSW Partners prior to April 4, 2022. Subject to the satisfaction of these conditions, the acquisition is expected to close in 2022.
We will fund substantially all of the cash consideration that SSW Partners will pay to Veoneer’s shareholders in exchange for (i) our right to acquire, and SSW Partners’ obligation to sell to us, Veoneer’s Arriver business and (ii) our right to receive a portion of the proceeds upon the sale of Veoneer’s Tier-1 automotive supplier businesses by SSW Partners. In addition, we will provide a loan facility (or guarantee amounts provided by a third party) that provides financing to Veoneer to support the Arriver business, to the extent requested by Veoneer in the event that the acquisition has not closed, for the quarter commencing April 1, 2022 and each of the two subsequent quarters, of $120 million per quarter (up to $360 million in the aggregate), which amounts may be forgiven in certain circumstances in which the Merger Agreement is terminated. An additional $120 million for the first quarter of calendar 2023 may be provided under the loan facility if the final outside date, as defined in the Merger Agreement is extended to April 4, 2023.
In accordance with the Merger Agreement, we paid to Magna International Inc. (Magna) a termination fee of $110 million in October 2021 on behalf of Veoneer in connection with the proposed NXP transaction (Note 9),termination of the Company divested a substantial portionpreviously announced agreement and plan of its marketable securities portfolio in order to finance, in part, that transaction. Marketable securities that were expected to be used to finance the NXP transaction were classified as noncurrent at September 24, 2017 as they are not considered available for current operations. Given the change in the Company’s intention to sell certain marketable securities, the Company recognized other-than-temporary impairment losses in fiscal 2017 for such marketable securities (Note 2) and may recognize additional losses prior to the sale of such marketable securities. For the available-for-sale securities that are not expected to be sold to finance the NXP transaction, the Company concluded that the unrealized losses were temporary at September 24, 2017. Further, for debt securities with unrealized losses,merger, dated as of September 24, 2017, the Company did not have the intent to sell, nor was it more likely than not that the Company would be required to sell, such securities before recovery or maturity.July 22, 2021, by and among Magna and Veoneer.
F-32
QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Summarized Quarterly Data (Unaudited)
The following financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods.
The table below presents quarterly data for fiscal 2017 and 2016 (in millions, except per share data):
|
| | | | | | | | | | | | | | | |
| | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| 2017 (1) | | | | | | | |
| Revenues | $ | 5,999 |
| | $ | 5,016 |
| | $ | 5,371 |
| | $ | 5,905 |
|
| Operating income (2) | 778 |
| | 729 |
| | 773 |
| | 333 |
|
| Net income (2) | 681 |
| | 749 |
| | 865 |
| | 168 |
|
| Net income attributable to Qualcomm | 682 |
| | 749 |
| | 866 |
| | 168 |
|
| | | | | | | | |
| Basic earnings per share attributable to Qualcomm (3): | $ | 0.46 |
| | $ | 0.51 |
| | $ | 0.59 |
| | $ | 0.11 |
|
| Diluted earnings per share attributable to Qualcomm (3): | 0.46 |
| | 0.50 |
| | 0.58 |
| | 0.11 |
|
| | | | | | | | |
| 2016 (1) | | | | | | | |
| Revenues | $ | 5,775 |
| | $ | 5,551 |
| | $ | 6,044 |
| | $ | 6,184 |
|
| Operating income | 1,685 |
| | 1,415 |
| | 1,592 |
| | 1,804 |
|
| Net income | 1,496 |
| | 1,164 |
| | 1,443 |
| | 1,599 |
|
| Net income attributable to Qualcomm | 1,498 |
| | 1,164 |
| | 1,444 |
| | 1,599 |
|
| | | | | | | | |
| Basic earnings per share attributable to Qualcomm (3): | $ | 1.00 |
| | $ | 0.78 |
| | $ | 0.98 |
| | $ | 1.08 |
|
| Diluted earnings per share attributable to Qualcomm (3): | 0.99 |
| | 0.78 |
| | 0.97 |
| | 1.07 |
|
| |
(1) | Amounts, other than per share amounts, are rounded to millions each quarter. Therefore, the sum of the quarterly amounts may not equal the annual amounts reported. |
| |
(2) | Operating income and net income in the fourth quarter of fiscal 2017 were negatively impacted by a $778 million charge related to the TFTC fine. |
| |
(3) | Earnings per share attributable to Qualcomm are computed independently for each quarter and the full year based upon respective average shares outstanding. Therefore, the sum of the quarterly earnings per share amounts may not equal the annual amounts reported. |
SCHEDULE II
QUALCOMM INCORPORATEDIncorporated
VALUATION AND QUALIFYING ACCOUNTS
(In
The table below details the activity of the valuation allowance on deferred tax assets for fiscal 2021, 2020 and 2019 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at
Beginning of
Period | | Charged to
Costs and
Expenses | | | | Other | | Balance at
End of
Period |
| Year ended September 26, 2021 | $ | 1,728 | | | $ | 197 | | | | | $ | 1 | | | $ | 1,926 | |
| Year ended September 27, 2020 | 1,672 | | | 60 | | | | | (4) | | | 1,728 | |
| Year ended September 29, 2019 | 1,529 | | | 143 | | | | | — | | | 1,672 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Charged (Credited) to Costs and Expenses | | Deductions | | Other | | Balance at End of Period |
| Year ended September 24, 2017 | | | | | | | | | |
| Allowances: | | | | | | | | | |
| — trade receivables | $ | 1 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 11 |
|
| Valuation allowance on deferred tax assets | 754 |
| | 109 |
| | — |
| | — |
| | 863 |
|
| | $ | 755 |
| | $ | 119 |
| | $ | — |
| | $ | — |
| | $ | 874 |
|
| Year ended September 25, 2016 |
| |
| |
| |
| |
|
| Allowances: |
| |
| |
| |
| |
|
| — trade receivables | $ | 6 |
| | $ | (5 | ) | | $ | — |
| | $ | — |
| | $ | 1 |
|
| Valuation allowance on deferred tax assets | 635 |
| | 118 |
| | — |
| | 1 |
| (a) | 754 |
|
| | $ | 641 |
| | $ | 113 |
| | $ | — |
| | $ | 1 |
| | $ | 755 |
|
| Year ended September 27, 2015 |
| |
| |
| |
| |
|
| Allowances: |
| |
| |
| |
| |
|
| — trade receivables | $ | 5 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
| — notes receivable | 4 |
| | — |
| | (3 | ) | | (1 | ) | (b) | — |
|
| Valuation allowance on deferred tax assets | 414 |
| | 130 |
| | — |
| | 91 |
| (a) | 635 |
|
| | $ | 423 |
| | $ | 131 |
| | $ | (3 | ) | | $ | 90 |
| | $ | 641 |
|
| |
(a) | This amount was recorded to goodwill in connection with a business acquisition. |
| |
(b) | This amount relates to notes receivable on strategic investments that were converted to cost method equity investments. |