Qualcomm 2012 Annual Report Download - page 24

supplier, we could be prohibited from making and selling such products. In any potential dispute involving other companies’ patents or other
intellectual property, our chipset foundries, semiconductor assembly and test providers and customers could also become the targets of litigation.
We are contingently liable under certain product sales, services, license and other agreements to indemnify certain customers against certain
types of liability and/or damages arising from qualifying claims of patent infringement by products or services sold or provided by us.
Reimbursements under indemnification arrangements could have an adverse effect on our results of operations. Furthermore, any such litigation
could severely disrupt the supply of our products and the businesses of our chipset customers and their customers, which in turn could hurt our
relationships with them and could result in a decline in our chipset sales and/or reductions in our licensees’ sales, causing a corresponding
decline in our chipset and/or licensing revenues. Any claims, regardless of their merit, could be time consuming to address, result in costly
litigation, divert the efforts of our technical and management personnel or cause product release or shipment delays, any of which could have an
adverse effect upon our operating results.
We expect that we may continue to be involved in litigation and may have to appear in front of administrative bodies (such as the U.S.
International Trade Commission) to defend against patent assertions against our products by companies, some of whom are attempting to gain
competitive advantage or leverage in licensing negotiations. We may not be successful in such proceedings, and if we are not, the range of
possible outcomes includes everything from royalty payment to an injunction on the sale of certain of our integrated circuit products (and on the
sale of our customers’ devices using such products). Any imposition of royalty payments might make purchases of our products less economical
for our customers. A negative outcome in any such proceeding could severely disrupt the business of our chipset customers and their wireless
operator customers, which in turn could harm our relationships with them and could result in a decline in our share of worldwide chipset sales
and/or a reduction in our licensees’ sales to wireless operators, causing corresponding declines in our chipset and/or licensing revenues.
A number of other companies have claimed to own patents essential to various CDMA standards, GSM standards and OFDMA standards or
implementations of systems based on such standards. If we or other product manufacturers are required to obtain additional licenses and/or pay
royalties to one or more of such other patent holders, this could have an adverse effect on the commercial implementation of our products and
technologies, average sales prices of and demand for our licensees’ products and our results of operations.
We depend on a limited number of third-party suppliers for our procurement, manufacture and testing of product inventories. If we fail to
execute supply strategies that provide competitive advantage in terms of supply assurance, technology leadership and cost, our operating
results and our business may be harmed.
Our QCT segment purchases raw materials, component parts, subassemblies and specialized manufacturing equipment from third-party
suppliers and contracts with separate suppliers for probe, assembly, test and other services in the manufacture of product inventories. A
reduction, interruption, delay or limitation in our product supply source, a failure by our suppliers to provide or allocate adequate manufacturing
or test capacity for our products or their inability to react to shifts in product demand or an increase in raw material or component prices could
have an adverse effect on our ability to meet customer demands, our business and/or our profitability. The loss of a supplier or the inability of a
supplier to meet performance and quality specifications or delivery schedules could harm our ability to meet our delivery obligations to our
customers and negatively impact our revenues, business operations and ability to compete for future business. In the event of a loss of or a
decision to change a supplier, qualifying a new foundry supplier and commencing volume production or testing could cause us to incur
additional expense and production delays, resulting in possible loss of customers.
While we have established alternate suppliers for certain technologies that we consider critical, we rely on sole- or limited-source suppliers
for some products, subjecting us to significant risks, including: possible shortages of raw materials or manufacturing capacity; poor product
performance; and reduced control over delivery schedules, manufacturing capability and yields, quality assurance, quantity and costs. To the
extent we have established alternate suppliers, these suppliers may require significant levels of support to bring complex technologies to
production. As a result, we may invest a significant amount of effort and resources in supporting, and incur higher costs to maintain, such
alternate suppliers. Our arrangements with our suppliers may oblige us to incur costs to manufacture and test our products that do not decrease at
the same rate as decreases in pricing to our customers. The ability of our suppliers to develop or maintain leading process technologies, including
transitions to smaller geometry process technologies, and to effectively compete with the manufacturing performance of our competition, could
also impact our ability to meet customer demand, increase our operating expenses and subject us to the risk of excess inventories. Our inability
to meet customer demand due to sole- or limited-
sourcing and/or the additional operating expenses that we incur because of these or other supply
constraints or because of the need to support alternate suppliers could negatively impact our business, our revenues and our results of operations.
Although we have long-term contracts with our suppliers, many of these contracts do not provide for long-term capacity commitments. To
the extent that we do not have firm commitments from our suppliers over a specific time period, or for any specific quantity, our suppliers may
allocate, and in the past have allocated, capacity to the production and testing of products for their other customers while reducing or limiting
capacity to manufacture or test our products. Accordingly, capacity for our
18