Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the registrant as of March 30, 2007 was $68,727,571,532.*
The
number of shares outstanding of the registrant’s common stock
was 1,636,486,963 as of November 6,
2007.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed with the Commission
pursuant to Regulation 14A in connection with the registrant’s 2008 Annual Meeting of Stockholders,
to be filed subsequent to the date hereof, are incorporated by reference into Part III of this
Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the conclusion of the registrant’s fiscal year ended September 30,
2007.
| * | Excludes the Common Stock held by executive officers, directors and stockholders whose ownership exceeds 5% of the Common Stock outstanding at March 30, 2007. This calculation does not reflect a determination that such persons are affiliates for any other purposes. |
QUALCOMM INCORPORATED
Form 10-K
For the Fiscal Year Ended September 30, 2007
Index
Form 10-K
For the Fiscal Year Ended September 30, 2007
Index
Table of Contents
TRADEMARKS AND TRADE NAMES
QUALCOMM®, QUALCOMM Wireless Business SolutionsÒ, OmniTRACS®, OmniVision™, GlobalTRACS™,
T2™, T2 Untethered TrailerTRACS™, TrailerTRACS®, TruckMAIL™, OmniExpress®, QConnectÒ,
QCT-Ò, MSM™, CSM™, Snapdragon™, Wireless Reach™, gpsOne™, SnapTrackÒ, BREWÒ, BREW
SDKÒ, BINARY RUNTIME ENVIRONMENT FOR WIRELESSÒ, MediaFLO USA™, MediaFLO™, FLO™,
FLASH-OFDM®, RadioRouter®, deliveryOne™, QPoint™, uiOne™, FlarionÒ, BerkanaÒ and QChat®
are trademarks and/or service marks of QUALCOMM Incorporated. QUALCOMM, QUALCOMM Wireless Business
Solutions, QWBS, QUALCOMM Enterprise Solutions, QES, QUALCOMM CDMA Technologies, QCT, QUALCOMM
Technology Licensing, QTL, QUALCOMM Wireless Systems, QWS, QUALCOMM Wireless & Internet, QUALCOMM
Wireless & Internet Group, QWI, QUALCOMM Internet Services, QIS, QUALCOMM Government Technologies,
QGOV, QUALCOMM MEMS Technologies, QMT, QUALCOMM Technologies & Ventures, QUALCOMM MediaFLO
Technologies, QUALCOMM Flarion Technologies, QUALCOMM Global Development, QUALCOMM Global Trading,
QGT, QUALCOMM Strategic Initiatives, QSI, MediaFLO USA, Spike, SnapTrack are trade names of
QUALCOMM Incorporated.
cdmaOne® is a trademark of the CDMA Development Group, Inc. CDMA2000® is a registered
trademark and certification mark of the Telecommunications Industry Association. Globalstar™ and
Globalstar® are a trademark and service mark, respectively, of Globalstar, Inc.
All other trademarks, service marks and/or trade names appearing in this document are the
property of their respective holders.
Table of Contents
In this document, the words “Qualcomm,” “we,” “our,” “ours” and “us” refer only to QUALCOMM
Incorporated and not any other person or entity.
PART I
Item 1. Business
This Annual Report (including the following section regarding Management’s Discussion and
Analysis of Financial Condition and Results of Operations) contains forward-looking statements
regarding our business, financial condition, results of operations and prospects. Words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar
expressions or variations of such words are intended to identify forward-looking statements, but
are not the exclusive means of identifying forward-looking statements in this Annual Report.
Additionally, statements concerning future matters such as the development of new products,
enhancements or technologies, sales levels, expense levels and other statements regarding matters
that are not historical are forward-looking statements.
Although forward-looking statements in this Annual Report reflect our good faith judgment,
such statements can only be based on facts and factors currently known by us. Consequently,
forward-looking statements are inherently subject to risks and uncertainties and actual results and
outcomes may differ materially from the results and outcomes discussed in or anticipated by the
forward-looking statements. Factors that could cause or contribute to such differences in results
and outcomes include without limitation those discussed under the heading “Risk Factors” below, as
well as those discussed elsewhere in this Annual Report. Readers are urged not to place undue
reliance on these forward-looking statements, which speak only as of the date of this Annual
Report. We undertake no obligation to revise or update any forward-looking statements in order to
reflect any event or circumstance that may arise after the date of this Annual Report. Readers are
urged to carefully review and consider the various disclosures made in this Annual Report, which
attempt to advise interested parties of the risks and factors that may affect our business,
financial condition, results of operations and prospects.
We incorporated in 1985 under the laws of the state of California. In 1991, we reincorporated
in the state of Delaware. We operate and report using a 52-53 week fiscal year ending the last
Sunday in September. Our 52-week fiscal years consist of four equal quarters of 13 weeks each, and
our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter.
The financial results for our 53-week fiscal years and our 14-week fiscal quarters will not be
exactly comparable to our 52-week fiscal years and our 13-week fiscal quarters. The fiscal year
ended September 30, 2007 includes 53 weeks. Both of the fiscal years ended September 24, 2006 and
September 25, 2005 include 52 weeks.
Overview
In 1989, we publicly introduced the concept that a digital communication technique called CDMA
could be commercially successful in wireless communication applications. CDMA stands for Code
Division Multiple Access and is one of the main technologies currently used in digital wireless
communications networks (also known as wireless networks). CDMA and GSM (which is a form of TDMA
and stands for Global System for Mobile Communications) are the primary digital technologies used
to transmit a wireless device user’s voice or data over radio waves using the wireless network.
Because we led, and continue to lead, the development and commercialization of CDMA
technology, we own significant intellectual property, including patents, patent applications and
trade secrets, which applies to all versions of CDMA and portions of which we license to other
companies and implement in our own products. The wireless communications industry generally
recognizes that a company seeking to develop, manufacture and/or sell products that use CDMA
technology will require a patent license from us.
There are several versions of CDMA technology recognized worldwide as public cellular
standards. The first version, known as cdmaOne, is a second generation (2G) cellular technology
that was first commercially deployed in the mid-1990s. The other subsequent versions of CDMA are
popularly referred to as third generation (3G) technologies known commonly throughout the wireless
industry as:
| • | CDMA2000, including 1X, 1xEV-DO (EV-DO, or Evolution Data Optimized), EV-DO Revision A and EV-DO Revision B; |
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| • | Wideband CDMA (WCDMA), also known as Universal Mobile Telecommunications Systems (UMTS), including High Speed Download Packet Access (HSDPA), High Speed Uplink Packet Access (HSUPA) and High Speed Packet Access Plus (HSPA+); and | ||
| • | CDMA Time Division Duplex (TDD), of which there are currently two versions, Time Division Duplex CDMA (TD-CDMA) and Time Division Synchronous-CDMA (TD-SCDMA). |
CDMA2000 and WCDMA are deployed today in wireless networks throughout the world. In addition
to increasing voice capacity, these 3G CDMA technologies enable greater data capacity at higher
data rates. In the future, we expect a broader range of airlinks will be utilized depending on the
spectrum availability and applications offered by each wireless network operator (also known as
wireless operator). These include WCDMA upgrades beyond HSPA+ (called Long Term Evolution (LTE)),
CDMA2000 upgrades beyond 1xEV-DO Revisions A and B (called Ultra Mobile Broadband (UMB)), an
Orthogonal Frequency Division Multiplexing Access (OFDMA)/CDMA upgrade path for ultra mobile
broadband data rates using up to 20 MHz channels in new spectrum and other OFDMA-based
air-interfaces. EV-DO Revision A, Revision B and future enhancements will allow operators to
introduce Voice over Internet Protocol (VoIP), multi-megabit-per-second speeds, multimedia and
broadcast capabilities in the coming years.
WCDMA has been commercially deployed by more than 180 operators worldwide, as reported by the
Global mobile Suppliers Association (GSA), an international organization of WCDMA and GSM
suppliers, in its October 2007 reports. The WCDMA family includes HSDPA, part of 3rd
Generation Partnership Project (3GPP) Release 5, which was first deployed commercially in December
2005 in the United States using our chipsets; as well as, HSUPA, part of 3GPP Release 6, which was
deployed commercially in 2007. We expect enhancements in future revisions of the 3GPP
specifications will further increase performance capacity and data speeds. We expect many WCDMA
operators to eventually upgrade their networks to HSUPA. More than 140 operators have launched
commercial HSDPA networks and 19 operators have launched HSUPA, as reported by the GSA in October
2007. Another 3G technology, TD-SCDMA, is being deployed in China along with CDMA2000, and WCDMA is
being considered for deployment.
The industry is considering moving to an OFDMA-based technology for fourth generation
applications requiring high bandwidth data communications. 3GPP is specifying an OFDMA system
called LTE, and 3rd Generation Partnership Project 2 (3GPP2) has adopted the UMB
standard. Other standards, specified by the IEEE, include 802.16 (WiMax) and 802.20. We have been
actively pursuing research and development of commercial OFDMA-based wireless communication
technologies and have filed over 1,400 United States and 5,300 foreign patent applications related
to these technologies. We expect that each of these standards, when adopted, will incorporate our
patented technologies. Thus far, we have licensed seven companies under our patent portfolio for use
in single mode OFDMA products. Multimode products, that implement both OFDMA and CDMA
technologies, will in most cases be licensed under our existing license agreements for CDMA.
Our Revenues. We generate revenues by licensing portions of our intellectual property to
manufacturers of wireless products (such as wireless phones and other devices and the
infrastructure required to establish and operate a wireless network). We receive licensing fees and
royalties on products sold by our licensees that incorporate our patented technologies. We also
sell and license products and services, which include:
| • | CDMA-based integrated circuits (also known as chips) and Radio Frequency (RF) and Power Management (PM) chips and system software used in mobile devices (also known as subscriber units and handsets) and in wireless networks; | ||
| • | Equipment, software and services used by companies, including those in the transportation industry, and governments to wirelessly connect with their assets, products and workforce; | ||
| • | Software products and services related to BREW (Binary Runtime Environment for Wireless), a package of products that enable software developers to create applications, or programs, and wireless operators to deliver content to mobile devices; | ||
| • | Services to wireless operators delivering multimedia content, including live TV, in the United States; | ||
| • | Software and hardware development services; and | ||
| • | Network products based on OFDMA technology to wireless device service providers. |
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Our Engineering Resources. We have significant engineering resources, including engineers with
substantial expertise in CDMA, OFDMA and a broad range of other technologies. Using these
engineering resources, we expect to continue to develop new versions of CDMA, OFDMA and other
technologies, develop alternative technologies for certain specialized applications (including
multicast), participate in the formulation of new wireless telecommunications standards and
technologies and assist in deploying wireless voice and data communications networks around the
world.
Our Integrated Circuits Business. We develop and supply CDMA-based integrated circuits and
system software for wireless voice and data communications, multimedia functions and global
positioning system products. We also design and create multimode and multiband integrated circuits
incorporating other wireless standards for roaming in global roaming markets. Our integrated
circuit products and system software are used in wireless devices, particularly mobile phones,
laptops, data modules, handheld wireless computers, data cards and infrastructure equipment. The
integrated circuits for wireless devices include the baseband Mobile Station Modem (MSM), RF and PM
devices, as well as the system software which enables the other device components to interface with
the integrated circuit products and is the foundation software enabling device manufacturers to
develop handsets utilizing the functionality within the integrated circuits. These integrated
circuits for wireless devices and system software perform voice and data communication, multimedia
and global positioning functions, radio conversion between RF and baseband signals and power
management. Our infrastructure equipment Cell Site Modem (CSM) integrated circuits and system
software perform the core baseband CDMA modem functionality in the wireless operator’s base station
equipment providing wireless standards-compliant processing of voice and data signals to and from
wireless devices. Because of our broad and unique experience in designing and developing CDMA-based
products, we not only design the baseband integrated circuit, but the supporting system as well,
including the RF devices, PM devices and accompanying software products. This approach enables us
to optimize the performance of the wireless device with improved product features, as well as the
integration and performance of the network system. Our design of the system allows CDMA systems and
devices manufactured by our customers to come to market faster. We provide our integrated circuits
and system software, including reference designs and tools, to many of the world’s leading wireless
device and infrastructure equipment manufacturers. We also provide support to enable our customers
to reduce the time required to design their products and bring their products to market faster. We
plan to add additional features and capabilities to our integrated circuit products to help our
customers reduce the costs and size of their products, to simplify our customers’ design processes
and to enable more wireless devices and services.
Our Wireless Device Software and Related Services Business. We provide our BREW products and
services to support the development of over-the-air and pre-loaded wireless applications and
services. We provide BREW to wireless network operators, handset manufacturers and software
developers. The BREW products and services include the BREW software development kit (SDK) for
developers; the BREW applications platform (i.e. software programs) and interface tools for device
manufacturers; the uiOne customized user interface product and services; and the deliveryOne
Content Distribution System enabling the distribution of content and applications to the market by
wireless operators, while also providing the settlement of billing and payment processes. The BREW
platform is a software application that provides an open, standard platform for wireless devices,
which means that BREW can be made to interface with many software applications, including those
developed by others. We make the BREW SDK available, free of charge, to any qualified person or
company interested in developing a new software application for wireless communications. BREW
leverages the capabilities available in integrated circuits and system software, enabling our
customers to develop feature-rich applications and content while reducing memory and enhancing
system performance of the wireless device itself. In addition to CDMA2000, BREW can be used on
wireless devices that support other wireless technologies, such as GSM, General Packet Radio System
(GPRS), Enhanced Data Rates for GSM Evolution (EDGE) and WCDMA. We also provide QChat, which
enables virtually instantaneous push-to-talk functionality on CDMA-based wireless devices, and
QPoint, which enables operators to offer enhanced 911 (E-911) wireless emergency and other
location-based applications and services.
Our Asset Tracking and Messaging Business. We design, manufacture and sell equipment, sell
software and provide services to our customers to enable them to connect wirelessly with their
assets, products and workforce. We offer satellite- and terrestrial-based two-way wireless
connectivity and position location services to
transportation and logistics fleets, construction contractors, original equipment
manufacturers and other enterprise companies to enable our customers to track the location and
monitor performance of their assets, communicate with their personnel and collect data.
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Our MediaFLO Business. Our subsidiary, MediaFLO USA, Inc. (MediaFLO USA), began offering
services over our nationwide multicast network based on our MediaFLO Media Distribution System
(MDS) and Forward Link Only (FLO) technology in the second quarter of fiscal 2007. This network is
utilized as a shared resource for wireless operators and their customers in the United States. The
commercial availability of the MediaFLO USA network and service on wireless devices will continue
to be determined by our wireless operator partners. MediaFLO USA’s network uses the 700 megahertz
(MHz) spectrum for which we hold licenses nationwide. Additionally, MediaFLO USA has and will
continue to procure, aggregate and distribute content in service packages which we will make
available on a wholesale basis to our wireless operator customers (whether they operate on CDMA or
GSM/WCDMA networks) in the United States.
MediaFLO USA continues to expand the availability of its commercial service. The initial phase
of its network launch includes several major markets. Verizon Wireless began offering the MediaFLO
service in fiscal 2007, and MediaFLO USA expects AT&T Mobility to begin offering the service in
fiscal 2008. In addition, MediaFLO USA is actively engaged in discussions with other domestic
wireless operators on how they might utilize the MediaFLO USA service.
In fiscal 2007, Verizon Wireless began offering the MediaFLO USA service, and we supported
AT&T’s impending offering of MediaFLO service. We increased the global market awareness of MediaFLO
technology through successful trials with British Sky Broadcasting (BSkyB) in the U.K., China
Network Systems (CNS) in Taiwan, together with Taiwan Television Enterprise Ltd. (TTV) in Taiwan,
PCCW Limited in Hong Kong and Maxis Communications Berhad and ASTRO All Asia Networks plc, in
Malaysia. In addition, we are pursuing numerous other international opportunities to market and
deploy MediaFLO. We continue to maintain a joint venture with KDDI to explore the deployment of
MediaFLO services in Japan. FLO technology is now established as a global open standard with the
publication of five new Telecommunications Industry Association (TIA) specifications.
Further Investments in New Products, Services and Technologies. We continue to invest heavily
in research and development in a variety of ways, to grow our earnings and extend the market for
our products and services.
We continue to develop and commercialize third generation CDMA-based technologies, such as
CDMA2000 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA, HSDPA (3GPP Release 5), HSUPA
(3GPP Release 6), HSPA+ (3GPP Release 7) and other future standards. These technologies support
more efficient voice communications, broadband access to the Internet, multimedia services, VoIP
and other delay sensitive applications (including video telephony, push-to-talk and multiplayer
gaming) and other revenue-generating services, in turn accelerating the growth of CDMA. At the same
time, we are working to fulfill the growing demand for affordable, voice-centric CDMA wireless
devices within the emerging entry-level market through various efforts including the introduction
of Single Chip (SC) solutions, streamlined test and certification processes and the aggregation of
device procurements. With regard to our 1xEV-DO technology, we have improved its value, performance
and economics with EV-DO Revision A, which provides a number of enhancements, including greater
spectral efficiency, faster reverse-link data rates, lower latency and optimized quality of
service. EV-DO Revision B enables CDMA operators to utilize a software upgrade to allow multiple RF
operators to transmit to a single device and hence significantly increase the user data rates (e.g.
three times in a 5 MHz bandwidth) and reduce latency for bursty applications.
We also continue to develop and commercialize multimode, multiband and multinetwork products
that embody technologies such as GSM, GPRS, EDGE, Bluetooth, Wireless Fidelity (Wi-Fi), Universal
Serial Bus (USB), FLO, Orthogonal Frequency Division Multiplexing (OFDM), Global System for Mobile
Communications-Mobile Application Port (GSM-MAP), American National Standards Institute 41
(ANSI-41) and Internet Protocol-based (IP-based) core networks. We continue to support multiple
mobile client software environments in our multimedia and convergence chipsets, such as BREW, Java,
Windows Mobile, PalmOS, Linux and the recently announced Open Handset
Alliance.
We continue to develop on our own, and with our partners, new innovations that are integrated
into our product portfolio to further expand the market and enhance the value of our products and
services. At the same time, we are active within many industry bodies, including 3rd
Generation Partnership Project (3GPP), 3rd Generation
Partnership Project 2 (3GPP2), Institute for Electrical and Electronic Engineers (IEEE) and
Open Mobile Alliance (OMA), to encourage the (1) universal implementation of these innovations to
support economies of scale and (2) interoperability of these innovations with existing and future
mobile communication services to preserve ongoing investments.
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In particular, we continue to contribute to 3GPP2 and 3GPP standards to enable the next level
of mobile broadband data services. In April 2007, 3GPP2 published the first version of UMB (Ultra
Mobile Broadband), an OFDMA-based specification. UMB is a broadband air interface using primarily
OFDMA, but also incorporating CDMA, providing data rates up to 152 Mbps on the downlink with and 75
Mbps on the uplink with two base station antennas and two handset antennas using the 20 MHz
bandwidth. With the same bandwidths and with four antennas at both the base station and device,
downlink rates greater than 288 Mpbs can be obtained. The data rates will be less with lower
bandwidths. 3GPP standards are also evolving beyond current HSDPA and HSUPA through Release 7 and
Release 8 to offer Evolved HSPA (High Speed Packet Access), also known as HSPA+, technologies to
enable much higher broadband data rates and higher capacity voice services. In parallel, 3GPP is
also introducing an OFDMA-based air-interface through its LTE standard to deliver higher mobile
broadband data rates using channel bandwidths up to 20 MHz. These standards also enable end-to-end
Internet Protocol (IP) transport using advanced IP Multimedia Subsystem (IMS) platform to deliver
voice (VoIP), multimedia and other broadband data services cost effectively.
UMB and LTE have been proposed to be part of the International Telecommunications Union
IMT-2000 specification as part of the normal update process. WiMax has been proposed to be
the sixth air interface in the IMT-2000 family. Initial systems utilizing 802.16e WiMax standard
are expected to be commercialized in the 2008 time frame. These systems are targeted at TDD
spectrum and higher frequency bands (e.g. 2.5 and 3.5 GHz). Similarly, WiBRO, a variant of WiMax,
has been deployed in South Korea at 2.3 GHz with limited commercial success. Since the WiMax family
of standards has evolved from a wire line legacy, we believe that, in the near future, the
efficiency and mobility are not expected to be as robust as those technologies that were designed
from the ground up for mobile broadband (i.e. UMB and LTE). Furthermore, the 3G economies of scale
greatly improve the availability and cost structure of 3GPP and 3GPP2 evolved technologies. The
OFDMA family of standards is expected to be complementary with 3G services, and Qualcomm expects to
provide multimode chipsets capable of operating across multiple technology deployment scenarios.
These innovations are expected to enable our customers to improve the performance or value of
their existing services, offer these services more affordably, and introduce revenue-generating
broadband data services ahead of their competition. Our patented technologies, resulting from our
strong investment in fundamental system research and development, have been and are expected to
continue to play a significant role in each of these future standards.
Wireless Local Area Networks (WLAN), such as Wi-Fi, are complementary to Wide Area Networks
(WAN), such as CDMA2000 and WCDMA. They both provide affordable high-speed wireless access to the
Internet. The limited coverage offered by Wi-Fi is well suited for private networks (e.g.
enterprises, campuses and homes) and certain public “hot spots” (e.g. airports, conference halls
and coffee shops) where data usage is high in a limited portable and stationary environment. 3G
CDMA networks, on the other hand, are ideally suited for geographically diverse voice and data
coverage (e.g. cities, highways and neighborhoods) and in environments where public access to the
Wi-Fi network is blocked due to a firewall (e.g. a client’s enterprise). We may incorporate WLAN
technology into our future multimode 3G CDMA chipsets as we continue to identify and integrate
other complementary wireless technologies into our chipsets.
We are developing our MediaFLO MDS and OFDM-based FLO technology to optimize the low cost
delivery of multimedia content to multiple wireless subscribers simultaneously, otherwise known as
multicasting. As part of the standardization of FLO technology, the FLO Forum (www.floforum.org)
was established in May 2005. To date, more than 85 companies have joined the FLO Forum. In 2005,
the TIA established a Committee to develop standards for Terrestrial Mobile Multimedia Multicast.
In August 2006, TIA published the Standard Forward Link Only Air Interface Specification based upon
the FLO Forum’s submissions, thus standardizing the lower layers of the FLO air interface. The TIA
has published a total of five standards relating to the MediaFLO MDS technology and several other
standards are currently in development.
We
are also developing our interferometric modulator (IMOD) display technology based on a
micro-electro-mechanical-systems (MEMS) structure combined with thin film optics. The IMOD display
technology may be included in the full range of consumer-targeted mobile products and is expected
to provide performance, power consumption and cost benefits as compared to current display
technologies.
Consistent with our strategic approach over the past fifteen years, we intend to continue our
active support of CDMA-based technologies, products and network operations to grow our royalty
revenues and integrated circuit
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and software revenues. From time to time, we may also make acquisitions to meet certain technology needs, to obtain development resources or to pursue new
business opportunities.
We plan to continue to make strategic investments in start-up companies that we believe open
new markets for our technology, support the design and introduction of new products and services
and/or possess unique capabilities or technology. Most of our strategic investments entail a high
degree of risk and will not become liquid until more than one year from the date of investment, if
at all. To the extent that such investments become liquid and meet our strategic objectives, we
intend to make regular periodic sales of our interests in these investments that are recognized in
investment income (expense). In some cases, we make strategic investments in early-stage companies,
which require us to consolidate or record our equity in losses of those companies. These losses
will adversely affect our financial results until we exit from or reduce our exposure to these
investments.
Corporate Responsibility. At Qualcomm, we realize we have a significant role to play as a
partner in our communities. We also believe that participating in community organizations is an
important avenue for our employees to develop as professionals and as citizens.
| • | Community Involvement. Qualcomm’s spirit of innovation is at the heart of our commitment to corporate citizenship. Our creativity, talent and technology are strong tools that energize and empower our global communities. | ||
| • | Diversity. We strongly believe in fostering a diverse environment and are committed to advancing opportunities for minorities and encouraging diversity through the workforce. | ||
| • | Environmental Health and Safety. We take a proactive approach to programs and techniques that contribute to a better environment for our local communities as well as our employees. | ||
| • | Wireless Reach. We believe access to advanced wireless voice and data services improves people’s lives. Qualcomm’s Wireless Reach initiative supports programs and solutions that bring the benefits of connectivity to developing communities globally. By working with partners, Wireless Reach projects create new ways for people to communicate, learn, access healthcare and reach global markets. |
Wireless Telecommunications Market
Use of wireless telecommunications devices has increased dramatically in the past decade.
According to forecasts made in July 2007 by Strategy Analytics, the number of worldwide mobile
subscribers is expected to reach approximately 3.6 billion by the end of 2008 and almost 4.6
billion in 2012, including approximately 3.5 billion unique users, equivalent to a penetration rate
of 67%. Growth in the market for wireless telecommunications services has traditionally been fueled
by demand for voice communications. There have been several factors responsible for the increasing
demand for wireless voice services, including:
| • | lower cost of wireless handsets, joined with an increasing selection of appealing mobile devices; | ||
| • | lower cost of service, including flat-rate and bundled long-distance calling plans; | ||
| • | prepaid services, particularly popular in developing countries; | ||
| • | increased coverage, roaming, privacy, reliability and call clarity of voice transmissions; | ||
| • | wireless networks becoming the primary communications infrastructure in developing countries due to the higher costs of and longer time required for installing wireline networks; and | ||
| • | regulatory environments worldwide favoring increased competition in wireless telecommunications. |
In addition to the tremendous demand for wireless voice services, wireless service providers
are increasingly focused on providing broadband wireless access to the Internet, as well as
multimedia entertainment, messaging, mobile commerce and position location services. These services
have been aided by the development and commercialization of 3G wireless networks and 3G handsets
which are capable of supporting higher data rates that
incorporate an ever-increasing array of new features and functionality, such as assisted
GPS-based position location, digital cameras with flash and zoom capabilities, internet browsers,
email, interactive games, music and video downloads and software download capability (e.g. our BREW
platform). In October 2007, the Yankee Group, a global market intelligence and advisory firm in the
technology and telecommunications industries, estimated that more than 2.5 billion people will be
using mobile data services by 2011 and the revenue produced from these services will account for
23% of total service revenue worldwide. We believe the growing availability of 3G-enabled handsets
capable of performing a wide variety of consumer and enterprise applications will accelerate the
demand for many wireless data services on a global basis and thus lead to an increased replacement
rate of mobile
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devices to those using our technologies and integrated circuits. Affordable wireless
broadband data connectivity is important to the consumer and enterprise, and its demand will
continue to drive the evolution of wireless standards.
The adoption of wireless standards for mobile communications within individual countries is
generally determined by the telecommunication service providers operating in those countries and,
in some instances, local government regulations. Such determinations are typically based on
economic criteria and the service provider’s evaluation of each technology’s ability to provide the
features and functionality required for its business plan. More than a decade and a half ago, the
European Community developed regulations requiring the use of a telecommunication standard known as
Global System for Mobile Communications, commonly referred to as GSM, a TDMA-based technology.
According to Wireless Intelligence, the use of this second generation wireless standard has spread
throughout the world and is currently the basis for approximately 80% of the digital mobile
communications in use. With the deployment of WCDMA, a third generation CDMA-based technology, by
GSM operators, many of the current 2.5 billion GSM subscribers are expected to upgrade to third
generation wireless services and are enjoying the added features and functionality available with
3G systems. For instance, a worldwide forecast published by Strategy Analytics in July 2007
indicated that the total number of WCDMA (UMTS) subscribers will grow from 190 million at the end
of 2007 to over 1 billion by the beginning of 2012.
Wireless Technologies
The significant growth in the use of wireless devices worldwide and demand for enhanced
network functionality requires constant innovation to further improve network reliability, expand
capacity and introduce new types of services. To meet these requirements, progressive generations
of wireless telecommunications technology standards have evolved.
Second Generation. Compared to first generation analog systems, second generation digital
technology provided for significantly enhanced efficiency within a fixed spectrum resulting in
greatly increased voice capacity. Second generation technologies also enabled numerous enhanced
services, including paging, e-mail, facsimile, connections to computer networks, greater privacy,
lower prices, a greater number of service options and greater fraud protection. However, data
services (email, fax, computer connections) were generally limited to low speed transmission rates.
The main second-generation digital cellular technologies are called cdmaOne or IS-95A/B, a
technology we developed and patented, North American TDMA, PDC (Personal Digital Cellular—a
variant of North American TDMA), and GSM, also a form of TDMA. At
this time, sales of North American TDMA
and PDC phones have been discontinued with subscribers being moved to GSM or 3G technologies. Many
operators have plans to shut down usage of these second generation systems. Similarly, analog
systems have been shut down in many places. In the United States, the FCC is permitting operators
to shut down the analog system beginning in 2008.
Third Generation. As a result of demand for wireless networks that simultaneously carry both
high speed data and voice traffic, in May 2000, the International Telecommunications Union (ITU), a
standards setting organization, adopted the 3G standard known as IMT-2000, which encompasses five
terrestrial operating radio interfaces, three of them based on our CDMA intellectual property. The
other two are TDMA-based.
Some of the advantages of 3G CDMA technology over both analog and TDMA- and GSM-based
technologies include increased network capacity, network flexibility, compatibility with internet
protocols, higher capacity for data and faster access to data
(Internet) and higher data throughput
rates. GSM has the benefits of roaming due to its wider worldwide
deployment Once considered an advantage of GSM, several low priced handsets of
approximately $30 or less are available today for CDMA, further enabling wireless CDMA growth in
developing regions.
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The
current commercial versions of CDMA2000, CDMA2000 1X and 1xEV-DO, provide both voice and high-speed wireless data communications. CDMA2000 1X and 1xEV-DO utilize the
same standard channel bandwidth as existing cdmaOne systems and, as a result, are compatible with
wireless telecommunications operators’ existing network equipment, making the migration to 3G
simple and affordable. We believe CDMA2000 1X provides approximately twice the voice capacity of
cdmaOne and six to eight times that of TDMA-based networks. Position location technology,
accomplished through a hybrid approach that utilizes signals from both the GPS satellite
constellation and CDMA cell sites, enables CDMA system operators to meet the Federal Communications
Commission (FCC) mandate requiring wireless operators to implement E911 wireless emergency location
services and offer other commercial location-based services. In the future, updates of CDMA2000 1X
and 1xEV-DO are expected to further increase performance. Other enhancements, such as multicast
services, higher-resolution displays, longer battery life, push-to-talk services and VoIP are
becoming available to improve the user experience and operator profitability. The price
differential between low-end third generation CDMA2000 handsets and GSM handsets is diminishing.
GSM operators around the world, including those in the European Community and AT&T in the
United States, have focused primarily on the UTRA-FDD radio interface of the IMT-2000 standard,
known as WCDMA, which is based on our underlying CDMA technology and incorporates many of our
patented inventions (as are all of the CDMA radio interfaces of the IMT-2000 Standard). The
majority of the world’s leading wireless device and infrastructure manufacturers (more than 85)
have licensed our technology for use in WCDMA products, enabling them to utilize this WCDMA mode of
the 3G technology.
A number of GSM operators deployed 2.5G mobile packet data technologies, such
as GPRS and EDGE (Enhanced Data Rates for GSM Evolution) in areas serviced by GSM, as a bridging
technology, while they waited for 3G WCDMA devices to become more readily available and affordable
so they can justify the expense of upgrading their GSM system to provide WCDMA service. In some
regions of the world, regulatory restrictions have prevented deploying WCDMA in the lower frequency
bands used by GSM, thus requiring more cell sites for WCDMA to provide coverage. As a result, in
less dense areas, some operators have not deployed
WCDMA. From a technological perspective, we do not believe that GPRS and EDGE effectively
compete with 3G CDMA-based packet data services, either on a cost per bit or transmitted
performance basis. The European Union permitted IMT-2000 technologies, which include WCDMA, to be
deployed in the lower frequency 900 MHz band. This is called UMTS900. As a result, commercial
deployments are expected, and there have been announcements from vendors indicating they will
provide UMTS900 equipment.
The three ITU 3G CDMA radio interfaces are all based on the underlying core principles of CDMA
technology; however, the CDMA2000 mode enables a direct and more economical conversion for current
cdmaOne networks. While the WCDMA wireless air interface does use CDMA technology for
communications between the wireless device and the network, the infrastructure backhaul network has
been specifically designed to be compatible with the GSM backhaul network, which is why GSM
operators will migrate to WCDMA rather than to CDMA2000. Our intellectual property rights include a
valuable patent portfolio essential to implementation of each of the 3G CDMA alternative standards
and patents that are useful for commercially successful product implementations. Generally, we have
licensed substantially all of our patents to our CDMA subscriber and
infrastructure equipment licensees. Under each of our existing license
agreements covering multiple CDMA standards, the royalty rate paid to us for sales of licensed 3G
CDMA (regardless of whether it is CDMA2000, WCDMA, TD-CDMA or TD-SCDMA) subscriber products is no
less than the rate that such licensee pays for its licensed second generation cdmaOne subscriber
products.
These 3G CDMA versions (CDMA2000, WCDMA, TD-CDMA and TD-SCDMA) from a technological
perspective require separate implementations and are not interchangeable. While the fundamental
core technologies are derived from CDMA and, in addition to other features and functionality, are
covered by our patents, they each require unique infrastructure products, network design and
management. However, subscriber roaming amongst systems using different air interfaces is made
possible through multimode wireless devices.
Operating Segments
Consolidated revenues from international customers and licensees as a percentage of total
revenues were 87% in both fiscal 2007 and 2006 and 82% in fiscal 2005. During fiscal 2007, 31%, 21%
and 17% of our revenues were from customers and licensees based in South Korea, China and Japan,
respectively, as compared to 32%, 17% and 21% during fiscal 2006, respectively, and 37%, 11% and
21% during fiscal 2005, respectively. Revenues from
three customers, LG Electronics, Motorola Inc. and Samsung Electronics Company, constituted a
significant portion (each more than 10%) of consolidated revenues in fiscal 2007, 2006 and 2005.
Risks related to our conducting business with customers and licensees outside of the United
States are described in Risk Factors — “We, and our licensees, are subject to the risks of
conducting business outside of the United States.” Additional information regarding our operating
segments is provided in the notes to our consolidated financial statements. See “Notes to
Consolidated Financial Statements, Note 10 — Segment Information.”
Qualcomm CDMA Technologies Segment (QCT)
QCT is a leading developer and supplier of CDMA-based integrated circuits and system software
for wireless voice and data communications, multimedia functions and global positioning system
products. QCT’s integrated circuit products and system software are used in wireless devices,
particularly mobile phones, data cards and infrastructure equipment. These products provide
customers with advanced wireless technology, enhanced
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component integration and interoperability, and reduced time-to-market. QCT markets and sells products in the United States through a sales
force based in San Diego, California, and internationally through a direct sales force based in
China, Germany, India, Italy, Japan, South Korea, Taiwan and the United Kingdom. QCT products are
sold to many of the world’s leading wireless handset, data card and infrastructure manufacturers.
In fiscal 2007, QCT shipped approximately 253 million MSM integrated circuits for CDMA wireless
devices worldwide. QCT revenues comprised 59%, 58% and 58% of total consolidated revenues in fiscal
2007, 2006 and 2005, 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 assembly and final
test manufacturing processes. Die, cut from silicon wafers, are the essential components of all of
our integrated circuits and a significant portion of the total integrated circuit cost. We rely on
independent third party suppliers to perform the manufacturing and assembly, and most of the
testing, of our integrated circuits. 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 business 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 business model, we purchase completed die directly from
semiconductor manufacturing foundries and contract directly with third party manufacturers for
back-end assembly and test services. We refer to this two-stage manufacturing business model as
Integrated Fabless Manufacturing (IFM). Our fabless model provides us the flexibility to select
suppliers that offer advanced process technologies to manufacture, assemble and test our integrated
circuits at a competitive price.
IBM, Samsung Electronics Co., Taiwan Semiconductor Manufacturing Company, Ltd. and United
Microelectronics Corporation are the primary foundry suppliers for our family of baseband
integrated circuits. Atmel Corporation, Chartered Semiconductor Manufacturing Ltd., Freescale
Semiconductor, Inc., IBM and Semiconductor Manufacturing International Corporation are the primary
foundry suppliers for our family of analog, radio frequency and power management integrated
circuits. Advanced Semiconductor Engineering Inc., Amkor Technology Inc., and STATSChipPAC Ltd. are
the primary back-end semiconductor assembly and test (SAT) suppliers under our IFM model.
QCT offers a broad portfolio of products, including both wireless device and infrastructure
integrated circuits, in support of 1xEV-DO as well as the EV-DO Revision A, EV-DO Revision B, and
UMB evolutions of CDMA 2000 technology. Leveraging our expertise in CDMA, we have also developed
integrated circuits for manufacturers and operators deploying the WCDMA version of 3G. More than 30
device manufacturers have selected our WCDMA products that support GSM/GPRS, WCDMA, HSDPA and HSUPA
for their devices. We have not commercially sold a CSM integrated circuit product for WCDMA base
station equipment.
Our gpsOne position-location technology is in more than 300 million gpsOne-enabled handsets
sold worldwide. Compatible with all major air interfaces, our gpsOne technology is the industry’s
only fully-integrated wireless baseband and assisted-GPS product, and has enabled CDMA system
operators to cost-effectively meet the FCC’s E911 mandate.
Our MSM integrated circuit products are offered on four distinct platforms (Value, Multimedia,
Enhanced Multimedia and Convergence) in order to address specific market segments and offer
products tailored to the needs of users in those various market segments. The Value Platform addresses entry-level markets
and enables voice-centric and basic data wireless devices. The Value Platform includes our Qualcomm
Single Chip (QSC) product family, the industry’s first single-chip CDMA2000 1X products targeted at
lowering overall handset costs and driving the broader adoption of high-speed data services in
emerging markets. The Multimedia and Enhanced Multimedia Platforms are designed to facilitate the
rapid adoption of high-speed wireless data applications. Features from the Multimedia and Enhanced
Multimedia Platforms include support for multi-megapixel cameras, videotelephony, streaming
multimedia, audio, 3D graphics and advanced position-location capabilities. The Convergence
Platform enables portable business, high-fidelity entertainment, interactive 3D gaming and other
advanced multimedia, connectivity and position location applications.
The new Snapdragon platform of chipset products is designed to enable computing-centric
devices that also offer a full range of wireless connectivity capabilities. Based on the Scorpion
microprocessor, the Snapdragon platform expands Qualcomm’s reach beyond the traditional wireless
market into computing and consumer electronics.
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Our Universal Broadcast Modem integrated circuit supports our FLO technology, as well as
Digital Video Broadcasting-Handheld (DVB-H) and one-segment Integrated Services Digital
Broadcasting-Terrestrial (ISDB-T), creating a common platform that handset manufacturers can
leverage to address multiple standards. The Universal Broadcast Modem product will interface with
integrated circuits from the Enhanced Multimedia and Convergence Platforms for both CDMA2000 and
WCDMA networks.
The markets in which our QCT segment operates are intensely competitive. QCT competes
worldwide with a number of United States and international semiconductor designers and
manufacturers in the United States and internationally. As a result of the trend toward a larger
CDMA wireless market, global expansion by foreign and domestic competitors and technological
changes, we anticipate that additional competitors will enter this market. We believe that the
principal competitive factors for CDMA integrated circuit providers to our addressed markets are
product performance, level of integration, quality, compliance with industry standards, price,
time-to-market, system cost, design and engineering capabilities, new product innovation and
customer support. The specific bases on which we compete against alternative CDMA integrated
circuit providers vary by product platform. We also compete in both single and dual-mode
environments against alternative wireless communications technologies including, but not limited
to, GSM/GPRS/EDGE, TDMA, WiMax and analog.
QCT’s current competitors include major semiconductor companies such as Freescale, Infineon,
NEC, Philips, STMicroelectronics, Texas Instruments and VIA Telecom, as well as major
telecommunication equipment companies such as Ericsson, Matsushita, Motorola, Nokia and Samsung,
who design their own integrated circuits and software for certain products. QCT also faces
competition from some start-up ventures. Our competitors may devote significantly greater amounts
of their financial, technical and other resources to market competitive telecommunications systems
or to develop and adopt competitive digital cellular technologies, and those efforts may materially
and adversely affect QCT. Moreover, competitors may offer more attractive product pricing or
financing terms than we do as a means of gaining access to the wireless telecommunications markets
or to new customers.
We have entered into agreements with certain companies, including EoNex Technologies,
Infineon, Lucent, Motorola, NEC, Philips, Texas Instruments and VIA Telecom. These agreements
permit the licensees to manufacture CDMA-based integrated circuits using certain of our
intellectual property for sale to CDMA-based wireless device manufacturers. In exchange for these
rights, we are entitled to receive fees, royalties (determined as a percentage of the selling price
of the integrated circuits) and/or royalty-free cross-licenses, which allow us to use these
companies’ CDMA and, in some cases, non-CDMA intellectual property for specified purposes. In every
case, the wireless device manufacturers’ sales of CDMA-based wireless subscriber devices are
subject to the payment of royalties to us on the products into which the integrated circuits are
incorporated in accordance with the manufacturers’ separate licensing arrangements with us. We make
available our essential CDMA intellectual property to the competitors of our QCT segment to support
the deployment of CDMA-based systems and technologies worldwide in order to grow our royalty
revenues from customers licensed to sell CDMA wireless devices and equipment. We believe that, if
CDMA-based systems expand sufficiently, QCT’s business will also grow, even if we lose market
share. To date, most cdmaOne and CDMA2000 wireless device manufacturer licensees have elected to
purchase their CDMA-based integrated circuits from us.
Qualcomm Technology Licensing Segment (QTL)
QTL grants licenses to use portions of our intellectual property portfolio, which includes
certain patent rights essential to and/or useful in the manufacture and sale of certain wireless
products, including, without limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD
and/or OFDMA (including WiMax) standards and their derivatives. QTL receives revenue from license
fees as well as ongoing royalties based on worldwide sales by licensees of products incorporating
or using our intellectual property. License fees are fixed amounts paid in one or more
installments. Ongoing royalties are generally based upon a percentage of the wholesale selling
price of licensed products, net of certain permissible deductions (e.g. certain shipping costs,
packing costs, VAT, etc.). Revenues generated from royalties are subject to quarterly and annual
fluctuations. QTL revenues comprised 31%, 33% and 30% of total consolidated revenues in fiscal
2007, 2006 and 2005, respectively.
As part of our strategy to generate new and ongoing licensing revenues and expand the
marketplace, significant resources are allocated to develop leading edge technology for the
telecommunications industry. In addition to licensing manufacturers of subscriber and network
equipment, we have made our essential CDMA patents available to competitors of our QCT segment. We
face competition in the development of intellectual property for future generations of digital
wireless communications technology and services.
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On a worldwide basis, we currently compete primarily with the GSM/GPRS/EDGE digital wireless
telecommunications technologies. GSM has been utilized extensively in Europe, much of Asia other
than Japan and South Korea, and certain other markets. To date, GSM has been more widely adopted
than CDMA, however, CDMA technologies have been adopted for all third generation wireless systems.
In addition, most GSM operators have deployed GPRS, a packet data technology, as a 2.5G bridge
technology, and a number of GSM operators have deployed or are expected to deploy EDGE, while
waiting for third generation WCDMA to become available and/or more cost effective for their system.
A limited number of operators have started testing OFDMA technology, a multi-carrier transmission
technique not based on CDMA technology, which divides the available spectrum into many carriers,
with each carrier being modulated at a low data rate relative to the combined rate for all
carriers. We have invested in the development of our own OFDMA technology and intellectual property
and have acquired Flarion, a major developer and patent holder of OFDMA technology.
Qualcomm Wireless & Internet Segment (QWI)
QWI revenues comprised 9%, 10% and 12% of total consolidated revenues in fiscal 2007, 2006 and
2005, respectively. The three divisions aggregated into QWI are:
Qualcomm Internet Services (QIS). The QIS division provides technology to support and
accelerate the growth of the wireless data market. The BREW products and services facilitate the
delivery of data services. QIS offers a comprehensive set of BREW offerings (uiOne, deliveryOne,
QPoint and Senses) to meet the distinct needs of companies delivering mobile products and services
around the world. The BREW platform is part of a complete package of products for wireless
applications development, device configuration, application distribution and billing and payment.
The QIS division develops and sells business-to-business products and services to companies
worldwide. The sales and marketing team is headquartered in San Diego with offices worldwide. The
QIS sales and marketing strategy is to enter into agreements with companies in target markets by
providing comprehensive technology and services that combine wireless Internet, data and voice
capabilities.
In October 2006, we announced an agreement with Sprint for the continued development and use
of our QChat product, a next-generation push-to-talk technology designed to deliver advanced
walkie-talkie services optimized for EV-DO Revision A wireless networks, as well as
interoperability with the Nextel National Network which uses Integrated Dispatch Enhance Network
(iDen) technology. QChat enables one-to-one (private) and one-to-many (group) calls over 3G CDMA
networks. The technology also allows over-the-air upgrades of handset software, management of group
membership by subscribers and ad-hoc creation of chat groups. QChat uses VoIP technologies, thereby
sending voice information in digital form over IP-based data networks (including CDMA) in discrete
packets rather than the traditional circuit-switched protocols of the public switched telephone
network.
We have numerous competitors for each of our BREW products and services. These competitors are
continuing to develop their products with a focus on client provisioning, user interface, content
distribution and billing products and services. Competitors are attempting to offer value added
products and services similar, in many cases, to our existing or developing BREW technologies. In
some cases, competitors attempt to displace only
certain components or areas of the greater BREW offering, such as only the runtime
client/device environment portion of BREW. Certain competitors in the computing and device
manufacturing industries are attempting to replicate the entire BREW system offering, including
both runtime device environments and billing/distribution systems. Similarly, some operators are
developing their own products by piecing together both internal and external components. Emergence
of these and other new competitors may adversely impact our margins and market share.
Qualcomm Enterprise Services (QES). The QES division (formerly known as Qualcomm Wireless
Business Solutions, or QWBS) provides equipment, software and services to enable companies to
wirelessly connect with their assets, products and workforce. QES offers satellite- and
terrestrial-based two-way wireless connectivity and position location services to transportation
and logistics fleets, construction contractors, original equipment manufacturers and other
enterprise companies that permit customers to track the location and monitor performance of their
assets, communicate with their personnel and collect data. QES also sells products that operate on
the Globalstar low-Earth-orbit satellite-based telecommunications systems and provides related
services. QES will begin offering mobile-commerce (mCommerce) services in fiscal 2008 to allow
consumers to communicate and conduct mobile financial service transactions via mobile devices. The
QES division markets and sells products through a sales force, partnerships and distributors based
in the United States, Europe, the Middle East, Argentina, Brazil, Canada, China, Japan, South Korea
and Mexico. Through September 2007, we have shipped approximately 1,192,000 satellite- and
terrestrial-based mobile communications systems, which currently operate in 40 countries.
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Wireless transmissions and position tracking for satellite-based systems are provided by using leased
transponders on commercially available geostationary Earth orbit satellites. The terrestrial-based
systems use wireless digital and analog terrestrial networks for messaging transmission and the GPS
constellation for position tracking. We generate revenues from license fees, sales of network
products and terminals, and information and location-based service fees.
In the United States and Mexico, we manufacture mobile communications equipment, sell related
software packages and provide ongoing messaging and maintenance services. Message transmissions for
operations in the United States are formatted and processed at our Network Management Center in San
Diego, California, with a fully-redundant backup Network Management Center located in Las Vegas,
Nevada.
Existing competitors of our QES division offering alternatives to our products are
aggressively pricing their products and services and could continue to do so in the future. In our
domestic markets, we face over ten key competitors to our OmniVision, OmniTRACS, TruckMAIL,
OmniExpress, T2 Untethered TrailerTRACS and QConnect products and services, as well as over six key
competitors to our GlobalTRACS system. Internationally, we face several key competitors in Europe
and Mexico. These competitors are offering new value-added products and services similar in many
cases to our existing or developing technologies. Emergence of new competitors, particularly those
offering low cost terrestrial-based products and current as well as future satellite-based systems,
may impact margins and intensify competition in new markets. Similarly, some original equipment
manufacturers of trucks and truck components are beginning to offer built-in, on-board
communications and position location reporting systems that may impact our margins and intensify
competition in our current and new markets. We are currently in discussions with some trucking
manufacturers about using our products as their embedded solution.
Qualcomm Government Technologies (QGOV). The QGOV division provides development, hardware and
analytical expertise involving wireless communications technologies to United States government
(USG) agencies. In fiscal 2007, QGOV adapted, integrated and shipped CDMA2000 1X deployable base
stations to the USG and also developed an EV-DO version of the deployable base station. We have also
continued to ship second generation CDMA secure wireless terrestrial phones for the USG that
operate in enhanced security modes (referred to as Type 1) and incorporate end-to-end encryption.
Additionally, OmniTRACS products and services are used for USG worldwide applications and were sold
to the USG during fiscal 2007. Based on the percentage of QGOV revenues to our total consolidated
revenues, the USG is not a major customer.
Qualcomm Strategic Initiatives Segment (QSI)
We make strategic investments to promote the worldwide adoption of CDMA-based products and
services for wireless voice and internet data communications, including CDMA operators, licensed
device manufacturers and companies that support the design and introduction of new CDMA-based
products or possess unique capabilities or technology. We make strategic investments in early-stage companies and, from time to time,
venture funds to support the adoption of CDMA and the use of the wireless Internet.
Our MediaFLO USA subsidiary operates a nationwide multicast network in the United States based
on our MDS and FLO technology. MediaFLO USA uses 700 MHz spectrum for which we hold licenses
nationwide to deliver high-quality video and audio programming to wireless subscribers.
Additionally, MediaFLO USA procures, aggregates and distributes content in service packages which
we make available on a wholesale basis to our wireless operator customers (whether they operate on
CDMA or GSM/WCDMA networks) in the United States. The commercial availability of the MediaFLO
network and service is determined by our wireless operator partners.
MediaFLO USA’s Broadcast Operations Center and Network Operations Center are based in San
Diego, California. Verizon Wireless began offering the MediaFLO USA service during fiscal 2007, and
MediaFLO USA expects AT&T Mobility to begin offering the services in fiscal 2008. In addition,
MediaFLO USA is actively engaged in discussions with other domestic wireless operators on how they
might utilize the MediaFLO USA service.
We are developing our MediaFLO MDS and FLO technology to enable MediaFLO USA and potentially
other international operators to optimize the low cost delivery of multimedia content to multiple
wireless subscribers simultaneously. Our efforts to sell this technology internationally are being
conducted by a nonreportable segment, and not by QSI, as we do not intend to exit this business.
The MDS will provide wireless network operators the ability to enhance their multimedia service
offering capabilities via efficient scheduling and delivery of multimedia content. Wireless network
operators can utilize the MDS with their current unicast networks and with multicast
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networks, which are soon to be available, operating on CDMA2000 1xEV-DO or WCDMA. The MDS is not air
interface specific and thus can be utilized by CDMA2000, WCDMA and FLO technology operators alike.
FLO is a multicast air interface technology specifically designed for markets where dedicated
spectrum is available and where regulations permit high-power transmission, thereby reducing the
number of towers and related infrastructure required to provide market coverage. MediaFLO MDS and
FLO technology are complementary to existing wireless networks because interactive services are
supported within the mobile device using the CDMA2000 1X, 1xEV-DO or WCDMA wireless link.
Furthermore, the MediaFLO MDS can seamlessly integrate multicasting services provided over 3G
operator networks with such services provided over a stand-alone FLO network.
As part of our strategic investment activities, we intend to pursue various exit strategies at
some point in the future, which may include distribution of our ownership interest in MediaFLO USA
to our stockholders in a spin-off transaction.
Other Businesses
Qualcomm MEMS Technologies (QMT). QMT is developing display technology for the full range of
consumer-targeted mobile products. QMT’s IMOD display technology, based on a MEMS structure
combined with thin film optics, is expected to provide performance, power consumption and cost
benefits as compared to current display technologies. With the inclusion of color displays in all
types of wireless devices, including models at the low end of the market, the cost of the display
has become an even more significant factor in the overall cost of the handset. An IMOD display
should cost less to manufacture than a comparable liquid crystal display because it requires fewer
components and processing steps, thus supporting advanced multimedia capabilities on all tiers of
mobile devices.
Qualcomm Flarion Technologies (QFT). QFT is the developer and provider of FLASH-OFDM, the
wireless industry’s first and only fully mobile OFDMA offering. FLASH-OFDM is an air interface
technology designed for the delivery of advanced internet services in the mobile environment.
Through FLASH-OFDM, QFT created an end-to-end network offering for mobile operators, which includes
the RadioRouter base station product line, wireless modems, embedded chipsets and system software.
The all-IP wireless network supports both broadband data and packetized voice applications. QFT is
leveraging its considerable experience with OFDMA technology and products to develop the 3GPP2/UMB
reference design and chipsets for infrastructure and test equipment vendors. UMB is the next
generation air interface and is expected to deliver the mobility, high data rates and low latency
necessary for a superior broadband user experience. The reference design provides a path for
equipment manufacturers to introduce new UMB base stations and gain a foothold in the high-speed
mobile broadband market. Using this design, both large and small
equipment manufacturers are able to leverage our extensive research
and development experience with OFDMA-based technologies, reducing typical barriers to market entry.
MediaFLO Technologies (MFT). MFT is developing our MediaFLO MDS and FLO technology and
marketing MediaFLO for deployment outside of the United States.
Research and Development
The wireless telecommunications industry is characterized by rapid technological change,
requiring a continuous effort to enhance existing products and develop new products and
technologies. Our research and development team has a demonstrated track record of innovation in
wireless communications technologies. Our research and development expenditures in fiscal 2007,
2006 and 2005 totaled approximately $1.8 billion, $1.5 billion and $1.0 billion, respectively.
Research and development expenditures were primarily related to integrated circuit products, next
generation CDMA and OFDMA technologies, the expansion of our intellectual property portfolio and
other initiatives to support the acceleration of advanced wireless products and services, including
lower cost devices, the integration of wireless with consumer electronics and computing, the
convergence of multiband, multimode, multinetwork products and technologies, third party operating
systems and services platforms. The technologies supporting these initiatives may include CDMA2000
1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA (including GSM/GPRS/EDGE), HSDPA, HSUPA and
OFDMA. Research and development expenditures were also incurred related to the development of our
FLO technology, MediaFLO MDS and IMOD display products using MEMS technology.
We have research and development centers in various locations throughout the world that
support our global development activities and ongoing efforts to advance CDMA and a broad range of
other technologies. We continue to use our substantial engineering resources and expertise to
develop new technologies, applications and services
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and make them available to licensees to help grow the wireless telecommunications market and generate new or expanded licensing opportunities.
In addition to internally sponsored research and development, we perform contract research and
development for various government agencies and commercial contractors.
Sales and Marketing
Sales and marketing activities of our operating segments are discussed under Operating
Segments in Item 1. Other marketing activities include public relations, web-marketing,
participation in technical conferences and trade shows, development of business cases and white
papers, competitive analyses, market intelligence and other marketing programs. Corporate Marketing
provides company information on our internet website and through other media regarding our
products, strategies and technology to industry analysts and for publications.
Competition
Competition to our operating segments is discussed under Operating Segments in Item 1.
Competition in the telecommunications industry throughout the world continues to increase at a
rapid pace as businesses and governments realize the market potential of wireless
telecommunications products and services. We have facilitated competition in the CDMA market by
licensing a large number of manufacturers. Although we have attained a major position in the
industry, many of our current and potential competitors may have advantages over us, including:
| • | longer operating histories and presence in key markets; | ||
| • | greater name recognition; | ||
| • | access to larger customer bases; and | ||
| • | greater sales and marketing, manufacturing, distribution, technical and other resources. |
These competitors may have more established relationships and greater technical, marketing,
sales and distribution capabilities and greater access to channels in markets not currently
deploying wireless communications technology or markets primarily deploying 2G wireless
communications technology. These competitors also have established or may establish financial or
strategic relationships among themselves or with our existing or potential customers, resellers or
other third parties. These relationships may affect customers’ decisions to purchase products or
license technology from us or to use alternative technologies. Accordingly, new competitors or
alliances among competitors could emerge and rapidly acquire significant market share to our
detriment. In addition, many of these
companies are licensees of our technologies and have established market positions, trade
names, trademarks, patents, copyrights, intellectual property rights and substantial technological
capabilities. We may face competition throughout the world with new technologies and services
introduced in the future as additional competitors enter the marketplace for products based on 3G
standards or other wireless technologies. Although we intend to continue to develop improvements to
existing technologies, as well as potential new technologies, there may be a continuing competitive
threat from companies introducing alternative versions of wireless technologies. We also expect
that the price we charge for our products and services may continue to decline as competition
intensifies.
Patents, Trademarks and Trade Secrets
We rely on a combination of patents, copyrights, trade secrets, trademarks and proprietary
information to maintain and enhance our competitive position. We have filed approximately 6,500
United States patent applications, of which approximately 2,300 patents have been issued. The vast
majority of such patents and patent applications relate to digital wireless communications
technologies, including patents that are essential or may be relevant to CDMA2000, UMTS, TD-SCDMA,
TD-CDMA and OFDMA products. We also have and will continue to file actively for broad patent
protection outside the United States. We have filed approximately 32,800 foreign patent
applications, of which approximately 10,100 patents have been issued, with broad coverage
throughout most of the world, including China, Japan, South Korea, Europe, Brazil, India and
elsewhere.
Standards bodies have been informed that we hold patents that might be essential for all 3G
standards that are based on CDMA. We have committed to such standards bodies that we will offer to
license our essential patents for these CDMA standards on a fair and reasonable basis free from
unfair discrimination. We have also informed standards bodies that we may hold essential
intellectual property rights for certain standards that are based on OFDMA technology, e.g.
802.16e, 802.20, UMB and LTE.
Since our founding in 1985, we have focused heavily on technology development and innovation.
These efforts have resulted in a leading intellectual property portfolio related to wireless
technology. Because all commercially
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