Qualcomm 2014 Annual Report Download - page 37

and services businesses, including QCT, and substantially all of our engineering, research and development functions, are operated by
Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. QTL continues to be
operated by QUALCOMM Incorporated, which continues to own the vast majority of our patent portfolio. Neither QTI nor any of its
subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.
QCT is a leading developer and supplier of integrated circuits and system software based on CDMA, OFDMA and other technologies for
use in voice and data communications, networking, application processing, multimedia and global positioning system products. QCT’s
integrated circuit products and system software are sold to or licensed to manufacturers that use our products in wireless devices, particularly
mobile phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, access points and routers, data cards and
infrastructure equipment, and in wired devices, particularly broadband gateway equipment, desktop computers and streaming media players. Our
MSM integrated circuits, which include the Mobile Data Modem, Qualcomm Single Chip and Qualcomm Snapdragon processors, perform the
core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global
positioning functions. In addition, our Snapdragon processors provide advanced application and graphics processing capabilities. QCT’s system
software enables the other device components to interface with the integrated circuit products and is the foundation software enabling
manufacturers to develop devices utilizing the functionality within the integrated circuits. QCT revenues comprised 70% , 67% and 63% of total
consolidated revenues in fiscal 2014 , 2013 and 2012 , respectively.
QCT utilizes a fabless production business model, which means that we do not own or operate foundries for the production of silicon wafers
from which our integrated circuits are made. Integrated circuits are die cut from silicon wafers that have completed the package assembly and
test manufacturing processes. We rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing,
of our integrated circuits based primarily on our proprietary designs and test programs. Our suppliers are also responsible for the procurement of
most of the raw materials used in the production of our integrated circuits. We employ both turnkey and two-stage manufacturing models to
purchase our integrated circuits. Turnkey is when our foundry suppliers are responsible for delivering fully assembled and tested integrated
circuits. Under the two-stage manufacturing model, we purchase die or wafers from semiconductor manufacturing foundries and contract with
separate third-party suppliers for manufacturing services, such as wafer bump, probe, assembly and final test.
QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which, among other rights, includes
certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products
implementing CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their
derivatives. QTL licensing revenues are comprised of license fees as well as royalties based on sales by licensees of products incorporating or
using our intellectual property. License fees are fixed amounts paid in one or more installments. Royalties are generally based upon a percentage
of the wholesale (i.e., licensee’s) selling price of complete licensed products, net of certain permissible deductions (including transportation,
insurance, packing costs and other items). QTL recognizes royalty revenues based on royalties reported by licensees during the quarter and when
other revenue recognition criteria are met. Licensees, however, do not report and pay royalties owed for sales in any given quarter until after the
conclusion of that quarter. QTL revenues comprised 29% , 30% and 33% of total consolidated revenues in fiscal 2014 , 2013 and 2012 ,
respectively. The vast majority of such revenues were generated through our licensees’ sales of CDMA2000- and WCDMA-based products,
such as feature phones and smartphones.
QSI makes strategic investments that are focused on opening new or expanding opportunities for our technologies and supporting the design
and introduction of new products and services (or enhancing existing products or services) for voice and data communications. Many of these
strategic investments are in early-stage companies in a variety of industries, including, but not limited to, digital media, e-commerce, energy,
healthcare and wearable devices. Investments primarily include non-marketable equity instruments, which generally are recorded using the cost
method or the equity method, and convertible debt instruments, which are recorded at fair value. QSI also holds wireless spectrum, which at
September 28, 2014, consisted of L-Band spectrum in the United Kingdom. As part of our strategic investment activities, we intend to pursue
various exit strategies for each of our QSI investments in the foreseeable future. During fiscal 2013, we deconsolidated subsidiaries reported in
QSI that were established to operate a wireless network in India (the former BWA subsidiaries), and all of our remaining interest was sold in
fiscal 2014.
During the first quarter of fiscal 2014 , we reassessed our management reporting as a result of the sale of the North and Latin America
operations of our Omnitracs division, among other reasons. The Omnitracs division was previously aggregated with three other divisions into the
Qualcomm Wireless & Internet (QWI) reportable segment. Starting in fiscal 2014 , the QWI segment was eliminated, and the former QWI
divisions are included in nonreportable segments.
Nonreportable segments include our QMT (Qualcomm MEMS Technologies), Pixtronix and Small Cells divisions and other wireless
technology and service initiatives. QMT plans to license its next generation IMOD (interferometric modulator) display technology and to focus
on wearable devices. Pixtronix develops and licenses display technologies based on MEMS (micro-electro-mechanical-systems) structure
optimized for portable multimedia devices. Small Cells develops and supplies
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