Qualcomm 2014 Annual Report Download - page 36

Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, the following discussion contains forward-
looking statements that are subject to risks and uncertainties.
Actual results may differ materially from those referred to herein due to a number of factors, including but not limited to risks described in the
section entitled Risk Factors and elsewhere in this Annual Report.
Overview
Fiscal 2014 Overview
The transition of wireless networks and devices to 3G/4G (CDMA-based, OFDMA-based and CDMA/OFDMA multimode) continued
around the world. 3G/4G connections increased to approximately 2.8 billion, up 24% year-over-year, and represent approximately 40% of total
cellular connections, up from 34% at the end of fiscal 2013.
(1)
Revenues were $26.5 billion , an increase of 7% compared to fiscal 2013, with net income attributable to Qualcomm of $8.0 billion , an
increase of 16% compared to fiscal 2013.
We shipped approximately 861 million Mobile Station Modem (MSM) integrated circuits for CDMA- and OFDMA-based wireless
devices, an increase of 20% , compared to approximately 716 million MSM integrated circuits in fiscal 2013 , largely driven by the adoption of
4G LTE, particularly in China. Growth in fiscal 2014 was largely driven by shipments to key customers for both 3G and 3G/4G multimode
mobile devices in emerging regions. In particular, our LTE leadership position contributed to growth from regions adopting 3G/4G LTE
multimode.
Total reported device sales
(2)
by licensees were approximately $243.6 billion in fiscal 2014, an increase of approximately 5% , compared to
approximately $231.2 billion in fiscal 2013 . Our fiscal 2014 results were favorably impacted by increased 3G/4G device shipments by licensees
as a result of the continued adoption of smartphones. Our results were negatively impacted by the challenges we are facing in China. Our
business practices continue to be the subject of an investigation by the China National Development and Reform Commission (NDRC). We also
believe that certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed
products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee) and that
unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing. We are taking steps to address
these matters, although the nature and timing of any resolution is uncertain.
During the first quarter of fiscal 2014 , we announced our intention of returning 75% of our free cash flow
(3)
to stockholders through stock
repurchases and dividends over the foreseeable future, where free cash flow is defined as net cash provided by operating activities less capital
expenditures. In fiscal 2014 , we returned $7.1 billion , or 93% of free cash flow, to stockholders, including $4.5 billion through repurchases of
60.3 million shares of common stock and $2.6 billion , or $1.54 per share, of cash dividends. Shares outstanding decreased to 1.67 billion at
September 28, 2014 from 1.69 billion at September 29, 2013 due to share repurchases, partially offset by net shares issued under our employee
benefit plans.
Our Business and Operating Segments
We design, manufacture, have manufactured on our behalf and market digital communications products and services based on CDMA,
OFDMA and other technologies. We derive revenues principally from sales of integrated circuit products and licensing our intellectual property,
including patents, software and other rights.
We have three reportable segments. We conduct business primarily through two reportable segments, QCT (Qualcomm CDMA
Technologies) and QTL (Qualcomm Technology Licensing), and our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic
investments. Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. Following our
corporate reorganization at the beginning of fiscal 2013, substantially all of our products
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(1)
According to GSMA Intelligence estimates as of November 3, 2014 for the quarter ended September 30, 2014 (estimates excluded Wireless Local Loop).
(2) Total reported device sales is the sum of all reported sales in U.S. dollars (as reported to us by our licensees) of all licensed CDMA-based, OFDMA-based
and CDMA/OFDMA multimode subscriber devices (including handsets, modules, modem cards and other subscriber devices) by our licensees during a
particular period (collectively, 3G/4G devices). Not all licensees report sales the same way (e.g., some licensees report sales net of permitted deductions,
including transportation, insurance, packing costs and other items, while other licensees report sales and then identify the amount of permitted deductions in
their reports), and the way in which licensees report such information may change from time to time. In addition, certain licensees may not report (in the
quarter in which they are contractually obligated to report) their sales of certain types of subscriber units, which (as a result of audits, legal actions or for
other reasons) may be reported in a subsequent quarter. Accordingly, total reported device sales for a particular period may include prior period activity that
was not reported by the licensee until such particular period.
(3) Free cash flow is a non-GAAP financial measure. See “Non-GAAP Financial Information.”