Qualcomm 2006 Annual Report Download - page 74

60 qualcomm 2006
Notes to Consolidated Financial Statements continued
the remaining obligations have been satised. If vendor-specic
objective evidence of fair value does not exist for all undelivered
elements, revenue for the delivered and undelivered elements is
deferred until remaining obligations have been satised, or if the
only undelivered element is post-contract customer support and
vendor-specic objective evidence of the fair value of post-contract
customer support does not exist, revenue from the entire arrange-
ment is recognized ratably over the support period. Judgments and
estimates are made in connection with the recognition of software
license revenue, which may include assessments of collectibility, the
fair value of deliverable elements and the implied support period.
The amount or timing of the Company’s software license revenue
may differ as a result of changes in these judgments or estimates.
The Company records reductions to revenue for customer incentive
programs, including special pricing agreements and other volume-
related rebate programs. Such reductions to revenue are estimates,
which are based on a number of factors, including the Company’s
assumptions related to historical and projected customer sales
volumes and the contractual provisions of the customer agreements.
Unearned revenue consists primarily of fees related to software
products, license fees for intellectual property and hardware
products sales with continuing performance obligations.
Concentrations
A signicant portion of the Company’s revenues is concentrated
with a limited number of customers as the worldwide market for
wireless telecommunications products is dominated by a small
number of large corporations. Revenues from three customers
of the Company’s QCT, QTL and QWI segments, each comprised
an aggregate of 13% of total consolidated revenues in scal
2006, compared to 15%, 13% and 11% respectively of total
consolidated revenues in scal 2005 and 15%, 15% and 10%
respectively of total consolidated revenues in scal 2004.
Aggregated accounts receivable from these three customers
comprised 45% of gross accounts receivable at September 24,
2006 and September 25, 2005.
Revenues from international customers were approximately 87%,
82% and 79% of total consolidated revenues in scal 2006, 2005
and 2004, respectively.
Cost of Equipment and Services Revenues
Cost of equipment and services revenues is primarily comprised
of the cost of equipment revenues, the cost of messaging services
revenues and the cost of development and other services revenues.
Cost of equipment revenues consists of the cost of equipment
sold and sustaining engineering costs, including personnel and
related costs. Cost of messaging services revenues consists
principally of satellite transponder costs, network operations
expenses, including personnel and related costs, depreciation and
airtime charges by telecommunications operators. Cost of devel-
opment and other services revenues primarily includes personnel
costs and related expenses.
Starting in the fourth quarter of scal 2004, the Company deter-
mined that, due to escalating and changing business trends, the
Company no longer had the ability to reliably estimate royalty
revenues from the Estimated Licensees. These escalating and
changing trends included the commercial launches and global
expansion of WCDMA networks, changes in market share among
licensees due to increased global competition, and increased vari-
ability in the integrated circuit and nished product inventories of
licensees. Starting in the fourth quarter of scal 2004, the Company
began recognizing royalty revenues for a quarter solely based on
royalties reported by licensees during such quarter. The change in
the timing of recognizing royalty revenue was made prospectively
and had the initial one-time effect of reducing royalty revenues
recorded in the fourth quarter of scal 2004.
Revenues from sales of the Company’s CDMA-based integrated
circuits are recognized at the time of shipment, or when title and
risk of loss pass to the customer and other criteria for revenue
recognition are met, if later. Revenues from providing services
are recorded when earned.
The Company recognizes revenues allocated to certain satellite-
and terrestrial-based two-way data messaging and position
reporting hardware using the residual method. Revenues from
such sales are recorded at the time of shipment, or when title and
risk of loss pass to the customer and other criteria for revenue
recognition are met.
Revenues from long-term contracts are generally recognized using
the percentage-of-completion method of accounting, based on costs
incurred compared with total estimated costs. The percentage-of-
completion method relies on estimates of total contract revenue and
costs. Revenue and prot are subject to revisions as the contract
progresses to completion. Revisions in prot estimates are charged
or credited to income in the period in which the facts that give rise
to the revision become known. If actual contract costs are greater
than expected, reduction of contract prot would be required.
Billings on uncompleted contracts in excess of incurred cost and
accrued prot are classied as unearned revenue in the Company’s
consolidated balance sheets. Estimated contract losses are recog-
nized when determined. If substantive uncertainty related to
customer acceptance exists or the contract’s duration is relatively
short, the Company uses the completed-contract method.
The Company provides both perpetual and renewable time-based
software licenses. Revenues from software license fees are
recognized when all of the following criteria are met: the written
agreement is executed; the software is delivered; the license fee is
xed and determinable; collectibility of the license fee is probable;
and if applicable, when vendor-specic objective evidence exists
to allocate the total license fee to elements of multiple-element
arrangements, including post-contract customer support. When
contracts contain multiple elements wherein vendor-specic
objective evidence of fair value exists for all undelivered elements,
the Company recognizes revenue for the delivered elements and
defers revenue for the fair value of the undelivered elements until