Qualcomm 2005 Annual Report Download - page 45
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QSI also makes strategic investments in privately held companies,
including early-stage companies and venture funds. These invest-
ments are comprised of equity investments, recorded at cost or
under the equity method, and warrants that are recorded at fair
value or at cost. The recorded values of these investments may
be written down due to changes in the companies’ conditions or
prospects. These strategic investments are inherently risky as the
market for the technologies or products the investees are develop-
ing may never materialize. As a result, we could lose all or a portion
of our investments in these companies, which could negatively
affect our fi nancial position and operating results. Most of these
strategic investments will not become liquid until more than one
year from the date of investment, if at all. To the extent such
investments become liquid and meet strategic and price objectives,
we may sell the investments and recognize the realized gain (loss)
in investment income (expense).
We regularly monitor and evaluate the realizable value of our invest-
ments in both marketable and private securities. If events and
circumstances indicate that a decline in the value of these assets
has occurred and is other-than-temporary, we will record a charge
to investment income (expense). In some cases, we make strate-
gic investments that require us to consolidate or record our equity
in the losses of early-stage companies. The consolidation of these
losses can adversely affect our fi nancial results until we exit from
or reduce our exposure to the investments.
Key developments in our strategic investments during fi scal 2005
included our ongoing investment in our MediaFLO USA subsidiary,
a slow down in the rate of strategic investment, including our invest-
ment in Inquam, and realized gains on certain strategic investments.
Investment in Inquam Limited. Since October 2000, we and another
investor (the Other Investor) have provided equity and debt funding
to Inquam Limited (Inquam). Inquam owns, develops and manages
wireless CDMA-based communications systems, either directly or
indirectly, primarily in Romania and Portugal. We recorded $33 mil-
lion, $59 million and $99 million in equity in losses of Inquam during
fi scal 2005, 2004 and 2003, respectively. At September 25, 2005,
our equity and debt investments in Inquam totaled $26 million, net
of equity in losses, and we had no remaining funding commitment
under our bridge loan agreement.
During fi scal 2005, Inquam secured new long-term fi nancing (the
new facilities). We and the Other Investor each guaranteed 50% of
a portion of the amounts owed under certain of the new facilities, up
to a combined maximum of $54 million. Amounts outstanding under
the new facilities subject to the guarantee totaled $49 million as of
September 25, 2005. The guarantee expires and the new facilities
mature on December 25, 2011.
In October 2005, we and the Other Investor agreed to restructure
Inquam. Upon close of the restructuring, which is expected to occur
in the fi rst half of fi scal 2006, the Portugal companies will be spun-
off through the exchange of portions of our and the Other Investor’s
debt investments for direct equity interests in the Portugal compa-
nies. Inquam, which will continue to own the Romania companies, will
repurchase certain minority equity interests. Immediately after the
restructuring, we will hold an approximate 49.7% equity interest in
Inquam and a 23% equity interest in the Portugal companies, which
is expected to be reduced over time as the Other Investor makes
the further investments in the Portugal companies contemplated by
the restructuring agreements. In addition, we and the Other Investor
will have a put-call option arrangement. Under this arrangement, the
Other Investor will have the right to buy our equity and debt invest-
ments in Inquam, subject to certain conditions, by exercising its call
option, which will expire no later than May 14, 2008. The minimum
purchase price will be approximately $66 million. In the event that
the Other Investor’s call option expires, or in certain other circum-
stances prior to that date, we will have the right to sell our equity
and debt investments in Inquam to the Other Investor at a minimum
sales price of $66 million. Such right will expire after six months.
We do not anticipate providing any further funding to Inquam or
to the Portugal companies.
Fiscal 2005 Compared to Fiscal 2004
Revenues. Total revenues for fi scal 2005 were $5.67 billion, com-
pared to $4.88 billion for fi scal 2004. Revenues from LG Electronics,
Samsung and Motorola, customers of our QCT, QTL and QWI segments,
comprised an aggregate of 15%, 13% and 11% of total consolidated
revenues, respectively, in fi scal 2005, compared to 15%, 15% and
10% of total consolidated revenues, respectively, in fi scal 2004.
Revenues from sales of equipment and services for fi scal 2005 were
$3.74 billion, compared to $3.51 billion for fi scal 2004. Revenues
from sales of integrated circuits increased $165 million, resulting
primarily from an increase of $396 million related to higher unit
shipments of MSM and accompanying RF integrated circuits, par-
tially offset by a decrease of $241 million related to the effects
of reductions in average sales prices and changes in product mix.
Revenues from the sale of satellite and terrestrial-based two-way
data messaging systems and related messaging services increased
$25 million and revenues from the sale of satellite portable phones
that operate on the Globalstar low-Earth-orbit satellite communica-
tions system increased $19 million.
Revenues from licensing and royalty fees for fi scal 2005 were
$1.93 billion, compared to $1.37 billion for fi scal 2004. During fi scal
2005, the QTL segment recorded royalty revenues solely based on
royalties reported by licensees during the year, as compared to the
method used during the fi rst three quarters of fi scal 2004 of recording
royalty revenues from certain licensees based on estimates of royalty
revenues earned by those licensees during the quarter. The increase
in royalty revenue year to year resulted primarily from a $350 million
increase in royalties reported to us by our external licensees and the
effect of changing the timing of recognizing royalty revenues in the
fourth quarter of fi scal 2004. Royalty revenues recorded in fi scal
2004 excluded $151 million of royalties that were reported by
external licensees in the fi rst quarter of fi scal 2004, but estimated
and recorded as revenue in the fourth quarter of fi scal 2003. Royalties
reported to us by external licensees in fi scal 2005 were $1.64 billion,
as compared to $1.29 billion in fi scal 2004. The increase in royalties
reported to us by external licensees was primarily due to an increase
in sales of CDMA products by licensees, resulting from higher world-
wide demand for CDMA products at higher average selling prices due
primarily to the growth in sales of high-end WCDMA products and
shifts in the geographic distribution of sales of CDMA products.