Qualcomm 2002 Annual Report Download

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HONEY, IT’S ME. GUESS WHAT?
IT’S REALLY HAPPENING!
2002 ANNUAL REPORT
CHECK
IT OUT

Table of contents

  • Page 1
    HONEY, IT'S ME. GUESS WHAT? IT'S REALLY HAPPENING! 2002 ANNUAL REPORT CHECK IT OUT

  • Page 2
    ACTION SPEAKS LOUDER THE THIRD GENERATION OF WIRELESS COMMUNICATIONS IS HERE

  • Page 3
    AND IT' S GROWING Q U A LC O M M 2002 ANNUAL REPORT PAG E 01

  • Page 4
    3G IS REAL REAL REAL REAL REAL REAL near doubling of voice capacity. fast data speeds. cost-effective networks. colorful multimedia devices. useful wireless data applications.

  • Page 5
    ... in developing and delivering innovative digital wireless communications products and services based on Code Division Multiple Access (CDMA) digital wireless technology. Headquartered in San Diego, California, QUALCOMM is included in the S&P 500 Index and traded on The NASDAQ Stock Market® under...

  • Page 6
    IT'S UNLEASHING AN AVALANCHE OF NEW WI

  • Page 7
    ... one out of every five wireless handsets sold today is based on CDMA, the breakthrough digital wireless technology pioneered by QUALCOMM. (Source: EMC World Cellular Database, November 2002) There are more than 135 million CDMA subscribers worldwide as of September 2002. (Source: www.cdg.org) There...

  • Page 8
    ... for voice communications. It has become a multimedia platform operating up to 10 times faster than traditional wireless phones. Read e-mail. Surf the wireless Internet. Enjoy a host of graphics-rich games. In a growing number of regions, you can even be located by emergency services workers when...

  • Page 9
    ... the wireless signals that move between phones and switches on the network. Inside each base station are many "chipsets" (integrated circuits with system software) that act as the brain for the whole operation. More and more wireless manufacturers are choosing products that use QUALCOMM chips...

  • Page 10

  • Page 11
    ... in major markets, delivering high-speed data services based on 3G CDMA2000 1X. 2001 2002 1999 2000 Notes: North American CDMA subscriber figures including U.S. and Canada. 1999-2001 data as of 12/99, 12/00, 12/01. 2002 data as of 11/02. Source: EMC Worldwide Cellular Database, 11/02...

  • Page 12
    ...ONE OF THE FASTEST-GROWING MARKETS CDMA is growing in China, the world's largest wireless market. Seventeen domestic Chinese telecommunications equipment manufacturers are now licensed by QUALCOMM to develop, manufacture and sell 3G handsets and/or infrastructure equipment. CHINA UNICOM CHINA UNICOM...

  • Page 13
    Q U A LC O M M 2002 ANNUAL REPORT PAG E 11

  • Page 14

  • Page 15
    ... web site, LG Telecom web site,11/02; EMC Worldwide Cellular Database, 11/02. Data revenues at South Korea's largest CDMA2000 1X wireless carrier increased dramatically as millions took advantage of "NATE" for wireless Internet access and "NATE Drive" for navigation and location services...

  • Page 16
    ... to PCs and Internet-enabled phones such as the FOMA handsets used by Japan's NTT DoCoMo, the first commercial network based on WCDMA (Wideband CDMA) technology. Notes: The 2002 figure includes 136,000 FOMA subscribers as reported on the NTT DoCoMo web site. The 1999-2001 data as of 12/99, 12...

  • Page 17
    Q U A LC O M M 2002 ANNUAL REPORT PAG E 15

  • Page 18

  • Page 19
    IT'S HAPPENING IN INDIA Jammu and Kashmir ASIA'S GROWING WIRELESS MARKET QUALCOMM's global development team works with wireless operators everywhere to make phone service more accessible and affordable. This is particularly important in the second most populous country in the world. RELIANCE ...

  • Page 20
    THE THIRD GENERATION OF WIRELESS TECHNOLOGY IT'S MORE THAN JUST TALK IT'S THE WAVE OF THE FUTURE AND QUALCOMM IS ENABLING IT

  • Page 21
    ...L Serving wireless network and handset manufacturers worldwide, QUALCOMM CDMA Technologies (QCT) has become the world's leading developer and supplier of CDMA chipsets, system software, tools, training and technical support. To meet the continually evolving needs of its customers, QCT has innovated...

  • Page 22
    ... MANUFACTURERS QUALCOMM's complete chipset and system software solutions embody the most advanced wireless technologies, including cdmaOne, CDMA2000 1X, CDMA2000 1xEV-DO and WCDMA/UMTS. The Company supports 3G CDMA and is active in the standards arena, in chip and software development and in testing...

  • Page 23
    ... LEADING DEVELOPER OF CDMA TECHNOLOGY QUALCOMM is driving the data revolution with breakthrough technologies that are enabling a broad range of new handsets, applications and data services. D I R E CT C O N V E R S I O N T E C H N O LO GY ENABLING THE WIRELESS INTERNET This year QUALCOMM introduced...

  • Page 24
    QUALCOMM'S BREW SOLUTION IS FUELING THE GROWTH OF A WHOLE NEW INDUSTRY FOR APPLICATION DEVELOPERS

  • Page 25
    ... useful wireless Internet, building on QUALCOMM's Binary Runtime Environment for Wirelessâ„¢ (BREWâ„¢) applications platform. With BREW, QUALCOMM has created a complete technical and business solution that directly addresses the needs of the wireless industry. BREW enables hardware manufacturers...

  • Page 26
    ... A centralized marketplace for acquiring, sharing and managing applications. QUALCOMM MANAGES THE MARKETPLACE AND SHOWCASES THE DEPTH AND DIVERSITY OF BREW APPLICATIONS DEVELOPERS MARKET APPLICATIONS DIRECTLY TO OPERATORS WIRELESS SERVICE PROVIDERS CHOOSE FROM A WIDE ARRAY OF APPLICATIONS TO...

  • Page 27
    ...'s unique BREW-enabled solution will allow users to initiate private (one-to-one) calls as well as group (one-to-many) calls. QUALCOMM and Nextel Communications entered into an agreement for the development and deployment of a direct connect product for global wireless operators using CDMA networks...

  • Page 28
    .../UMTS and TD-SCDMA) technologies and patents as well as ongoing royalties based on worldwide sales by licensees that design, manufacture and sell products incorporating our CDMA technology. QTL revenues comprised 28 percent, 29 percent and 22 percent of total consolidated GAAP revenues for QUALCOMM...

  • Page 29
    ...defined by the International Telecommunications Union) includes CDMA2000, WCDMA and TD-SCDMA. BRIDGING THE GAP THE BEST OF BOTH WORLDS Q U A LC O M M 2002 ANNUAL REPORT QUALCOMM CDMA Technologies (QCT) successfully demonstrated live voice and data calls using a single-mode WCDMA/UMTS chipset. The...

  • Page 30
    ...and national homeland security efforts through the advanced security features provided by its OmniTRACS satellite-based mobile communications and tracking system. Our specialized equipment and services include driver authentication, remote and installed vehicle and trailer monitoring, panic buttons...

  • Page 31
    ... systems Secure CDMA cellular systems Multilevel security for CDMA devices Mobile satellite data communications and tracking systems for the U.S. government Advanced R&D for the U.S. government Deployment on commercial networks (Verizon Wireless & Alltel) of the world's first CDMA wireless phone...

  • Page 32
    ...Best Financially Managed Company" Fortune's "100 Best Companies to Work for in Americaâ„¢" Fortune's "100 Fastest-Growing Companies in Americaâ„¢" Fortune's "2002 America's Most Admired Companies" Fortune's "America's 10 Most Admired Companies" (3rd place in network communications industry) Industry...

  • Page 33
    ... 2001 2002 1998 $.18 1999 $.31 2000 $.79 2002 $.44 1999 $.80 2000 $.92 2001 $.88 2002 $.98 2001 * Financial results include the results of our terrestrial wireless consumer phone business and our terrestrial wireless infrastructure business prior to the sale of these...

  • Page 34
    ...businesses. QUALCOMM has outperformed most communications technology companies, largely because of the strong acceptance of CDMA2000 by CDMA operators and their customers. We continue to lead the industry in the development and delivery of digital wireless solutions based on CDMA, including CDMA2000...

  • Page 35
    ... this was the commercial launch of navigation services via BREW-enabled phones using QUALCOMM's gpsOne technology. Network software developed by our SnapTrack subsidiary communicates with the QUALCOMM chipsets in wireless phones to enable location-based services like personal navigation. Today there...

  • Page 36
    .... QUALCOMM technology is helping address the need for secure wireless voice and data communications on many fronts. Our industry-leading truck tracking business now features a growing number of services and products focused on meeting the needs of customers in new transportation markets including...

  • Page 37
    ... to managing our Company according to the highest ethical standards. We strive to provide investors with timely, accurate and helpful information within established accounting, legal and ethical guidelines. We continue to review our corporate Q U A LC O M M 2002 ANNUAL REPORT In reporting our...

  • Page 38
    ...(GPS) satellite constellation and CDMA cell sites, the gpsOne solution enhances location services availability, expands terrain coverage, accelerates the location determination process and provides better accuracy for callers, whether during emergency situations or while using GPS-enabled commercial...

  • Page 39
    ... Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Board of Directors & Officers Stockholder's Information 2002 ANNUAL REPORT Q U A LC O M M PAG E 37

  • Page 40
    ... 20, 2002, the last sale price reported on the Nasdaq National Market for our Common Stock was $39.15 per share. We have never paid cash dividends on our Common Stock and have no present intention to do so. * Named executive officers are defined by the SEC for inclusion in the Proxy Statement as...

  • Page 41
    ... data have been adjusted to record equity losses related to our investment in the Vésper Operating Companies. See Note 13 to the Consolidated Financial Statements. Q U A LC O M M 2002 ANNUAL REPORT Cash, cash equivalents and marketable securities Total assets Long-term debt Company-obligated...

  • Page 42
    ... incurred in the development, support and marketing efforts related to the BREW product. Our QUALCOMM Strategic Initiatives (QSI) segment makes strategic investments to promote the worldwide adoption of CDMA products and services for wireless voice and Internet data communications. Our strategy is...

  • Page 43
    ...revenues and operating results. We will continue to expand our international sales operations and enter new international markets. This expansion will require significant management attention and financial resources to successfully develop direct and indirect international sales and support channels...

  • Page 44
    ... customer, if later. Revenues and expenses from sales of certain satellite and terrestrial-based two-way data messaging and position reporting hardware and related software products are recognized ratably over the shorter of the estimated useful life of the hardware product or the expected messaging...

  • Page 45
    ...into strategic relationships with CDMA carriers and developers of innovative technologies or products for the wireless communications industry. As part of the agreement to sell our infrastructure equipment business to Ericsson in 1999, we have provided equipment financing to customers of Ericsson on...

  • Page 46
    ... LY S I S continued (expense) income. During fiscal 2002, we recognized $230 million in charges related to other-than-temporary losses on marketable and private securities. In some cases, we make strategic investments in early stage companies which require us to consolidate or record our equity in...

  • Page 47
    ...to ensure the establishment of CDMA-based systems and to provide CDMA coverage and roaming possibilities to as many regions throughout Brazil as possible. The investment will help us grow our revenues from royalties and from the sale of integrated circuits to phone manufacturers. In other words, our...

  • Page 48
    ... addition, we hold 489,000 shares of Leap Wireless' common stock and a warrant to purchase 3,375,000 shares of common stock issued to us in connection with our spinoff of Leap Wireless in September 1998. During fiscal 2002, we determined that declines in the market values of our investments in Leap...

  • Page 49
    ...of revenues. The dollar increase was primarily due to a $33 million increase in marketing and support efforts related to products and services of our QIS division, including the BREW product, $23 million associated with the expansion of our integrated circuit customer base and international business...

  • Page 50
    ... and on Leap Wireless bonds starting in the third quarter of fiscal 2002. The other-than-temporary losses on marketable securities during fiscal 2002 primarily related to $162 million and $18 million in losses on our investments in Leap Wireless bonds and common stock, respectively. We determined...

  • Page 51
    ... circuit customer base and product portfolio and $21 million related to the introduction of products and services by our QIS division, including our BREW product, offset by a $67 million decrease in expenses for terrestrial-based CDMA wireless consumer phone products as a result of the sale of...

  • Page 52
    ... to the irrevocable transfer of a portion of an FCC Auction Discount Voucher to a third-party. Other operating expenses during fiscal 2000 were comprised primarily of employee termination and other costs related to the sale of the terrestrial-based CDMA wireless consumer phone business in February...

  • Page 53
    ... development, support and marketing efforts related to products and services of our QIS division, including the BREW product and a $14 million increase in QWBS research and development expenditures. We shipped approximately 46,000 OmniTRACS and other related communications systems during fiscal 2002...

  • Page 54
    ...up to 4% of the common shares of Reliance Infocomm Limited (RIL), formerly Reliance Communications Limited, a wireless carrier in India. RIL intends to construct and operate a CDMA commercial network deploying CDMA2000 1X technology to provide basic telephone services, Wireless Local Loop (WLL) with...

  • Page 55
    ... these bonds are designated as trading securities. Changes in the general level of United States interest rates can affect the principal values and yields of fixed income investments. (See Note 2 to the Consolidated Financial Statements for information about investments in marketable debt securities...

  • Page 56
    ... with the Leap Wireless spin-off to purchase Leap Wireless common stock at $6.11 per share. At September 30, 2002, we were entitled to purchase 3,375,000 shares of Leap Wireless common stock (see Note 1 to the Consolidated Financial Statements for a description of our accounting policy for this...

  • Page 57
    ...Company changed its method of recognizing revenue and adopted Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," during the year ended September 30, 2001. None. PRICEWATERHOUSECOOPERS LLP CONTROLS AND PROCEDURES San Diego, California...

  • Page 58
    ...046 381,589 $5,669,733 Current liabilities: Trade accounts payable Payroll and other benefits related liabilities Unearned revenue Other current liabilities Total current liabilities Unearned revenue Long-term debt Other liabilities Total liabilities Commitments and contingencies (Notes 3, 4 and 11...

  • Page 59
    ... expenses: Cost of equipment and services revenues Research and development Selling, general and administrative Amortization of goodwill and other acquisition-related intangible assets Purchased in-process technology Asset impairment and related charges Other Total operating expenses Operating...

  • Page 60
    ... of tax Other non-cash charges and credits Increase (decrease) in cash resulting from changes in: Net purchases of trading securities Accounts receivable, net Finance receivables, net Inventories, net Other assets Trade accounts payable Payroll, benefits, and other liabilities Unearned revenue Net...

  • Page 61
    ... Exercise of stock options Tax benefit from exercise of stock options Issuance for Employee Stock Purchase and Executive Retirement Plans Repurchase and retirement of common stock Stock-based compensation expense B A L A N C E AT S E P T E M B E R 3 0 , 2 0 0 2 2002 ANNUAL REPORT B A L A N C E AT...

  • Page 62
    ... world. Transportation companies, private fleets and heavy equipment fleets use the Company's products to communicate with drivers, monitor vehicle location, provide automated driver logs and fuel tax reporting and provide customer service. The Company also integrates the mobile data with operations...

  • Page 63
    ... certain software development costs capitalized after technological feasibility of the software is established. 2002 ANNUAL REPORT A significant portion of the Company's revenues are concentrated with a limited number of customers as the worldwide market for wireless telephone systems and products...

  • Page 64
    ... relation to the stock price of its competitors within the industry and the market in general, analyst recommendations, any news that has been released specific to the investee and the outlook for the overall industry in which the investee operates. The Company also reviews the financial statements...

  • Page 65
    ... that have developed or are developing innovative wireless data applications and wireless carriers that promote the worldwide deployment of CDMA systems. Investments in corporate entities with less than a 20% voting interest are generally accounted for under the cost method. The Company uses the...

  • Page 66
    ... amortized on a straight-line basis over their useful lives, ranging from three to twenty years. Software development costs are capitalized when a product's technological feasibility has been established through the date a product is available for general release to customers. VA L U AT I O N O F LO...

  • Page 67
    ...2002 Foreign currency translation Unrealized loss on marketable securities, net of income taxes $ (79,762) (51,187) $(130,949) 2001 $ (64,537) (159,630) $(224,167) FUTURE ACCOUNTING REQUIREMENTS STOCK SPLITS On November 2, 1999, the Company's Board of Directors declared a four-for-one stock split...

  • Page 68
    ... of deposit Commercial paper Corporate medium-term notes Available-for-sale: Federal agencies U.S. government securities Corporate medium-term notes Mortgage and asset-backed securities Non-investment grade debt securities Equity securities Trading: Corporate convertible bonds - - - - 1,860 1,860...

  • Page 69
    ... the adoption of FAS 133, the Company bifurcated the warrants from the senior discount notes and accounted for the warrants separately. The Company calculated the fair value of the warrants as of the purchase date using the Black-Scholes option pricing model and used the fair value to determine the...

  • Page 70
    ... acquired licenses in the Australian 3G wireless spectrum auctions for $84 million. The Company will begin amortizing the licenses in Australia, over their expected useful lives of 15 years when they become effective in October 2002. Capitalized software development costs were $24 million and $16...

  • Page 71
    ...up to 4% of the common shares of Reliance Infocomm Limited (RIL), formerly Reliance Communications Limited, a wireless carrier in India. RIL intends to construct and operate a CDMA commercial network deploying CDMA2000 1X technology to provide basic telephone services, Wireless Local Loop (WLL) with...

  • Page 72
    ... Globalstar L.P. (Globalstar), the Company designed, developed and manufactured subscriber products and ground communications systems utilizing CDMA technology and provided contract development services. Globalstar was formed to design, construct, and operate a worldwide, low-Earth-orbit satellite...

  • Page 73
    ... the Board of Directors of QUALCOMM, each QUALCOMM Trust Convertible Preferred Security was convertible, subject and pursuant to the terms of the Convertible Subordinated Debentures, into both QUALCOMM common stock and Leap Wireless common stock at the rate of 5.5056 and 0.17205 shares, respectively...

  • Page 74
    ...employee stock option exercises and related deductions will exceed future taxable income. If and when recognized, the tax benefit of these deferred assets will be accounted for primarily as a credit to stockholders' equity rather than as a reduction of the income tax provision. At September 30, 2002...

  • Page 75
    .... STOCK OPTION PLANS Q U A LC O M M The Board of Directors may grant options to selected employees, directors and consultants to the Company to purchase shares of the Company's common stock at a price not less than the fair market value of the stock at the date of grant. The 2001 Stock Option Plan...

  • Page 76
    ...$29.45 Above $28.61 Total outstanding E M P LO Y E E S T O C K P U R C H A S E P L A N S The Company has employee stock purchase plans for all eligible employees to purchase shares of common stock at 85% of the lower of the fair market value on the first or the last day of each six-month offering...

  • Page 77
    ...up to 12,155,000 shares to be granted until the Board of Directors of the Company terminates the 2001 Purchase Plan. The 1996 Non-Qualified Employee Stock Purchase Plan authorizes up to 200,000 shares to be granted at anytime. During fiscal 2002, 2001 and 2000, shares totaling 1,150,000, 758,000 and...

  • Page 78
    ...vigorously defend the action. Durante, et al v. QUALCOMM. On February 2, 2000, three former QUALCOMM employees filed a putative class action against the Company, ostensibly on behalf of themselves and those former employees of the Company whose employment was terminated in April 1999. Virtually all...

  • Page 79
    The Company has been named, along with many other manufacturers of wireless handsets, wireless carriers and industry-related organizations, as a defendant in a purported class action lawsuit (In re Wireless Telephone Frequency Emissions Products Liability Litigation, United States District Court for...

  • Page 80
    ... on the basis of products and services. During the first quarter of fiscal 2002, the Company formed two new operating segments, QUALCOMM Wireless & Internet and QUALCOMM Strategic Initiatives, as a result of changes in the Company's businesses and in managerial reporting. Three divisions have been...

  • Page 81
    ... reporting services to transportation companies, private fleets and heavy equipment fleets. • QUALCOMM Strategic Initiatives (QSI) - manages the Company's strategic investment activities. QSI makes strategic investments to promote the worldwide adoption of CDMA products and services for wireless...

  • Page 82
    ... Company and $57 million related to Globalstar (Note 4). Unallocated corporate expenses for fiscal 2000 included $146 million for amortization of goodwill and other acquisition-related intangible assets, $83 million in charges related to the sale of the terrestrial-based CDMA wireless consumer phone...

  • Page 83
    ... of investors to provide fixed wireless and wireline telephone services in the northern, northeast and eastern regions of Brazil and in the state of Sao Paulo. In addition, the Company extended long-term financing to the Vésper Operating Companies related to the Company's financing arrangement...

  • Page 84
    ...the Company completed the acquisition of all of the outstanding capital stock of SnapTrack, Inc. (SnapTrack), a developer of wireless position location technology, in a transaction accounted for as a purchase. The purchase price was approximately $1 billion, representing the value of QUALCOMM shares...

  • Page 85
    ...R LY D ATA ( U N A U D I T E D ) In February 2000, the Company sold its terrestrial-based CDMA wireless consumer phone business, including its phone inventory, manufacturing equipment and customer commitments, to Kyocera Wireless (Kyocera). QUALCOMM received $242 million, including interest, during...

  • Page 86
    ... based upon respective average shares outstanding. Therefore, the sum of the quarterly net earnings (loss) per share amounts may not equal the annual amounts reported. (2) Adjusted to account for the Company's original 16% ownership interest in the Vésper Operating Companies using the equity method...

  • Page 87
    ... commercial acceptance of evolving CDMA technology standards; developments in current or future litigation; customer receivables and performance guarantees; component shortages; and international business activities, as well as the other risks detailed from time-to-time in the Company's SEC reports...

  • Page 88
    ...Audit Committee (03) Advisory Director, Goldman Sachs & Co. Chair: Finance Committee Member: Governance Committee 05 06 07 08 F R A N K S AVA G E (04) (09) THE HONORABLE DIANA LADY DOUGAN Chairman, Cyber Century Forum and Senior Advisor and International Communications Studies Chair, Center...

  • Page 89
    ..., contact: QUALCOMM Incorporated Investor Relations 5775 Morehouse Drive San Diego, CA 92121 (858) 658-4813 phone (858) 651-9303 fax You may also contact us by sending e-mail to [email protected] or by visiting the Investor Relations page on the Company's web site at www.qualcomm.com. TRANSFER AGENT...

  • Page 90
    QUALCOMM Headquarters 5775 Morehouse Drive San Diego, CA 92121 Phone (858) 587-1121 Fax (858) 658-2100 www.qualcomm.com