Qualcomm 2004 Annual Report Download - page 51

QUALCOMM 47
QWI Segment. QWI revenues for fiscal 2004 were $596 million, compared to $511 million for fiscal 2003. Revenues increased primarily due to
a$58 million increase in QWBS revenue and a $37 million increase in QIS revenue. As a result of the adoption of EITF No. 00-21 in the fourth
quarter of fiscal 2003, QWBS started recording revenue for certain equipment sales upon shipment instead of amortizing the related revenue
over a future period. The amortization of QWBS equipment revenue that was deferred in the periods prior to the adoption of EITF No. 00-21
will continue with a declining impact through 2008. QWBS amortized $76 million in revenue related to such prior period equipment sales in
fiscal 2004, compared to $95 million in fiscal 2003, including $23 million during the fourth quarter of fiscal 2003 after the adoption of EITF
No. 00-21. The net increase in QWBS revenue is primarily attributable to the accounting change for certain equipment sales, with a smaller
contribution from a $14 million increase in messaging revenue as a result of a larger installed base. QWBS shipped approximately 53,000
OmniTRACS and other related communications systems during fiscal 2004, compared to approximately 38,000 in fiscal 2003. The increase
in QIS revenue is primarily attributable to a $53 million increase in fees related to our expanded BREW customer base and products, partially offset
by a $19 million decrease in QChat revenue resulting from the wind down of development efforts under the licensing agreement with Nextel.
QWI’s earnings before taxes for fiscal 2004 were $30 million, compared to $27 million for fiscal 2003. QWI’s operating margin percentage was
5% in both fiscal 2004 and 2003. The increase in QWI’s earnings before taxes was primarily due to a $31 million increase in QIS gross margin
largely resulting from the increase in fees related to our expanded BREW customer base and products, offset by a $30 million increase in QWI
research and development and selling, general and administrative expenses. QWI’s operating margin percentage remained flat in fiscal 2004 as
compared to fiscal 2003 primarily due to a decline in QWBS gross margin percentage, offset by an improvement in QIS gross margin percentage.
The decline in QWBS gross margin percentage in fiscal 2004 as compared to fiscal 2003 is primarily attributable to an increase in equipment
sales, with margins that were lower than the margins on messaging services, as a percentage of total QWBS revenue. The improvement in QIS
gross margin percentage is primarily attributable to the increase in fees related to our expanded BREW customer base and products.
During the second quarter of fiscal 2004, QWBS began the process of moving high volume, standard product manufacturing to Mexico to reduce
manufacturing costs. The low volume, prototype and new product manufacturing activities will remain in San Diego. The move is anticipated to
be completed by the third quarter of fiscal 2005. QWBS may incur additional costs in the near term as a result of this move. In connection with
this activity, we continue to evaluate other low cost manufacturing opportunities.
QSI Segment. QSI’s losses before taxes from continuing operations for fiscal 2004 were $3 million, compared to $168 million for fiscal 2003.
Equity in losses of investees decreased by $42 million primarily due to a decrease in losses incurred by Inquam during fiscal 2004 as compared
to fiscal 2003, of which our sharewas $59 million for fiscal 2004 as compared to $99 million for fiscal 2003. During fiscal 2004, we recorded
$12 million in other-than-temporary losses on marketable securities and other investments as compared to $127 million for fiscal 2003. During
fiscal 2003, we also recorded a $34 million impairment loss on our wireless licenses in Australia due to developments that affected strategic
alternatives for using the spectrum. These improvements in QSI’slosses beforetaxes werepartially offset by a $31 million decrease in interest
income resulting from the prepayment of the Pegaso debt facility in the first quarter of fiscal 2004.
Our Segment Results for Fiscal 2003 Compared to Fiscal 2002
QCT Segment. QCT revenues for fiscal 2003 were$2,406 million, compared to $1,575 million for fiscal 2002. Equipment and services revenues,
primarily from MSM and accompanying RF integrated circuits, were $2,374 million for fiscal 2003, compared to $1,546 million for fiscal 2002.
The increase in MSM and accompanying RF integrated circuits revenue was primarily related to higher unit shipments. Approximately 99 million
MSM integrated circuits were sold during fiscal 2003, compared to approximately 65 million for fiscal 2002.
QCT’s earnings before taxes for fiscal 2003 were $797 million, compared to $438 million for fiscal 2002. QCT’s operating income as a percentage
of its revenues was 33% in fiscal 2003, compared to 28% in fiscal 2002. The operating margin percentage in fiscal 2003 as compared to fis-
cal 2002 increased primarily as a result of the 53% increase in revenues as compared to the 17% increase in research and development and
selling, general and administrative expenses. Research and development and selling, general and administrative expenses were $58 million
higher and $17 million higher, respectively, for fiscal 2003 as compared to fiscal 2002, primarily associated with increased investment in new
integrated circuit products and technology research, development and marketing initiatives to support multimedia applications, high-speed
wireless Internet access and multiband, multimode, multinetwork products including CDMA2000, 1xEV-DO/1xEV-DV and WCDMA.
QTL Segment. QTL revenues for fiscal 2003 were $1,000 million, compared to $847 million for fiscal 2002. Royalty revenues from external
licensees were $838 million in fiscal 2003, compared to $725 million in fiscal 2002. Revenues from license fees were $59 million in fiscal 2003,
compared to $55 million in fiscal 2002. Other revenues were comprised of intersegment royalties. During fiscal 2003, we recognized $5 million
in revenue related to equity received as license fees, compared to $6 million in fiscal 2002.