Qualcomm 2006 Annual Report Download - page 51

qualcomm 2006 37
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 substantially from those
referred to herein due to a number of factors, including but not
limited to risks described in the section entitled Risk Factors in
the Company’s Annual Report on Form 10-K, in the section entitled
“Safe Harbor Statement” included herein and elsewhere in this
Annual Report.
overview
Recent Highlights
Revenues for scal 2006 were $7.53 billion, with net income of
$2.47 billion. The following recent developments occurred with
respect to key elements of our business or our industry:
During scal 2006:
Worldwide wireless subscribers grew by more than 24% to reach
approximately 2.5 billion.(1)
CDMA subscribers, including both 2G (cdmaOne) and 3G
(CDMA2000 1X, 1xEV-DO and WCDMA), grew to 17% of total
worldwide wireless subscribers to date.(1)
3G subscribers (all CDMA-based) grew to approximately 402 million
worldwide through September 2006, including approximately
272 million CDMA2000 1X subscribers, approximately 85 million
WCDMA subscribers and approximately 45 million 1xEV-DO
subscribers.(1)
CDMA-based handset shipments totaled approximately 255 million
units, an increase of 40% over the 182 million units shipped in
scal 2005.(2)
CDMA-based handset shipments grew faster than total worldwide
handsets and represent an estimated 28% of the total (916 million)
worldwide handset shipments, compared to 25% of the total
(726 million) shipments in scal 2005.(3)
Average selling prices of CDMA-based handsets were approximately
$215, same as the prior year.(2)
We shipped approximately 207 million Mobile Station Modem (MSM)
integrated circuits for CDMA-based phones and data modules (all
of which were 3G, including CDMA2000 1X, 1xEV-DO and WCDMA),
an increase of 37%, compared to approximately 151 million MSM
integrated circuits in the prior scal year.
During the fourth quarter of scal 2006:
We estimate the ratio of WCDMA reported royalties to total
reported royalties was 49%, up from 41% reported in the year
ago quarter.
We estimate that, in Western Europe, WCDMA handset sales repre-
sented approximately 41% of all manufacturer handset sales
during the period from April 2006 through June 2006, up from
14% in the year ago quarter.(4)
Our Business and Operating Segments
We design, manufacture, have manufactured on our behalf and
market digital wireless telecommunications products and services
based on our CDMA technology and other technologies. We derive
revenue principally from sales of integrated circuit products, from
license fees and royalties for use of our intellectual property, from
services and related hardware sales, and from software development
and licensing and related services. Operating expenses primarily
consist of cost of equipment and services, research and develop-
ment and selling, general and administrative expenses.
We conduct business primarily through four reportable segments.
These segments are: QUALCOMM CDMA Technologies, or QCT;
QUALCOMM Technology Licensing, or QTL; QUALCOMM Wireless
& Internet, or QWI; and QUALCOMM Strategic Initiatives, or QSI.
QCT is a leading developer and supplier of CDMA-based integrated
circuits and system software for wireless voice and data commu-
nications, multimedia functions and global positioning system
products. QCT’s integrated circuit products and system software
are used in wireless devices, particularly mobile phones, data
cards and infrastructure equipment. The integrated circuits for
wireless phones include the Mobile Station Modem (MSM), Radio
Frequency (RF) and Power Management (PM) devices. These inte-
grated circuits for wireless phones and system software perform
voice and data communication, multimedia and global positioning
functions, radio conversion between RF and baseband signals and
power management. The infrastructure equipment integrated
circuits and system software perform the core baseband CDMA
modem functionality in the wireless operator’s equipment providing
wireless standards-compliant processing of voice and data signals
to and from wireless phones. QCT’s system software enables the
other phone components to interface with the integrated circuit
products and is the foundation software enabling phone manufac-
turers to develop handsets utilizing the functionality within the
integrated circuits. In addition to the key components in a wireless
system, QCT provides system reference designs and development
tools to assist in customizing wireless phones and user interfaces,
to integrate our products with components developed by others,
(1) According to Wireless Intelligence, an independent source of wireless operator data.
(2) Unit shipments and average selling prices are for the period from July through June based on reports provided during the scal year by our licensees/manufacturers.
(3) Based on reports by Strategy Analytics, a global research and consulting rm in their Global Handset Market Share Updates.
(4) Based on estimates derived from our licensee reports and estimates from the Yankee Group, a global market intelligence and advisory rm in the technology and
telecommunications industry.