Qualcomm 2006 Annual Report Download - page 59

qualcomm 2006 45
CDMA2000 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B,
WCDMA (including GSM/GPRS/EDGE), HSDPA, HSUPA and OFDMA,
and the development of our FLO technology, MediaFLO MDS and
iMoD display products using MEMS technology. We expect that
research and development costs will increase in scal 2007 as we
continue our active support of CDMA-based technologies, products
and network operations and other product initiatives.
Selling, General and Administrative Expenses. For scal 2006,
selling, general and administrative expenses were $1.12 billion or
15% of revenues, compared to $631 million or 11% of revenues for
scal 2005. Selling, general and administrative expenses for scal
2006 included share-based compensation of $238 million as a result
of the adoption of FAS 123R during scal 2006. The percentage
increase was primarily attributable to the share-based compensation.
The dollar increase was also attributable to a $107 million increase
in professional fees, primarily related to legal activities, a $90 mil-
lion increase in employee-related expenses, a $14 million increase
in selling and marketing expenses and a $14 million decrease in
other income.
Net Investment Income. Net investment income was $466 million
for scal 2006, compared to $423 million for scal 2005. The change
was primarily comprised as follows (in millions):
Year Ended
Sept. 24, Sept. 25,
2006 2005 Change
Interest and dividend income:
QSI $ 6 $ 4 $ 2
Corporate and other segments 410 252 158
Interest expense (4) (3) (1)
Net realized gains on investments:
QSI 30 101 (71)
Corporate 106 78 28
Other-than-temporary losses
on investments (24) (14) (10)
(Losses) gains on derivative
instruments (29) 33 (62)
Equity in losses of investees (29) (28) (1)
$466 $423 $ 43
The increase in interest and dividend income on cash and marketable
securities held by corporate and other segments was a result of
higher average cash and marketable securities balances and higher
interest rates earned on interest-bearing securities. Net realized
gains on QSI investments in scal 2005 resulted primarily from
a $48 million gain on our minority investment in a wireless publisher
and a $41 million gain on the sale of our investment in a wireless
telecommunications company. Losses and gains on derivative
instruments in scal 2006 and 2005, respectively, related primarily
to changes in the fair values of put options sold in connection with
our stock repurchase program. The change in equity in losses of
investees resulted primarily from the decrease in losses recognized
by Inquam, of which our share was $20 million and $33 million in
scal 2006 and 2005, respectively, partially offset by the effect
of investment gains recognized by a venture fund investee in 2005,
of which our share was $8 million.
Fiscal 2006 Compared to Fiscal 2005
Revenues. Total revenues for scal 2006 were $7.53 billion,
compared to $5.67 billion for scal 2005. Revenues from three
customers of our QCT, QTL and QWI segments comprised an
aggregate of 39% of total consolidated revenues in scal 2006
and 2005.
Revenues from sales of equipment and services for scal 2006
were $4.78 billion, compared to $3.74 billion for scal 2005.
Revenues from sales of integrated circuits increased $1.00 billion,
resulting primarily from an increase of $1.34 billion related primarily
to higher unit shipments of MSM and accompanying RF integrated
circuits, partially offset by a decrease of $349 million related to
the net effects of reductions in average sales prices and changes
in product mix.
Revenues from licensing and royalty fees for scal 2006 were
$2.75 billion, compared to $1.93 billion for scal 2005. Revenues
from licensing and royalty fees increased primarily as a result of
a $774 million increase in royalty revenue, consisting primarily of
royalties reported to QTL by our external licensees, resulting from
an increase in sales of CDMA-based products by licensees and the
impact of the expiration of one of our royalty sharing obligations.
Worldwide demand for CDMA-based products has increased pri-
marily as a result of the growth in sales of WCDMA products into
markets formerly dominated by GSM products.
Cost of Equipment and Services. Cost of equipment and services
revenues for scal 2006 was $2.18 billion, compared to $1.65 billion
for scal 2005. Cost of equipment and services revenues as a per-
centage of equipment and services revenues was 46% for scal
2006, compared to 44% for scal 2005. The decline in margin
percentage in scal 2006 compared to scal 2005 was primarily
due to the effect of $41 million in share-based compensation
during scal 2006 as a result of the adoption of FAS 123R during
scal 2006 and a decrease in QCT margin percentage resulting
primarily from an increase in product support costs. Cost of equip-
ment and services revenues as a percentage of equipment and
services revenues may uctuate in future quarters depending on
the mix of products sold and services provided, competitive pricing,
new product introduction costs and other factors.
Research and Development Expenses. For scal 2006, research
and development expenses were $1.54 billion or 20% of revenues,
compared to $1.01 billion or 18% of revenues for scal 2005.
Research and development expenses for scal 2006 included
share-based compensation of $216 million as a result of the adop-
tion of FAS 123R during scal 2006 and in-process research and
development of $22 million resulting from acquisitions, both of
which caused the increase in research and development expenses
as a percentage of revenues. The dollar increase in research and
development expenses also included a $272 million increase in
costs related to the development of integrated circuit products
and other initiatives to support lower cost phones, multimedia
applications, high-speed wireless Internet access and multimode,
multiband, multinetwork products and technologies, including