filings.toolsQualcomm 10-Q 2022-12-25
Filed 2023-02-02. 8 sections, 282K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
(Mark one)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 25, 2022
OR
| ☐ | 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)
| Delaware | 95-3685934 | |||||||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| 5775 Morehouse Dr., San Diego, California | 92121-1714 | |||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) |
(858) 587-1121
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.0001 par value | QCOM | Nasdaq Stock Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock was 1,115 million at January 31, 2023.
QUALCOMM Incorporated
Form 10-Q
For the Quarter Ended December 25, 2022
Risk Factors Summary:
Our business is subject to numerous risks and uncertainties, including those described in the section labeled “Risk Factors” in “Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report. These risks include, but are not limited to, the following:
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, geopolitical conflicts 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 operate under a hybrid work model 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 or other legal 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
*•*The COVID-19 pandemic, or a similar health crisis, may impact our business or results of operations in the future.
*•*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.
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| QUALCOMM Incorporated | ||||||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| (In millions, except par value amounts) | ||||||||||||||
| (Unaudited) |
| December 25, 2022 | September 25, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 4,808 | $ | 2,773 | |||||||
| Marketable securities | 3,430 | 3,609 | |||||||||
| Accounts receivable, net | 3,960 | 5,643 | |||||||||
| Inventories | 6,932 | 6,341 | |||||||||
| Held for sale assets | 721 | 733 | |||||||||
| Other current assets | 1,247 | 1,625 | |||||||||
| Total current assets | 21,098 | 20,724 | |||||||||
| Deferred tax assets | 2,092 | 1,803 | |||||||||
| Property, plant and equipment, net | 5,215 | 5,168 | |||||||||
| Goodwill | 10,566 | 10,508 | |||||||||
| Other intangible assets, net | 1,796 | 1,882 | |||||||||
| Held for sale assets | 1,199 | 1,200 | |||||||||
| Other assets | 8,048 | 7,729 | |||||||||
| Total assets | $ | 50,014 | $ | 49,014 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 2,562 | $ | 3,796 | |||||||
| Payroll and other benefits related liabilities | 1,460 | 1,486 | |||||||||
| Unearned revenues | 289 | 369 | |||||||||
| Short-term debt | 1,446 | 1,945 | |||||||||
| Held for sale liabilities | 646 | 581 | |||||||||
| Other current liabilities | 3,678 | 3,689 | |||||||||
| Total current liabilities | 10,081 | 11,866 | |||||||||
| Unearned revenues | 105 | 144 | |||||||||
| Income taxes payable | 1,472 | 1,472 | |||||||||
| Long-term debt | 15,431 | 13,537 | |||||||||
| Held for sale liabilities | 111 | 119 | |||||||||
| Other liabilities | 4,004 | 3,863 | |||||||||
| Total liabilities | 31,204 | 31,001 | |||||||||
| Commitments and contingencies (Note 6) | |||||||||||
| 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; 1,119 and 1,121 shares issued and outstanding, respectively | — | 195 | |||||||||
| Retained earnings | 18,517 | 17,840 | |||||||||
| Accumulated other comprehensive income (loss) | 293 | (22) | |||||||||
| Total stockholders’ equity | 18,810 | 18,013 | |||||||||
| Total liabilities and stockholders’ equity | $ | 50,014 | $ | 49,014 |
| See accompanying notes. | ||||||||||||||
| QUALCOMM Incorporated | ||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
| (In millions, except per share data) | ||||||||||||||
| (Unaudited) |
| Three Months Ended | |||||||||||||||||||||||
| December 25, 2022 | December 26, 2021 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Equipment and services | $ | 7,784 | $ | 8,682 | |||||||||||||||||||
| Licensing | 1,679 | 2,023 | |||||||||||||||||||||
| Total revenues | 9,463 | 10,705 | |||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of revenues | 4,044 | 4,303 | |||||||||||||||||||||
| Research and development | 2,251 | 1,930 | |||||||||||||||||||||
| Selling, general and administrative | 623 | 608 | |||||||||||||||||||||
| Other | 80 | — | |||||||||||||||||||||
| Total costs and expenses | 6,998 | 6,841 | |||||||||||||||||||||
| Operating income | 2,465 | 3,864 | |||||||||||||||||||||
| Interest expense | (170) | (139) | |||||||||||||||||||||
| Investment and other income, net | 76 | 140 | |||||||||||||||||||||
| Income from continuing operations before income taxes | 2,371 | 3,865 | |||||||||||||||||||||
| Income tax expense | (98) | (466) | |||||||||||||||||||||
| Income from continuing operations | 2,273 | 3,399 | |||||||||||||||||||||
| Discontinued operations, net of income taxes | (38) | — | |||||||||||||||||||||
| Net income | $ | 2,235 | $ | 3,399 | |||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||
| Continuing operations | $ | 2.02 | $ | 3.02 | |||||||||||||||||||
| Discontinued operations | (0.03) | — | |||||||||||||||||||||
| Net income | $ | 1.99 | $ | 3.02 | |||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Continuing operations | $ | 2.01 | $ | 2.98 | |||||||||||||||||||
| Discontinued operati |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in “Part I, Item 1” of this Quarterly Report and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended September 25, 2022 contained in our 2022 Annual Report on Form 10-K.
This Quarterly Report (including but not limited to this section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “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 Quarterly Report. Additionally, statements concerning future matters such as our future business, prospects, results of operations or financial condition; 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; our expectations regarding future demand or supply conditions or macroeconomic factors; strategic investments or acquisitions, and the anticipated timing or benefits thereof; cost reduction initiatives and associated restructuring charges; legal or regulatory matters; U.S./China trade or national security tensions; vertical integration by our customers; competition; annual effective tax rates; and other statements regarding matters that are not historical are also forward-looking statements.
Although forward-looking statements in this Quarterly 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 the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly 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 Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
First Quarter Fiscal 2023 Overview
Revenues for the first quarter of fiscal 2023 were $9.5 billion, a decrease of 12% compared to the year ago quarter, with net income of $2.2 billion, a decrease of 34% compared to the year ago quarter. Key items from the first quarter of fiscal 2023 included:
-
QCT and QTL revenues were negatively impacted by the weakness in the macroeconomic environment (which negatively impact consumer demand for smartphones and other devices that incorporate our products and technologies) and our customers drawing down on their inventory (which is at elevated levels given the rapid deceleration in consumer demand and the easing of supply constraints).
-
QCT revenues decreased by 11% in the first quarter of fiscal 2023 compared to the year ago quarter primarily due to lower handset revenues, partially offset by higher IoT and automotive revenues.
-
QTL revenues decreased by 16% in the first quarter of fiscal 2023 compared to the year ago quarter.
Our Business and Operating Segments
We develop and commercialize foundational technologies and products used in mobile devices and other wireless products. We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents 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. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our cloud AI inference processing initiative.
Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering and research and development
functions, are operated by Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. 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.
Seasonality. Many of our products and much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. Our revenues have historically fluctuated based on consumer demand for devices, as well as on the timing of customer/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 during device launches incorporating our products and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future. Further, the trends for QTL have been, and may in the future be, impacted by disputes and/or resolutions with licensees and/or governmental investigations or proceedings.
Results of Operations
| Revenues (in millions) | |||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| December 25, 2022 | December 26, 2021 | Change | |||||||||||||||||||||||||||||||||
| Equipment and services | $ | 7,784 | $ | 8,682 | $ | (898) | |||||||||||||||||||||||||||||
| Licensing | 1,679 | 2,023 | (344) | ||||||||||||||||||||||||||||||||
| $ | 9,463 | $ | 10,705 | $ | (1,242) |
First quarter 2023 vs. 2022
The decrease in revenues in the first quarter of fiscal 2023 was primarily due to:
- $903 million in lower equipment and services revenues from our QCT segment
- $294 million in lower licensing revenues from our QTL segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial market risks related to interest rates, foreign currency exchange rates and equity prices are described in our 2022 Annual Report on Form 10-K, along with certain updates described below. At December 25, 2022, there have been no material changes to the financial market risks described at September 25, 2022.
Interest Rate Risk. At September 25, 2022, we had outstanding forward-starting interest rate swaps with an aggregate notional amount of $1.6 billion to hedge the variability of forecasted interest payments on anticipated debt issuances. During the first quarter of fiscal 2023, in connection with our debt issuance in November 2022, we terminated these swaps, and the related gains of $334 million are being recorded as a reduction to interest expense over the hedged portions of the related debt.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as 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 Quarterly Report.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined under Rule 13a-15(f) promulgated under the Exchange Act, in the first quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding certain legal proceedings is provided in this Quarterly Report in “Notes to Condensed Consolidated Financial Statements, Note 6. Commitments and Contingencies.” We are also engaged in numerous other legal actions arising in the ordinary course of our business, 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 1A. RISK FACTORS
We have provided updated Risk Factors in the section labeled “Risk Factors” in “Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We do not believe those updates have materially changed the type or magnitude of the risks we face in comparison to the disclosure provided in our 2022 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Our purchases of our equity securities in the first quarter of fiscal 2023 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) | |||||||||||||||||||||
| September 26, 2022 to October 23, 2022 | — | $ | — | — | $ | 8,119 | |||||||||||||||||
| October 24, 2022 to November 20, 2022 | 3,590 | 117.93 | 3,590 | 7,696 | |||||||||||||||||||
| November 21, 2022 to December 25, 2022 | 6,997 | 121.01 | 6,997 | 6,849 | |||||||||||||||||||
| Total | 10,587 | 10,587 |
(1) Average Price Paid Per Share excludes cash paid for commissions.
(2) On October 12, 2021, we announced a $10.0 billion stock repurchase program. The stock repurchase program has no expiration date. Since December 25, 2022, we repurchased and retired 5 million shares of common stock for $531 million. Shares withheld to satisfy statutory tax withholding requirements related to the vesting of share-based awards are not issued or considered stock repurchases under our stock repurchase program and, therefore, are excluded from the table above.
Unregistered Sales of Equity Securities
In connection with our acquisition of NuVia, Inc. (Nuvia), which closed in March 2021, 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. During the quarter ended December 25, 2022, we issued an aggregate of 201,811 additional shares of our common stock to the 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 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
(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.
SIGNATURES
Pursuant to the requirements 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.
| QUALCOMM Incorporated | |||||
| Dated: February 2, 2023 | /s/ Akash Palkhiwala | ||||
| Akash Palkhiwala | |||||
| Chief Financial Officer |