QUALCOMM INC.1
1. Company Overview
Billions, trillions times a day… that is how often people around the world touch something
made better by Qualcomm. It could be every technological product, your smartphone, the
tablet placed on your desk or this PC, a wireless modem or your car navigation system. This
American company is an absolute leader in the semiconductor and telecommunications
industry, and while many of Qualcomm breakthroughs are hidden behind technology that we
use every day, its inventions have literally shaped the way we live (Qualcomm, 2019).
A note on the side before continuing the report: unless differently stated, information are
retrieved from Qualcomm’s 2019 and 2018 annual financial reports.
History
Qualcomm origins date back to 1985 in San Diego, California. The company was founded by
MIT alumni Andrew Viterbi and Irwin Jacobs, and nowadays it counts more than 37,000
employees around the globe. The company was named Qualcomm because of QUALity
COMMunications.
The first product they created was OmniTracs: this product served as a way to improve the
communication issues within the trucking business. It allowed trucking companies to track
their drivers and let them send messages to each other. The product became public in 1988,
and is still used by transportation companies worldwide.
In 1991, Qualcomm filed its IPO with the SEC and became a public company. Consequently,
Qualcomm is now listed on the NASDAQ and it issued 4 million shares during the IPO at a
share price of $16.
In the year of 1993, the US Telecommunications industry adopted CDMA as the cellular
standard. CDMA (Code Division Multiple Access) means that each phone conversation can
1 Case written by Alessandro Fumi, Andreu Dominguez Ramonet, Alessio Mariani, Nick
Lammers and Otis van der Meij; and supervised by professor Oriol Amat and Luz Parrondo,
UPF Barcelona School of Management, 2020.
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be identified with a code, which can only be retrieved by the intended recipient: this was the
start of a successful era for Qualcomm, as CDMA revolutionized the industry (there are still
major cell phone companies which operate using CDMA like Sprint Corp S and Verizon
Communications VZ). The full timeline of Qualcomm’s history is reported on the next table.
1985 Qualcomm is founded
1988 Qualcomm pioneers M2M communications
1989 Qualcomm makes a historic phone call, CDMA is proven
1991 Qualcomm becomes a public company
1993 Qualcomm establishes itself as a pioneer for mobile Internet; makes large strides with CDMA
1995 Begins supplying infrastructure, starts chipset and licensing divisions; CDMA commercially launched in Hong Kong
1996 CDMA goes global
1999 Qualcomm becomes an index stock; CDMA2000 1X accepted as 3G
2003 Qualcomm spearheads the evolution of wireless broadband
2005 The Scorpion processor brings consumer electronics features to mobile devices
2007 Qualcomm becomes world’s leading mobile chipset provider; introduces Snapdragon
2008 Qualcomm completes first HSPA+ data call; powers world’s first Android-based mobile device
2009 Qualcomm unveils world’s first multimode 3G/ LTE integrated chipset solution
2011 Qualcomm buys wireless technology company Atheros for 3.1 billion USD (Latman & Sorkin, 2011).
2012 Qualcomm overtakes Intel in market cap (Clarke, 2012).
2014 Qualcomm’s new CEO, Paul E. Jacobs, shifts strategic focus of the company on IoT related wireless technology,
approaching the automotive, wearable industries and expanding Qualcomm reach (Barr, 2014).
2015 Qualcomm pays a billion dollar fine due to abuse of power and cuts nearly 5,000 jobs (Freeman, 2015).
2016 854 million USD fine from South-Korea for unfair business practices; a bug in Qualcomm’s chips expose nearly a
billion Android users (Young Lee & Nellis, 2016; Whitwam, 2016).
2017 Apple files billion dollar lawsuit against Qualcomm; Qualcomm attempts the realization of a ban on iPhone sales in
China (Bartz & Nellis, 2017; Kastrenakes, 2017).
2018 Qualcomm is fined €997 million by the EU for abuse of dominant market position and the company itself filed a
lawsuit against Intel (Emmott, 2019). In the meanwhile, Broadcom (a Singaporean company) acquisition of Qualcomm
ends after U.S. President Donald Trump blocked the attempt, citing national security concerns (Vijayakumar, Awasthi
& Vengattil, 2019).
2019 After a long period of litigation over patents, Apple accepts to make an unspecified payment to Qualcomm. The
companies have also reached a six-year licensing agreement that includes a two-year option to extend and a multiyear
chipset supply agreement (Tibken, 2019). Eventually, Qualcomm is fined again by the EU for abuse of dominant
power (Emmott, 2019).
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Business Overview and Product Portfolio
“From the lofty heights of dreams, we can see the future”. The mission of Qualcomm makes
it clear that innovation is impressed in the company DNA, and its history witnesses how
Qualcomm was able to make an impact in the technology industry.
Qualcomm's business model is simple and based on three steps:
1) Invent: Qualcomm is a pioneer and risk taker, it seeks to restlessly invent the future
of wireless communication.
2) Share: inventions are shared broadly through licensing, creating a wide ecosystem
with access to its technology.
3) Collaborate: Qualcomm collaborates through the whole ecosystem generated by its
innovations (from manufacturers to operators and developers), as to create an
environment that fosters market innovation and growth.
Thanks to its cutting edge technology, the San Diego-based company is a leader in a broad
range of different industries, mainly Wireless Technologies (Cellular Modems, WiFi, RF and
Bluetooth components) and the Processors industry.
Qualcomm is primarily operating in 3 different segments. They conduct business through
QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI
(Qualcomm Strategic Initiatives). Moreover, Qualcomm has also non reportable segments,
including its cyber security solutions, mobile health, small cells and other wireless
technology and service initiatives.
QCT develops and supplies integrated circuits (also known as chips or chipsets), system
software based on CDMA (explained above), OFDMA (a standard feature of Wi-Fi that
allows access points to serve multiple clients at the same time (Rouse, 2019)), and other
technologies for use in mobile devices, wireless networks, devices used in IoT, broadband
gateway equipment, consumer electronic devices, automotive telematics and infotainment
systems.
The Mobile Station Modem (MSM) integrated circuits, which include the Mobile Data
Modem, Qualcomm Single Chip, Qualcomm Snapdragon mobile platforms/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, the Snapdragon mobile platforms and processors provide advanced
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application, graphics and AI processing capabilities. Qualcomm designs both the baseband
integrated circuit and the supporting system, including the RF (Radio Frequency), PM (Power
Management) and wireless connectivity (such as Wi-Fi and Bluetooth) integrated circuits.
This approach enables them to optimize the performance of the wireless device with
improved product features and integration with the network system.
QCT uses primarily a fabless manufacturing model. In fact, the American chipset maker does
not own production facilities or foundries for the production of silicon wafers, essential
elements of integrated circuits. Consequently, either foundry suppliers are responsible for
delivering the finished integrated circuit, or Qualcomm purchases silicon wafer from
semiconductor manufacturers and contracts other third-party manufacturers for the remaining
of the manufacturing and assembly process.
QCT’s sales process is mainly through standard purchase orders for delivery of products, it
allows customers to reschedule deliveries within a defined time frame or to cancel orders
prior to shipment with or without payment of a penalty.
Second, the QSI segment - Qualcomm’s corporate venturing arm - makes strategic
investments and acquisitions that are necessary for the company growth and to maintain
technology leadership in the always changing semiconductors industry. The aim is to open
new or expanding opportunities for Qualcomm technologies. Most of these investments are
into early stage companies in numerous different industries.
Investments are mainly constituted by non-marketable equity instruments and convertible
debt instruments. Moreover, the QSI segment results include revenues and related costs
associated with development contracts with equity investees.
Finally, the QTL segment holds nearly all of Qualcomm's patents. QTL grants licenses to use
portions of Qualcomm’s intellectual property portfolio, which includes certain patent rights
essential to and/or useful in the manufacture and sale of certain wireless products.
Qualcomm’s patent portfolio is by far the most widely and extensively licensed in the
industry, comprising more than 300 licensees.
The vast majority of QTL revenues have been generated through licensees’ sales of
CDMA2000-based, WCDMA-based and LTE-based products (including 3G and 4G multi-
mode devices), such as feature phones and smartphones. Additionally, Qualcomm has
invested and continues to invest in the development of 5G, heavily leveraging its expertise in
3G and 4G technologies.
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On top of the licensing manufacturers of wireless devices and network equipment,
Qualcomm has started arrangements with competitors of the QCT segment, such as
Broadcom, with the aim of providing QCT and the counterparties certain freedom of
operation with respect to each party’s integrated circuits business.
Overall, despite the multiple lawsuits and litigations that impacted the licencing business of
the company over the last year, the key success factors of the company are numerous and
will, according to many, allow the American giant to maintain long-term growth potential
intact (Trefis Team & Great Speculations, 2017). Among these factors, we can certainly find
its strong drive in product diversification over the last few years. Other than the IoT world,
the company has recently signed a partnership with Microsoft for the production of Computer
CPUs, entering a quasi-monopolized market by Intel (Warren, 2019) - which had a 77%
market share in the CPUs industry in 2018 (Trefis, 2019). Eventually, Qualcomm still retains
a technology leadership position in some upcoming and trending technologies, including 5G.
2. Industry analysis and competitors
Industry analysis
As of now, the company operates mainly within the mobile industry. The latter has been
fermenting over the last decades, growing from 60 million connections globally in 1994, to
approximately 7.9 billion connections as of the 30th of September 2018. The growth in
Smartphone adoption will play a major role in sales’ growth of the industry.
The inventions and licensing program of Qualcomm have been of significant importance to
the evolution of the mobile industry. Especially the 3G/4G multimode broadband technology
has been a key driver for its growth. In 2018 there were 5.5 billion 3G/4G connections, which
constituted 69% of all mobile connections. The number of these connections is expected to
grow to 7.2 billion by the year 2022, from which 87% of the connections will come from
emerging markets.
Furthermore, Qualcomm will likely be a leader in the next generation of wireless technology
(5G), deployed at the beginning of 2019. A key aspect of 5G is that it will be deployed not
only in cellular communications, but even in non-traditional industries and generating new
business models and services, including autonomous vehicles, AI-based manufacturing
systems and industrial applications, and in general IoT computing.
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By 2025, 5G connections are projected to reach 1.3 billion worldwide, representing
approximately 15% of total cellular connections.
As a consequence of the growing mobile industry business, Figure 1 shows the increase in
revenues in the semiconductor industry from the year of 1987 till 20182. The figure shows
that revenues grew from 33 billion USD in 1987 to 468.78 billion USD in 2018, and it is
expected to continue to do so (KPMG, 2019). Thus, we can conclude that sales in the
industry are increasing strongly over the years and that the future prospects are positive.
Figure 1. Revenues in the semiconductor industry. Source: WSTS; SIA
2 The revenue of 2019 reported in figure is forecasted and thus we will not take it into account.
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Figure 2. SWOT analysis Qualcomm (source: own elaboration).
Main competitors
Among its three main business, Qualcomm presents numerous competitors. In particular, the
industry in which QCT operates is fiercely competitive (10-k Annual Report, 2018) and, due
to changes and expansions happening over the years, Qualcomm expects the industry to
remain aggressive. When conjecturing about main competitive factors of Qualcomm’s
products, it addresses their “performance, level of integration, quality, compliance with
industry standards [...] and new product innovation” (Qualcomm, 2019, p.12).
For the first segment, QCT, their main competitors include, among others, Intel, NXP
Semiconductors N.V. and Broadcom Limited:
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Intel: Intel is an American semiconductor company incorporated in 1968. After it has been
taken over by Samsung Electronics, it became the second largest and second highest valued
semiconductor chip company worldwide based on revenue.
NXP Semiconductors N.V.: NXP is a Dutch semiconductor manufacturer headquartered in
Eindhoven. Their revenue was around 9.41 billion USD in 2018. Qualcomm tried to acquire
NXP in 2018 for an amount of 44 billion USD, in order to reduce its reliance on the phone
market. However, the take-over was cancelled because Qualcomm failed to secure Chinese
regulatory approval, which was necessary since both companies have significant business in
China.
Broadcom Limited: Broadcom is an American designer, supplier, and manufacturer of
semiconductor and infrastructure software products. In 2018, Broadcom tried to make a bid
on Qualcomm of $117 billion, which was withdrawn after US President Donald Trump
blocked the attempt because of national security concerns. Broadcom’s revenue was around
$20.85 billion in 2018.
Moreover, QCT is facing stronger competition from products internally developed by its
customers, driven mainly by cost cutting decisions and foreign governments support.
As Qualcomm business has been expanding in adjacent industry segments outside traditional
cellular industries, additional competitive factors exist. For instance, the IoT and automotive
business 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 for Qualcomm itself and may result in increased
costs.
In the QSI segment, Qualcomm competes mainly with traditional hardware manufacturers
like DELL and IBM, but also with younger entries like Google. Eventually, the majority of
wireless device companies, (for instance Samsung, Huawei and Sony) have royalty bearing
licenses under the patent portfolio of the QTL segment for use in LTE (10-K annual report
2018, page 11-15) and other proprietary technologies. As the mobile devices industry
matures, many manufacturers are seeking to develop products in house, reducing
substantially the revenues generated by licences and royalties. Moreover, Qualcomm faces
strong competition in the development of intellectual property for future generations of
digital wireless communications technologies and services.
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Sales Ranking
The company has gone through a dynamic period in 2018 and 2019. While the company
ranks second in the fabless cheap producing industry, it is the only company within the top-
fifteen group that experienced a decline in revenues over the fiscal year of 2019. Note that the
chart includes, for each company and for Qualcomm as well, only the revenues related to the
semiconductor industry. This allows to provide an overall picture of how Qualcomm is
performing.
Figure 3. Semiconductor sales leaders (SemiMedia, n.d.)
As can be seen from the table, among the fabless chip producers, Broadcom maintained the
first position despite relatively sluggish growth, while NVIDIA’ surge in revenues of 2018
(driven by the increasing demand of AI hardware technologies) is counterbalanced by a
forecasted drop of 12%. Qualcomm, at least in this industry, is expected to perform much
worse than most of the competitors. However, the revenues reported in figure 3, do not
include all revenues (for instance, a considerable size of revenues of the American company
is due to patenting activities).
Figure 4 below, reports the global market share revenue of leading smartphones applications
processors vendors between 2014 and 2018. The worldwide smartphone AP market volume
was 20.2 billion U.S. dollars in 2017, with a five percent year-over-year decline. From the
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graph is evident why the dominant position of Qualcomm has generated monopoly
accusations.
Figure 4. Market leaders’ market shares (Holst, 2019)
3. Present situation of the company
Overview
As previously mentioned, revenues in fiscal 2018 and 2017 were negatively impacted by the
long lasting dispute with Apple and Foxconn, its affiliates and other suppliers to Apple. This
dramatically damaged Qualcomm’s result, as Apple is a key client for the American
company. Consequently, Qualcomm did not record any royalty revenue due on sales of
Apple’s products in fiscal 2018 or the third or fourth quarter of fiscal 2017. However, the
situation changed in fiscal year 2019, when revenues were positively impacted by the
settlement of such dispute in the third quarter (resulting in an additional $4.7 billion revenues
from licensing and revenues as a consequence of royalties from Apple and its contract
manufacturers for sales in the third and fourth quarters). Not only that, but the company
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revenues will further benefit from sales of new chipset models under the recently announced
multi-year chipset agreement with Apple in the second half of fiscal 2020.
More in general, the sales trend over the last few years is reported below:
Table 1. Sales trend over the years.
Note that this table regards the 3 reportable businesses.
Overall revenues were $24.3 billion, an increase of 7% from fiscal 2018, with net income of
$4.4 billion, compared to a net loss of $5.0 billion in fiscal 2018 (see appendix). From
October 2018 until September 2019, approximately 1.4 billion smartphones are estimated to
have shipped globally, representing a year-over-year decrease of approximately 4% (IDC,
Mobile Phone Tracker, 2019Q3). This is primarily driven by further lengthening of
replacement cycles, particularly in developed regions and China, where consumer demand is
increasingly driven by new product launches and/or innovation cycles as the industry
transitions to 5G.
In the second quarter of fiscal 2018, Qualcomm announced a Cost Plan designed to align the
cost structure to its long-term margin targets. As part of this plan, a series of targeted actions
across Qualcomm businesses were initiated, with the goal of reducing annual costs by at least
$1 billion, excluding incremental costs resulting from any future acquisition of a business.
Actions taken under this plan have been completed, and resulted in achieving substantially all
of this target in fiscal 2019 based on the run rate exiting the second quarter of fiscal 2019
(excluding litigation costs that were in excess of the baseline spend). The company hence
recorded net restructuring and restructuring-related charges of $213 million in fiscal 2019
related to Qualcomm’s Cost Plan.
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Table 2. Overview of the changes year-to-year of Qualcomm revenues and cost of
revenues (Qualcomm, 2019).
Acquisitions and stock performance/repurchases
Failed acquisition of Qualcomm
In 2018 the Trump administration, which has argued that the company’s mobile chip
technology is fundamental to the US being globally competitive in 5G tech mobile
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technology, blocked a hostile takeover bid from rival asian chipmaker Broadcom (Financial
Times, 2018).
NXP Unsuccessful Acquisition
Qualcomm intended to buy the Netherlands based NXP in late 2016 and made an offer of
$38bn, which create some backlash from shareholders of NXP who aimed for a higher offer
(Sherman, 2018). They increased the bid to $44bn, but were unable to pull through due to
regulatory pushback they received from the Chinese government (Sherman, 2018).
Stock Performance and Repurchase Program
Analyzing Qualcomm’s stock price during the fiscal year of 2018, numerous behaviours of
the stock can be outlined.
First, its stock surged in 2018 aided by the company terminating its deal to buy NXP
Semiconductors. However, the major driver of the stock is Qualcomm's massive accelerated
share repurchase program initiated in September 2018. The company announced a $16 billion
share buyback plan as part of a broader initiative to repurchase up to $30 billion worth of its
stock. Such operation, previously announced in May as targeting $10 billion in repurchasing,
comes after Qualcomm’s $44 billion bid to acquire NXP fell apart due to regulatory
roadblocks (Kramer, 2018; Scheetz, 2018).
Figure 5. Stock price fluctuation from January 2018 to December 2019 (Yahoo Finance)
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During the fourth quarter of fiscal 2018, 178.4 million shares were initially delivered to
Qualcomm under these agreements and were retired. The agreements were completed during
the fourth quarter of fiscal 2019, and an additional 68.7 million shares were delivered to the
company and were retired, In total, 247.1 million shares were repurchased at an average price
per share of $64.76.
Products and services
Qualcomm’s product offering is dedicated to helping consumers build technologically
advanced, high quality end products using the company’s innovative technology. Throughout
its products, Qualcomm offers solutions across a highly diversified portfolio of products;
from mobile platforms that support cutting-edge performance, superior connectivity, and
maximise battery life, to a wide range of applications or end products that can be built using
its technologies, Qualcomm offers cutting-edge innovation for everyone. Software and
hardware are combined within products into versatile, purpose-built platforms that will make
a consumer’s technology dreams become reality, while mobile processors, cellular modems,
bluetooth and Wi-fi products are also included in the mix.
While traditionally Qualcomm has operated in the mobile industry (a market where Android
and iOS are by far the most popular operating systems), Qualcomm has recently started
diversifying and proposing solutions for the personal computer industry, for instance with its
new partnership with Microsoft (Warren, 2019).
Customers and distribution channels
Qualcomm has a huge network of distributors and customers. While Qualcomm designs
chips, it does not manufacture those itself because of it’s fabless manufacturing model. This
leads Qualcomm to have a highly developed supply chain network in which everything is
about connectivity. The supply chain’s success rate is well above industry average, and
consists of about 70 partner manufacturing sites. The two key success factors in Qualcomm’s
distribution channel are the delivery and inventory performance. They score well above
industry average when living up to their delivery committed date. The fact that the company
is able to deliver in time, with a smaller average inventory, provides the company a huge
competitive advantage. The device makers and customers of Qualcomm, such as T-mobile
and Samsung, are able to profit from these advantages by obtaining a well flowing production
process. Qualcomm has six core objectives when it comes to their distribution channel: the
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aim is to be proactive, fast, flexible, scalable, reliable and cost-effective in the complete
channel. The outsourcing manufacturing process causes Qualcomm to have a very complex
but flexible distribution channel which has a control tower approach, meaning that most of
the planning of the distribution is done from one central headquarter based in San Diego,
California.
Key success factors
One of Qualcomm’s key success factors is the fact that they are able to extract the maximum
value for their CDMA intellectual property from the key players for mobile devices. CDMA
provided a better efficiency compared to GSM when Qualcomm entered the market in the
90’s. Qualcomm managed to convince the network providers to incorporate their CDMA
channel into the 2G network. From that point on, one of their key success factors has been
incorporated. Their main source of income is their IP business and the royalties they receive
from mobile device makers who include their chips in the mobile devices. Since, Qualcomm
managed to set their CDMA as the 2G standards, they are able to profit from backward
compatibility for years. Since, in rural areas where 4G as well as 3G sometimes is not
available, smartphones which are created nowadays, have to use 2G and 3G chips as well.
Therefore, Qualcomm is still able to make profits from deals they closed years ago (through
backward compatibility). This is an ongoing cycle, providing Qualcomm with ongoing profits
through their very strong IP business.
4. Main problems or challenges the company is facing now
Overall, as mentioned, Qualcomm has positive future prospects. Qualcomm is seen as the
market leader for the 5G network, their recent deal with Apple contributes to this. This deal
allows them to develop 5G network for the Apple iPhone. However, Qualcomm is also facing
some major challenges. One of the main threats is US-China trade war. Qualcomm is strongly
reliant on a smooth US-China trading relationship since a lot of the manufacturers of
Qualcomm are China based. Increasing trading tariffs for Chinese products into the US
causes Qualcomm to have largely increasing purchasing costs.
On top of that, there are some legal disputes when it comes to competitiveness. One of the
rulings stated that “Qualcomm wrongfully suppressed competitors in the wireless chip
market, using its dominant position to force unnecessary licensing fees” (Tibken, 2019). This
ruling requires the American company to renegotiate licensing agreements it has with
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customers, and change their business practices. The dispute started two years ago when the
Federal trade commission accused Qualcomm of operating a monopoly and forcing
customers like Apple to work with them, they also claimed that Qualcomm was asking
excessive licensing fees.
Furthermore, a high concentration of risk still persists in Qualcomm’s business. The industry
is experiencing, and is likely to continue to do so, a concentration of device share among a
few companies, particularly at the premium tier, contributing to this trend. In Qualcomm’s
case, a small number of customers/licensees historically have accounted for a significant
portion of its consolidated revenues. In fiscal 2019, 2018 and 2017, revenues from Apple Inc.
and its contract manufacturers, Samsung Electronics and combined revenues from OPPO
Mobile Telecommunications, Vivo Communication Technology and their respective
affiliates, each comprised 10% or more of consolidated revenues. Revenues from Xiaomi also
comprised 10% or more of consolidated revenues in fiscal 2019 and 2018. In addition to that,
these Chinese OEMs will continue to grow their device share in China and are increasing
their device share in regions outside of China.
Similarly, certain of these Chinese OEM customers have developed and other companies may
in the future develop their own integrated circuit products and use such integrated circuit
products, or other integrated circuit products, in their devices. Rather than Qualcomm
integrated circuit products, whether due to pressure from the Chinese government as part of
its broader economic policies, the OEMs’ concerns over losing access to Qualcomm
integrated circuit products as a result of U.S./Chinese trade tensions, or otherwise.
5. Questions:
1) Analyze the different businesses of Qualcomm
2) Define Qualcomm’s business strengths and weaknesses.
3) Define Qualcomm’s financial strengths and weaknesses.
4) Compute the UPF Z-score and comment the result
5) Explain and motivate the main differences between 2018 financial statement and
previous years.
6) Quantify the repurchase program (dividends) between 2017 and 2018.
7) What do you think about the Stock Repurchase decision?
8) Explain the effects of the dispute with Apple on the financial Statement
9) Give recommendations to the management.
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6. References
Bartz, D. & Nellis, S. (2017, January 20). Apple files $1 billion lawsuit against chip supplier
Qualcomm. Reuters. Retrieved from: https://www.reuters.com/
Clarke, P. (2012, September 11). Qualcomm overtakes Intel in market capitalization. EE Times.
Retrieved from: https://www.eetimes.com/
Companies History. (n.d.). Qualcomm. Retrieved from: https://www.companieshistory.com
Comparably. (n.d.). Qualcomm Mission, Vision & Values. Retrieved from:
https://www.comparably.com/
Emmott, R. (2019, July 18). EU Commission fines Qualcomm for second time over market abuse.
Reuters. Retrieved from: https://www.reuters.com/
Faber, D. & Leswing, K. (2019, April 16). Qualcomm surges after announcing a settlement with
Apple over patent royalties. CNBC. Retrieved from: https://www.cnbc.com/
Fenfort University. (n.d.). Qualcomm SWOT Analysis / Matrix. Retrieved from:
http://fernfortuniversity.com/
Holst, A. (2019, November 20). Global market revenue share of leading smartphone applications
processor vendors from 2014 to 2019 [image]. Retrieved from: https://www.statista.com/
Kastrenakes, J. (2017, October 17). Qualcomm is trying to get iPhone sales banned in China. The
Verge. Retrieved from: https://www.theverge.com
KPMG International, GSA. (2019). Semiconductors: As the backbone of the connected world, the
industry’s future is bright. Retrieved from: https://www.kpmg.com
Kramer, M. (2018, September 13). Qualcomm Seen Rising 10% Amid Giant Stock Buyback.
Investopedia. Retrieved from: https://www.investopedia.com/
Johnson, M. (2015, January 29). 5 Facts You Should Know About Qualcomm. NASDAQ. Retrieved
from: https://www.nasdaq.com/
Lattman, P. & Sorkin, A. (2011, January 4). Qualcomm Is Said to Be Set to Buy Atheros for
$3.5 Billion. The New York Times. Retrieved from: https://dealbook.nytimes.com/
Martina, M. & Nellis, S. (2018, July 5). Qualcomm ends $44 billion NXP bid after failing to win
China approval. Reuters. Retrieved from:https://www.reuters.com
Miller, M. & Randewich, N. (2015, February 10). Qualcomm to pay $975 million to resolve China
antitrust dispute. Reuters. Retrieved from: https://www.reuters.com/
Petersen, C. (2016, April 16). Qualcomm. Supply Chain Best Practices. Retrieved from:
http://www.scw-mag.com/
Qualcomm. (n.d.). About. Retrieved from: https://www.qualcomm.com/
Qualcomm. (n.d.). Invention. Retrieved from: https://www.qualcomm.com/
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Qualcomm. (n.d.). The man behind a billion connections. Retrieved from:
https://www.qualcomm.com/
Rouse, M. (n.d.). OFDMA (orthogonal frequency-division multiple access). Retrieved from:
https://searchnetworking.techtarget.com/
Semimedia. (n.d.). IC Insights releases semiconductor manufacturer sales forecast rankings [image].
Retrieved from: http://www.semimedia.cc/
Sheetz, M. (2018, July 31). Qualcomm shares rise after tender offer to purchase up to $10 billion of
its shares. CNBC. Retrieved from: https://www.cnbc.com
Sherman, A. (2018, July 25). Qualcomm terminates NXP deal, will buy back $30 billion of stock.
CNBC. Retrieved from: https://www.cnbc.com/.
SmarterAnalyst. (2019, June 21). Qualcomm (QCOM) Faces Challenges, But the Stock Remains a
‘Buy’. Yahoo Finance. Retrieved from: https://finance.yahoo.com
Tibken, S. (2019, April 16). Apple and Qualcomm settle: Here's what it means for your next iPhone.
CNet. Retrieved from: https://www.cnet.com/
Tibken, S. (2019, May 22). Qualcomm-FTC lawsuit: Everything you need to know. CNet. Retrieved
from: https://www.cnet.com/
Treffis Team & Great Speculations. (2019, September 24). AMD vs Intel: A Detailed Comparison of
Revenue And Key Operating Metrics. The New York Times. Retrieved from:
https://www.forbes.com/
Vijayakumar, S., Awasthi, S. & Vengattil, M. (2018, March 14). Timeline: Broadcom-Qualcomm
saga comes to an abrupt end. Reuters. Retrieved from: https://www.reuters.com/
Walker, N. (2016, October 6). Qualcomm: a history. Manufacturing Global. Retrieved from:
https://www.manufacturingglobal.com
Warren, T. (2019, October 2). Inside Microsoft’s new custom surface processors with AMD and
Qualcomm. The Verge. Retrieved from: https://www.theverge.com/
Whitwam, R. (2016, August 8). Qualcomm bugs expose nearly 1 billion Android devices to exploits.
ExtremeTech. Retrieved from: https://www.extremetech.com/
Young Lee, S. & Nellis, S. (2016, December 28). South Korea fines Qualcomm $854 million for
violating competition laws. Reuters. Retrieved from: https://www.reuters.com/
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7. Appendix
Segment results -QCT
Figure 6. QCT Results: 2017 vs 2018 vs 2019, in Millions (Qualcomm, 2019)
Segment results -QLT
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Figure 7. QLT Results: 2017 vs 2018 vs 2019, in Millions (Qualcomm, 2019)
Segments Results - QSI
Figure 8. QCT Results: 2017 vs 2018 vs 2019, in Millions (Qualcomm, 2019)
Financial statements
CONSOLIDATED BALANCE SHEETS - USD ($) in Millions Broadcom
2019 % Sep. 30,2019 % Sep. 30, 2018 % Sep. 24, 2017 %
Sep. 25, 2016 % Sep. 27, 2015
Cash and cash equivalents 5055 7.49 11,839 35.92 11,777 36.03 35,029 53 5,946 11 7,560
Marketable securities 0.00 421 1.28 311 0.95 2,279 3 12,702 24 9,761
Accounts receivable, net 3259 4.83 2,471 7.50 2,904 8.88 3,632 6 2,219 4 1,964
Inventories 874 1.29 1,400 4.25 1,693 5.18 2,035 3 1,556 3 1,492
Deferred tax assets 0.00 0 0.00 0 0.00 0 0 0 0 635
Other current assets 729 1.08 634 1.92 699 2.14 618 1 558 1 687
Total current assets 9917 14.69 16,765 50.87 17,384 53.18 43,593 67 22,981 44 22,099
Marketable securities 0.00 0 0.00 35 0.11 1,270 2 13,702 26 13,626
Deferred tax assets 0.00 1,196 3.63 904 2.77 2,900 4 2,030 4 1,453
Property, plant and equipment, net 2565 3.80 3,081 9.35 2,975 9.10 3,216 5 2,306 4 2,534
Goodwill 36714 54.40 6,282 19.06 6,498 19.88 6,623 10 5,679 11 5,479
Other intangible assets, net 17554 26.01 2,172 6.59 2,955 9.04 3,737 6 3,500 7 3,742
Other assets 743 1.10 3,461 10.50 1,935 5.92 4,147 6 2,161 4 1,863
Total Non Current Assets 57576 85.31 16,192 49.13 15,302 46.82 21,893 33 29,378 56 28,697
Total assets 67493 100 32,957 100 32,686 100 65,486 100 52,359 100 50,796
Trade accounts payable 855 2.01 1,368 5 1,825 6 1,971 6 1,858 9 1,300
Payroll and other benefits related liabilities 641 1.51 1,048 4 1,081 3 1,183 3 934 5 861
Unearned revenues 0.00 565 2 500 2 502 1 509 2 583
Short-term debt 2787 6.55 2,496 9 1,005 3 2,495 7 1,749 8 1,000
Other current liabilities 2616 6.15 3,458 12 6,825 21 4,756 14 2,261 11 2,356
Total current liabilities 6899 16.21 8,935 32 11,236 35 10,907 31 7,311 36 6,100
Unearned revenues 0.00 1,160 4 1,620 5 2,003 6 2,377 12 2,496
Income taxes payable 0.00 2,088 7 2,312 7 0 0 0 0 0
Long-term debt 30011 70.53 13,437 48 15,365 48 19,398 56 10,008 49 9,969
Other liabilities 5642 13.26 2,428 9 1,225 4 2,432 7 895 4 817
Total Non Current Liabilities 35653 83.79 19,113 68 20,522 65 23,833 69 13,280 64 13,282
Total liabilities 42552 100 28,048 100 31,758 100 34,740 100 20,591 100 19,382
Common stock and paid-in capital, $0.0001 par value (Note 13)
343 1 0 0 274 0 414 1 0
3 Note 1: In 2017: 6,000 shares authorized; 1,474 and 1,476 shares issued and outstanding, respectively. In 2018: 6,000 shares authorized; 1,219 and 1,474 shares issued and
outstanding, respectively. In 2019: 6,000 shares authorized; 1,145 and 1,219 shares issued and outstanding, respectively.
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Retained earnings 4,466 14 663 2 30,088 46 30,936 59 31,226
Accumulated other comprehensive income -140 -0.21 100 0 265 1 384 1 428 1 195
Total stockholders’ equity 24941 36.95 4,909 15 928 3 30,746 47 31,778 61 31,421
Total liabilities and stockholders’ equity 67493 100 32,957 100 32,686 100 65,486 100 52,359 100 50,796
Figure 9. Consolidated Balance Sheets
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CONSOLIDATED STATEMENTS OF
OPERATIONS - USD ($) in Millions
Broadcom
2019 %
Sep.
30,2019 %
Sep. 30,
2018 %
Sep. 24,
2017 %
Sep. 25,
2016 %
Sep. 27,
2015 %
Sep. 28,
2014 %
Equipment and services $ 18,117 80 $ 14,611 60 $ 17,400 77 $ 16,647 75 $ 15,467 66 $ 17,079 68 $ 18,625 70
Licensing 4,480 20 9,662 40 5,332 23 5,644 25 8,087 34 8,202 32 7,862 30
Total revenues 22,597 100 24,273 100 22,732 100 22,291 100 23,554 100 25,281 100 26,487 100
Costs and expenses: Cost of revenues 10,114 45 8,599 35 10,244 45 9,792 44 9,749 41 10,378 41 10,686 40
Research and development 4,696 21 5,398 22 5,625 25 5,485 25 5,151 22 5,490 22 5,477 21
Selling, general and administrative 1,709 8 2,195 9 2,986 13 2,658 12 2,385 10 2,344 9 2,290 9
Other 2,634 12 414 2 3,135 14 1,742 8 (226) (1) 1,293 5 484 2
Total costs and expenses 19,153 85 16,606 68 21,990 97 19,677 88 17,059 72 19,505 77 18,937 71
Operating income 3,444 15 7,667 32 742 3 2,614 12 6,495 28 5,776 23 7,550 29
Interest expense (1,444) (6) (627) (3) (768) (3) (494) (2) (297) (1) (104) (0) (5) (0)
Investment and other income, net (Note 2) 226 1 441 2 539 2 900 4 635 3 815 3 1,233 5
Income before income taxes 4,662 21 7,481 31 513 2 3,020 14 6,833 29 6,487 26 8,778 33
Income tax expense (Note 3) (510) (2) (3,095) (13) (5,377) (24) (555) (2) (1,131) (5) (1,219) (5) (1,244) (5)
Discontinued operations, net of income taxes (12) (0) 0 0 0 0 0 0 0 0 0 0 430 2
Net (loss) income 5,184 23 4,386 18 (4,864) (21) 2,465 11 5,702 24 5,268 21 7,964 30
Net loss attributable to noncontrolling interests
0 0 0 0 1 0 3 0 3 0 3 0
Net (loss) income attributable to Qualcomm
$ 4,386 18 $ (4,864) (21) $ 2,466 11 $ 5,705 24 $ 5,271 21 $ 7,967 30
Basic (loss) earnings per share attributable to
Qualcomm
$ 6.77 $ 3.63
$ (3.32)
$ 1.67
$ 3.84
3.26
4.73
Diluted (loss) earnings per share attributable to
Qualcomm
$ 6.43 $ 3.59
$ (3.32)
$ 1.65
$ 3.81
3.22
4.40
Shares used in per share calculations:
Basic 398
1,210
1,463
1,477
1,484
1,618
1,683
Diluted 419
1,220
1,463
1,490
1,498
1,639
1,714
Figure 10. Consolidated Income Statement
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in
Millions
12 Months Ended Sep. 30,
2019
Sep. 30,
2018
Sep. 24,
2017
Sep. 25,
2016
Sep. 27,
2015
Sep. 28,
2014
Operating Activities: Net (loss) income $ 4,386 $ (4,864) $ 2,465 $ 5,702 $ 5,268 $ 7,964
Adjustments to reconcile net (loss) income to net cash provided by operating
activities: Depreciation and amortization expense 1,401 1,561 1,461 1,428 1,214 1,150
Income tax provision in excess of (less than) income tax payments (Note 3) 1,976 4,502 (400) (200) 47 298
Non-cash portion of share-based compensation expense 1,037 883 914 943 1,026 1,059
Net realized gains on marketable securities and other investments (356) (124) (530) (288) (500) (826)
Indefinite and long-lived asset impairment charges 203 273 76 107 317 642
Impairment losses on marketable securities and other investments 135 75 177 172 200 180
Gain on sale of wireless spectrum 0 0 0 (380) 0 0
Other items, net (272) 129 146 77 (16) (17)
Gain on sale of discontinued operations 0 0 0 0 0 (665)
Changes in assets and liabilities: Accounts receivable, net 1,373 734 (1,104) (232) 550 (281)
Inventories 273 337 (200) (49) 93 (155)
Other assets 78 30 169 246 (793) 108
Trade accounts payable (443) (94) (45) 541 (908) 619
Payroll, benefits and other liabilities (2,376) 687 2,103 (128) (328) (617)
Unearned revenues (129) (234) (231) (307) (561) (292)
Net cash provided by operating activities 7,286 3,895 5,001 7,632 5,506 8,887
Investing Activities: Capital expenditures (887) (784) (690) (539) (994) (1,185)
Purchases of available-for-sale marketable securities 0 (5,936) (19,062) (18,015) (15,400) (13,581)
Proceeds from sales and maturities of available-for-sale securities 139 9,188 41,715 14,386 15,080 13,587
Purchases of trading securities 0 0 0 (177) (1,160) (3,075)
Proceeds from sales and maturities of trading securities 0 0 0 779 1,658 2,824
Purchases of other marketable securities
(49) (710) 0 0 (220)
Proceeds from sales and maturities of other marketable securities 50 706 450 0 0
Release (deposits) of investments designated as collateral 126 2,000 (2,000) 0 0 0
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Acquisitions and other investments, net of cash acquired (252) (326) (1,544) (812) (3,019) (895)
Proceeds from other investments 222 23 59 0 0
Proceeds from sale of wireless spectrum 0 0 0 232 0 0
Other items, net 68 16 25 149 (3) 81
Net cash (used) provided by investing activities (806) 4,381 18,463 (3,488) (3,572) (1,639)
Financing Activities: Proceeds from short-term debt 5,989 11,131 8,558 8,949 4,083 0
Repayment of short-term debt (6,492) (11,127) (9,309) (8,200) (3,083) 0
Proceeds from long-term debt 0 0 10,953 0 9,937 0
Repayment of long-term debt 0 (5,500) 0 0 Proceeds from issuance of common stock 414 603 497 668 787 1,439
Repurchases and retirements of common stock (1,793) (22,580) (1,342) (3,923) (11,246) (4,549)
Dividends paid (2,968) (3,466) (3,252) (2,990) (2,880) (2,586)
Payments of tax withholdings related to vesting of share-based awards (266) (280) (268) (224) x x
Payment of purchase consideration related to RF360 joint venture (1,163) (157) (115) 0 0 0
Other items, net (107) (111) (151) (34) 38 (64)
Net cash (used) provided by financing activities (6,386) (31,487) 5,571 (5,754) (2,261) (5,480)
Effect of exchange rate changes on cash and cash equivalents (32) (41) 48 (4) (20) (3)
Net (decrease) increase in cash and cash equivalents 62 (23,252) 29,083 (1,614) (347) 1,765
Cash and cash equivalents at beginning of period 11,777 35,029 5,946 7,560 7,907 6,142
Cash and cash equivalents at end of period 11,839 $ 11,777 $ 35,029 $ 5,946 $ 7,560 $ 7,907
Figure 11. Consolidated Cash Flow statement
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Main Ratios
Broadcom 2019 Sep.
30,2019
Sep. 30,
2018
Sep. 24,
2017
Sep. 25,
2016
Sep. 27,
2015
DEBT AND CAPITALIZATION
Debt= Liability / Assets 0.63 0.85 0.97 0.53 0.39 0.38
Debt Quality= Current Liabilities / Total Liabilities 0.16 0.32 0.35 0.31 0.36 0.31
Repayment Capacity= Cash flow /Loans 0.48 0.21 -0.10 0.11 0.35 0.33
Cost of debt= Financial Expenses / Loans -0.03 -0.02 -0.02 -0.01 -0.01 -0.01
Financial Expenses= Financial Expenses / Sales -0.06 -0.03 -0.03 -0.02 -0.01 0.00
LIQUIDITY
Liquidity= Current Assets / Current Liabilities 1.44 1.88 1.55 4.00 3.14 3.62
Treasury= Debtors + Cash / Current Liabilities 1.21 1.60 1.31 3.54 1.12 1.56
Acid Test= Cash / Current Liabilities 0.73 1.33 1.05 3.21 0.81 1.24
Z (UPF)= -3,9 + 1,28 CA/CL+ 6,1 E/A+ 6,5 NI/A+ 4,8 NI/E 4.67 4.56 -27.87 4.71 5.39 5.99
Working Capital (real) (euros)= Current assets – Current liabilities 3,018.00 7,830.00 6,148.00 32,686.00 15,670.00 15,999.00
Operating Working Capital (euros)= Operating current assets – Operating
current liabilities 3,278.00 2,503.00 2,772.00 3,696.00 1,917.00 2,156.00
Operating CA= Inventory + Clients + Other operating CA + Minimumcash
required 4,133.00 3,871.00 4,597.00 5,667.00 3,775.00 3,456.00
Operating CL= Suppliers + Other operating CL + Accruals 855.00 1,368.00 1,825.00 1,971.00 1,858.00 1,300.00
Working Capital Deficit (euros) -260.00 5,327.00 3,376.00 28,990.00 13,753.00 13,843.00
ASSETS MANAGEMENT
Non-current assets turnover= Sales / Non-current assets 0.39 1.50 1.49 1.02 0.80 0.88
Current assets turnover= Sales / Current aassets 2.28 1.45 1.31 0.51 1.02 1.14
DEADLINES
Inventories days=Stocks / Daily cost of sales 31.54 59.43 60.32 75.86 58.26 52.47
Days receivable (days)= Clients / Daily Sales 52.64 37.16 46.63 59.47 34.39 28.36
Days payables (days)= Suppliers / Daily cost of sales 30.86 58.07 65.03 73.47 69.56 45.72
SALES
Sales growth= Last year’s sales / Previous year sales 1.18 1.07 1.02 0.95 0.93 0.95
PROFITABILITY, SELF-FINANCING AND GROWTH
Return on assets= EBIT / Assets 0.05 0.23 0.02 0.04 0.12 0.11
Return on equity =Net Income / Equity 0.21 0.89 -5.24 0.08 0.18 0.17
Cash flow / Sales 0.43 0.30 0.17 0.22 0.32 0.22
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Cash flow / Assets 0.14 0.22 0.12 0.08 0.15 0.11
Dividends / Net profit - -0.68 0.71 -1.32 -0.52 -0.55
P/E - 21.25 (neg EPS) 29.34 16.17 14.55
Payout - 0.69 0.00 1.34 0.53 0.56
Dividends / Net equity - -0.60 -3.73 -0.11 -0.09 -0.09
Figure 12. Main ratios of the company
ROE = Sales /Assets (Assets/Equity) x (EBT/EBIT) Net Profit/Sales
Broadcom 2019 0.21 0.33 2.71 0.23
Sep. 30,2019 0.89 0.74 6.71 0.18
Sep. 30, 2018 -5.24 0.70 35.22 -0.21
Sep. 24, 2017 0.08 0.34 2.13 0.11
Sep. 25, 2016 0.18 0.45 1.65 0.24
Sep. 27, 2015 0.17 0.50 1.62 0.21
Figure 13. ROE breakdown of the company