Qualcomm 2004 Annual Report Download - page 42

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Management’s Discussion and Analysis continued
reporting services to transportation companies, private fleets, construction equipment fleets and other enterprise companies. QIS provides the
BREW product and services for the development and over-the-air deployment of data services on wireless devices. QIS also provides QChat and
QPoint products and services. QChat enables virtually instantaneous push-to-chat functionality on CDMA-based wireless devices while QPoint
enables operators to offer E-911 and location-based applications and services. The QGOV division provides development, hardware and analytical
expertise to United States government agencies involving wireless communications technologies. The QGOV division included the former Digital
Cinema business prior to June 2004. In June 2004, we were notified that a competing digital cinema compression technology was selected by
the motion picture studio consortium tasked with technology selection for digital cinema applications. As such, we are no longer pursuing the
Digital Cinema business. Revenues from the Digital Cinema business were $1 million, $9 million and $14 million in fiscal 2004, 2003 and 2002,
respectively. QWI revenues comprised 12%, 13% and 16% of total consolidated revenues in fiscal 2004, 2003 and 2002, respectively.
QSI makes strategic investments to promote the worldwide adoption of CDMA products and services for wireless voice and Internet data com-
munications. Our strategy is to invest in CDMA operators, licensed device manufacturers and start-up companies that we believe open new
markets for CDMA technology, support the design and introduction of new CDMA-based products or possess unique capabilities or technology
to promote Internet data communications. Effective as of the beginning of fiscal 2005, we expect to present the operating results of our wireless
multimedia U.S. operator in the QSI segment.
Looking Forward
In fiscal year 2005, we expect continued growth in the overall CDMA2000 and WCDMA market, with particularly strong growth in WCDMA and
emerging CDMA2000 markets. We expect continued growth in 1xEV-DO in South Korea, Japan and Latin America, as well as North America,
with expected launches of nationwide service by both Verizon Wireless and Sprint PCS. The global expansion of broadband data services is
expected to continue to drive demand for both 1xEV-DO phones and data cards for laptop services. Operator competition in Japan, North
America and other regions is also accelerating data strategies and services as one operator responds to the plans of another. As reported by
mobilemonday.net, a community of and for mobile professionals, operators are expected to have launched 70 WCDMA networks by the end of
calendar 2004, which is expected to drive meaningful growth in WCDMA phone sales during fiscal year 2005. Cingular Wireless in North America
is looking to launch WCDMA/HSDPA later in 2005. We anticipate 3G wireless licenses will be granted in China in calendar 2005. When the
licenses aregranted, we expect operators in China will be authorized to upgrade and deploy thirdgeneration CDMA-based networks. Wealso
expect additional CDMA450 network launches in fiscal 2005 to contribute to growth. Webelieve our QCT business will increasingly benefit
from strong growth in the WCDMA market as we leverage our high quality products and customer relationships to further a strong and growing
list of WCDMA phone manufacturer customers.
Growing demand for phones and devices with greater multimedia functionality will continue to drive demand for increasing functionality in our
MSM chips. Wewill continue to invest heavily to position our QCT business for success in the WCDMA market, as well as to continue to main-
tain our strong position in the CDMA2000 market. In particular, we intend to continue to invest significant resources in developing integrated
circuit products to supporthigh-speed wireless Internet access and multimode, multiband, multinetwork operation including CDMA2000 1X
and 1xEV-DO, WCDMA, FLO, OFDM and multimedia applications which encompass development of graphical display, camera and video
capabilities, as well as higher computational capability and lower power on-chip computers and signal processors. We continue to work on
different initiatives for low-cost phones in addition to reducing costs through further integration of multimedia capabilities of mid- to high-end
phones. We will also continue our significant development efforts with respect to our BREW applications development platform and our new
MediaFLO content distribution system and FLO technology for deliveryof low cost multimedia content to multiple subscribers.
Weareworking closely with many operators and manufacturers to supportrapid and reliable WCDMA deployment and availability of WCDMA
phones (with increasing multimedia features and capabilities). We expect that in 2005 average WCDMA phone prices will decrease significantly,
although we expect them to still be higher than average CDMA2000 phone prices.
BREW is expected to play an increasingly important role in generating consumer demand for wireless phones. BREW offers operators new capa-
bilities for their products and an open platform for delivery of data services that can grow operator’s data revenues. We expect more operators
to launch BREW services and greater volumes of BREW software downloads to drive increasing revenues for our BREW business.
Although we have taken action to mitigate shortages of integrated circuits that we supply, the effects of such shortages have caused some
customer frustration and could negatively affect our future business. We expect that the costs of certain integrated circuit products could
increase as a result of our efforts to increase the availability of products in short supply. While we work closely with customers to expedite their
processes for evaluating products from our new foundry suppliers, in some instances, transition to new product supply may cause a temporary
decline in shipments of specific products to individual customers. As a result of our efforts to increase capacity at our current suppliers com-
bined with the potential to bring on additional suppliers, we expect our shortages of integrated circuits to be alleviated in the future.
Wearedependent upon the adoption and commercial deployment of 3G wireless communications equipment, products and services based
on our CDMA technology to increase our revenues and market share. We continue to face significant competition from non-CDMA technologies,
as well as competition from companies offering other CDMA based products. You should also refer to the Risk Factors in the Company’s Annual
Report on Form 10-K for further discussion of these and other risks related to our business.
Revenue Concentrations
Revenues from customers in South Korea, the United States and Japan comprised 43%, 21% and 18%, respectively, of total consolidated
revenues in fiscal 2004 as compared to 45%, 23% and 15%, respectively, in fiscal 2003, and 39%, 31% and 18%, respectively, in fiscal 2002.
We distinguish revenue from external customers by geographic areas based on customer location. The increase in revenues from customers in
Japan, as a percentage of the total, is primarily attributed to higher royalties from licensees in Japan resulting from the growth of CDMA2000