qualcomm annual reports 2005


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qualcomm annual reports 2005

  1. 1. we are focused 2005 Annual Report
  2. 2. 2005 was another year of growth in our global markets and in our financial performance revenue and gross margin research and development diluted net income (loss) (1) (5) per share (2) (5) $ in billions $ in billions $1.01 $1.26 $5.67 $4.88 $1.03 $0.72 71% $3.85 70% $0.52 $2.92 $2.68 67% $0.45 $0.42 $0.51 67% 61% 18% $0.22 15% 14% 15% 15% ($0.38) 03 03 02 04 02 04 05 01 05 03 02 04 05 01 gross margin r&d revenue % of revenue 01 pro forma diluted net cash, cash equivalents and free cash flow * (1) (3) (4) income per share * marketable securities (2) (3) $ in billions $ in billions $2.15 $2.11 $1.16 $8.68 $1.07 $7.64 $1.62 $5.37 $0.71 $1.14 $0.94 $0.48 $0.43 $3.20 $2.58 03 01 03 02 04 05 02 04 03 01 04 05 02 05 01 (1) (2) (3) (4) (5) See notes on page 74. * See reconciliation to GAAP amounts on page 76.
  3. 3. on executing our road maps we are focused 01 letter to stockholders 06 execution 16 innovation 22 partnerships 29 people
  4. 4. in cooperation with our partners and innovating new wireless technologies, products and services 32 financials 31 awards and honors
  5. 5. To Our Stockholders, For QUALCOMM, 2005 was a year of records and the achieve- ment of new milestones. Once again, we posted record financial results, further increasing our revenues, earnings and operating cash flow. We delivered new products, opened new markets and led the industry with innovations designed to cost-effectively deliver the promises of next-generation wireless. We announced the shipment of our two billionth chip. Seven new customers selected > qualcomm continues to our WCDMA (UMTS) chipsets for their WCDMA phone products, bringing the total drive stockholder value number of WCDMA customers to 32. In June 2005, BREW® publishers and developers as we develop innovative products and technologies reported that they had earned more than $350 million from the sale of wireless for our many customers in applications and services developed for operators’ BREW-based services. And we the wireless industry. recently announced Verizon as MediaFLO’s first U.S. operator. We continued to invest in emerging technologies through strategic acquisitions and research and development (R&D). We completed four acquisitions this year, expand- ing our talents with an exciting new display technology, new user interface comparison of cumulative total return on investment since september 30, 1999 % change, qualcomm versus major indices 400% 350 300 250 200 150 100 50 0 09/30/99 11/30/99 01/31/00 03/31/00 05/31/00 07/31/00 09/30/00 11/30/00 01/31/01 03/31/01 05/31/01 07/31/01 09/30/01 11/30/01 01/31/02 03/31/02 05/31/02 07/31/02 09/30/02 11/30/02 01/31/03 03/31/03 05/31/03 07/31/03 09/30/03 11/30/03 01/31/04 03/31/04 05/31/04 07/31/04 09/30/04 11/30/04 01/31/05 03/31/05 05/31/05 07/31/05 09/30/05 QCOM SPX DOW NASDAQ
  6. 6. company in Europe and engineering resources in India. We announced our intent to acquire Flarion Technologies, a developer of OFDM-based mobile wireless data products. Our MediaFLO™ division conducted the first live, over-the- air demonstration of FLO™ technology. And we smoothly transitioned the management of the Company to a new leadership team. a catalyst for industry progress > we have become successful by QUALCOMM pioneered the commercial development of Code aligning our business model with Division Multiple Access (CDMA) wireless technology. Because others in the wireless industry of its advantages in providing unmatched voice and data capac- value chain, including equipment ity and advanced capabilities for wireless networks, today manufacturers, network opera- CDMA serves as a foundation for enabling Third Generation tors, application developers and (3G) services worldwide. Since our founding in 1985, our main content providers. business has been to develop, design, license, manufacture and market digital wireless telecommunications products and services based on CDMA. Looking forward, we are lever- aging this wireless expertise as we design systems using an increasing array of technologies, positioning the Company well to continue driving new applications for wireless. We have become successful by aligning our business model with others in the wireless industry value chain, including equipment manufacturers, network operators, application developers and content providers. By providing a vision for what’s possible and consistently delivering on our technology and chipset road maps, we have built a reputation that our partners can depend on. In addition to the traditional wireless suppliers, our business model has enabled new companies to enter the wireless market, creating increased competition, a faster pace of innovation and a rapid decrease in device costs, to the benefit of wireless operators and consumers. leading in innovation We have increased our R&D investment year-over-year to capitalize on the opportunities afforded by the accelerating transition to 3G and the increasing industry focus on the use of wireless devices for entertainment, productivity and com- puting, in addition to traditional voice communications. qualcomm 2005 02
  7. 7. Data usage is contributing new and valuable revenue streams multiple frequencies (or “multicarrier”). MediaFLO is a good to operators, and this trend is increasing the demand for example of DMMX, because audio and video transmissions even higher data rates. We continue to evolve our technology over cellular networks (using EV-DO or HSDPA) can be seam- to enable increased speeds and functionality for advanced lessly combined with transmissions received using the FLO™ 3G systems. EV-DO, the high-speed data evolution of technology operating in separate spectrum. The goal is to CDMA2000® is already widely available, and more than 120 , enable our operator partners to provide a superior multimedia EV-DO device models are now being sold in South Korea, experience at the lowest possible cost. Japan and the Americas. On the WCDMA side of 3G, we are leading the development We recently announced DMMX™ (DO Multicarrier Multilink of HMMX™ (HSDPA Multicarrier Multilink eXtensions). We eXtensions), our platform for driving the EV-DO road map continue to provide our WCDMA customers and partners through the end of the decade. Part of our DMMX strategy with products that support higher data rates through our is to be both the leading supporter of the standards-based High-Speed Downlink Packet Access (HSDPA) and High- enhancements to EV-DO technology (Revision A and Revision Speed Uplink Packet Access (HSUPA) solutions. Through B), and the leader in implementing other enhancements that these solutions, they in turn can provide their customers significantly improve system performance but don’t require with enhanced multimedia and IP-based data capabilities changes to standards. including multicasting. These developments will open the door to mobile voice over Additionally, we continue to focus on Orthogonal Frequency Internet protocol (VoIP) services and very low-latency applica- Division Multiplexing (OFDM) technologies for mobile broad- tions such as push-to-talk. With DMMX, phones will operate in a band Internet protocol-based (IP) services. Our internal concurrent “multilink” manner with multiple radio technologies development efforts in OFDM and MIMO (multiple input, (or links) while simultaneously receiving and transmitting at multiple output) technologies led to DO Platinum Multicast, annual dividend history per share > the growing adoption of cdma-based $0.32 3g technology across many customer segments and regions around the world continues to drive strong financial results for qualcomm. $0.19 $0.08 Note: The Company effected a two-for-one stock split in August 2004. All references to per share data have been adjusted to reflect the split. FY03 FY04 FY05 qualcomm 2005 03
  8. 8. executive committee Top row: Dr. Paul Jacobs, Steve Altman, Dr. Sanjay Jha, Bill Keitel, Dr. Roberto Padovani. Bottom row: Dr. Dan Sullivan, Lou Lupin, Jeff Jacobs, Peggy Johnson, Marv Blecker. which is part of the EV-DO standard, and FLO, our dedicated million in cash dividends in fiscal year 2005 and repurchased multicasting air interface technology which is part of the 27.1 million shares of common stock for $953 million. MediaFLO System. QUALCOMM’s total cash and marketable securities balance at fiscal year end grew to $8.7 billion. driving shareholder value The growing adoption of CDMA technology-based 3G stan- To meet the large market opportunity that lies before us, we dards across many customer segments and regions around continued to invest in R&D, hire more engineers and expand the world continues to drive strong financial results for our global workforce. We increased our selling, general and QUALCOMM. We are very pleased with the demand for our administrative (SG&A) expenses to meet the needs of our CDMA2000 and WCDMA chipset solutions from manufacturers growing customer base. However, as a percent of revenue, throughout the world. QUALCOMM earned revenues of $5.67 SG&A expense remains modest and we continue to execute billion in fiscal year 2005, up 16% from fiscal 2004. Operating on our asset-light business model. Through these measures, cash flow, defined as net cash provided by operating activities, we expect QUALCOMM will sustain its leadership position was $2.69 billion, up 8% year-over-year, and represented in innovative wireless technologies and continue to grow 47% of revenue. And fiscal 2005 diluted earnings per share stockholder value. were $1.26, compared to $1.03 in 2004. celebrating our heritage We continued to focus on returning capital to QUALCOMM In the summer of 2005, QUALCOMM celebrated two decades stockholders through another increase in our quarterly cash of growth and accomplishment. As part of that event, we dividend and a further increase in our stock repurchase announced changes in our leadership. It was an inflection authority to $2.5 billion. Our commitment to returning value point in the evolution of our company. Dr. Irwin Jacobs stepped to stockholders is evidenced by the fact that we paid $524 down from his position as chief executive officer, but continues qualcomm 2005 04
  9. 9. “I am very proud of QUALCOMM’s accomplishments achieved with the exceptional team we have attracted since forming the Company, and I am especially excited by what is yet to come.” Dr. Irwin Jacobs will be less about competing technologies and more about to serve as chairman of the board of directors. The transition complementary technologies working together in a seam- had been carefully organized as part of a succession plan less and concurrent fashion. developed by the governance committee of our board of directors. As part of the transition, Tony Thornley announced Whether measured internally through our staff, or externally his retirement as president. Tony contributed greatly to through our many industry partners, the main measure of the success of our company and we wish him all the best in our success ultimately depends on how well we enable others his retirement. to succeed. To accomplish that, we will remain focused on executing on our road maps and innovating new technologies, focused on the future products and services in cooperation with our partners As we look to the next chapter in QUALCOMM’s development, throughout the wireless industry. we can proceed with the confidence that our executive team and board of directors have not lost sight of the principles that have guided us thus far. We will maintain our high stan- dards for accounting controls and corporate transparency Dr. Paul E. Jacobs that have characterized our company since its founding. And we will continue to build on the fundamental QUALCOMM Chief Executive Officer values of innovation and integrity. In the future, we see a world of increasingly robust and diverse Steven R. Altman wireless networks, all operating in conjunction, and supporting President a wide variety of rich services, accessible by subscribers on their wireless devices. We believe the next evolution in wireless qualcomm 2005 05
  10. 10. 2g 3g > voice voice and data voice and convergence high-speed data CDMA2000® 1X cdmaOne® WCDMA CDMA2000 1xEV-DO HSDPA EV-DO Rev. A and Rev. B VoIP MediaFLO HSUPA DMMX and HMMX executing on our road maps qualcomm 2005 06
  11. 11. delivering on our promises QUALCOMM continues to deliver new products, open new markets and lead the industry with exciting and innovative wireless solutions. Committed to serving from the low end to the high end of the market, we are enabling the next generation of wireless progress with the right solutions at the right cost. qualcomm 2005 07
  12. 12. execution > with a history of vision and leadership Since its founding in San Diego, The QUALCOMM team understood that California in 1985, QUALCOMM has CDMA represented a better way of been at the heart of the digital wire- delivering wireless services. It provided less communications revolution. A a higher-quality user experience and company of engineers, scientists was more efficient than existing wire- and business professionals, today less technologies, promising significant QUALCOMM has become a major inter- competitive and economic benefits for national organization, distinguished by operators with the foresight to adopt its entrepreneurial spirit and a track the technology. Indeed this solution record of delivering on its promises. represented a significant opportunity for all involved: manufacturers, network operators and consumers. taking the risk to deliver on a vision In the business world, not every idea It took many years of development, is accepted into the market quickly. testing and field trials before CDMA Such was the case when Company became widely accepted. It was a new founder Dr. Irwin Jacobs and a small concept after all, and at that time group of like-minded people set out QUALCOMM was a relatively unknown to commercialize a different kind of company. Not to be deterred, the wireless technology called CDMA. QUALCOMM team held true to its vision and committed its resources to innovating the new technology. > 20 years 1985: 1988: 1989: 1993: A New Company First Product Launch A Big Idea Setting a New Standard of driving industry The OmniTRACS® system QUALCOMM is QUALCOMM proposes CDMA is adopted as a progress founded. greatly improves CDMA as a more efficient, North American digital communications for higher-quality wireless cellular standard. truck fleets. technology. 08 qualcomm 2005
  13. 13. > qualcomm has consistently finding the best solutions for today’s working to ensure the best rapidly changing wireless industry. possible solutions had the vision to look beyond QUALCOMM works on many fronts to the immediate horizon… to advance the wireless industry. To The goal of all these global develop- anticipate and plan the future complement its ongoing internal ment efforts is to grow and help drive of wireless. research and development efforts, the market—to accelerate the adoption QUALCOMM also invests in other and evolution of the world’s leading 3G companies engaged in wireless inno- standards. This cycle of collaborating vation. Whether through internal or with others to build a market and then external development, QUALCOMM sharing in its success goes to the heart is unwavering in its commitment to of QUALCOMM’s business model. 1997: 1999: 2000: 2001: Rapid Growth The 3G Standard Market Milestone Broadband Speeds CDMA becomes the fastest CDMA2000 1X and WCDMA are QUALCOMM ships its CDMA2000 1xEV-DO is growing technology in wireless selected as standards for 3G 100 millionth CDMA chipset. recognized as a 3G standard communications. wireless by the International by the ITU. Telecommunications Union (ITU). qualcomm 2005 09
  14. 14. execution > with the industry’s broadest product offering QUALCOMM contributes to the wireless powerful choices meeting market needs industry at many levels, from the QUALCOMM CDMA Technologies QUALCOMM’s Mobile Station Modem™ standards process to product develop- (QCT) creates state-of-the-art 3G (MSM™) chipsets range across four ment and testing, deployment and chipsets, systems software and full-featured platforms to serve the optimization. This is made possible by development tools. These technology needs of many different market seg- investment in R&D and through the solutions enable many of the world’s ments—and many links in the wireless dedicated efforts of our world-class, most advanced 3G handsets and industry value chain, from device manu- global workforce. wireless devices, providing users facturers and network operators to with powerful features. Among application developers and content The Company values collaboration the capabilities of these chipsets providers. These products include with its customers and partners in the are multimedia, position location, entry-level chipsets that provide new wireless industry and works closely security, connectivity (including Blue- users with voice and basic data ser- with them to enable their success. This tooth® USB, etc.) and content-rich , vices, to solutions with the processing has been the guiding strategy behind applications based on the BREW power to support advanced wireless QUALCOMM’s semiconductor business system and Java®-based technologies. applications. since operations began in 1995. Over the following decade, this division shipped more than two billion inte- grated circuits to the wireless market. 2001: 2003: 2002: Wireless Internet Market Validation New Markets Global Roaming Verizon Wireless begins QUALCOMM ships its QUALCOMM ships its first QUALCOMM’s BREW system opens up a world EV-DO deployment and China first chipset supporting chipset enabling use of of downloadable wireless Unicom launches a nation- WCDMA networks. CDMA and GSM networks applications. wide CDMA2000 network. during travel. 10 qualcomm 2005
  15. 15. qualcomm is a full-service partner supporting many tiers of the market Convergence Platform With dual processors reaching the 1 GHz benchmark on a single chipset, chipsets in this platform open the door for a whole new generation of wireless capabilities. Convergence Platform solutions provide the processing power required for mobile handsets to incorporate consumer electronics and computing features in demand by sophisticated wireless users. Enhanced Multimedia Platform Chipsets in this platform significantly increase the graphics, camera and video playback capabilities of the Multimedia Platform. Designed to deliver high performance with lower power consumption, these fully integrated solutions are optimized to drive demand for data-intensive wireless multimedia. Multimedia Platform The Multimedia Platform of chipsets enables manufacturers and operators to deliver wireless multimedia with up to 3.0 megapixel camera resolution for album-quality snapshots, easy-to-play portable MP3 songs and more. This product line is designed to accelerate mainstream adoption of wireless multimedia in 3G. Value Platform Chipsets in the Value Platform enable voice and basic data phones and services for emerging markets such as India, China, Latin America and Southeast Asia. This platform introduces the power of 3G to a vast audience, including those who may be new to wireless. 2005: Outpacing New Customers Expectations A Celebration A Market Milestone India’s first CDMA2000 As demand surges, cumula- QUALCOMM celebrates Cumulative shipments nationwide network launches, tive shipments of QUALCOMM two decades of progress, of QUALCOMM chips bringing advanced wireless chips surpass the two while looking ahead to surpass the one billion mark. data and voice services to billion mark. many more years of driving 92 cities. wireless forward. a story of rapid growth (cdma subscribers worldwide) 1996: 2001: 2005: 1mi 100mi 300mi llion llion llion Source: www.cdg.org qualcomm 2005 11
  16. 16. execution > enabling the world’s most advanced wireless networks > 3GPP2 and 3GPP standards-based With its multimode, data-enabled wireless solutions enhancements to EV-DO and HSDPA. WCDMA chipsets, QUALCOMM contin- and support > QUALCOMM-developed techniques ues to enhance wireless products QUALCOMM’s global development for improving capacity and speed that that accelerate the growth of WCDMA teams are working with wireless net- do not require changes to current or while making the most of operators’ work operators around the world to proposed standards. existing network investments. help them deploy, optimize and upgrade > Chips and software enabling the con- their networks to take advantage of 3G current operation of multiple radio links Commercially launched in late 2005, capabilities. In addition to offering chip- such as CDMA, TDM and OFDM–all work- HSDPA is an evolution of existing sets and system software, QUALCOMM ing in a backward-compatible manner. WCDMA networks that provides a works with operators on defining fea- powerful boost in data rates and an ture sets that help differentiate their > dmmx and hmmx represent increase in overall network capacity services. As part of this collaboration, analogous to what EV-DO provided to the Company also provides network qualcomm’s road map for CDMA2000. It allows wireless users and interoperability testing. innovation, supporting our to receive high-quality video and customers and partners audio, quickly browse graphics-heavy through the year mmx–or multiple migration paths 2010–and beyond. websites, and run other advanced appli- Demand for high-speed wireless appli- cations on their mobile handsets. cations and services is growing rapidly, The DMMX and HMMX platforms will and QUALCOMM offers existing and not only significantly improve the future product road maps for making dmmx and hmmx performance of 3G CDMA technology, In the fall, QUALCOMM announced economic and efficient wireless net- they will also enable operators to deploy its DMMX (DO Multicarrier Multilink work and service transitions. networks and devices that combine eXtensions) and HMMX (HSDPA different technologies optimized for Multicarrier Multilink eXtensions) For CDMA2000 operators around specific services, all used concurrently platforms to support the long-term the world, EV-DO is the high-speed in a manner transparent to consumers. road maps of EV-DO and HSDPA. data evolution of choice. It offers a The Company’s DMMX and HMMX cost-effective wide-area wireless platforms are a set of technology broadband solution with data speeds and product innovations based on that enable the efficient delivery three fundamental pillars: of new Internet protocol-based mobile capabilities. For GSM operators migrating to 3G CDMA, QUALCOMM developed the world’s first commercially available, fully integrated WCDMA (UMTS)* chipset solution. * WCDMA is referred to in Europe as Universal Mobile Telephone Service (UMTS) 12 qualcomm 2005
  17. 17. delivering the next generation of applications and services The BREW solution is network- and > marketOne, a hosted, scalable content taking wireless to the technology-agnostic, and serves service, including a broad array of next level QUALCOMM Internet Services (QIS) everyone in the wireless value chain media titles, targeted at those opera- is focused on the next generation of with an array of technologies and tors either desiring a quick to market wireless applications and services that services. BREW now includes: solution and/or looking to reduce capi- will combine data and voice capabili- tal and operating expenses. marketOne ties to better suit consumer needs in a > uiOne™ which enables rich, integrated , provides customers the ability to create converged wireless Internet world. QIS and dynamic user experiences on wire- promotional strategies for content is responsible for several products that less devices. uiOne features an open, without the operational burden or enable useful wireless experiences for extensible client software platform and service deployment and relationship consumers around the world, including the uiOne software development kit, management. the BREW solution, QChat™ push-to-talk as well as shopping applications and technology, the QPoint™ location server screen templates, to provide a simple- solution and Eudora® email products. to-use powerful wireless data offering. > deliveryOne™ a solution focused on the , delivery of advanced wireless data a flexible offering for content and custom user interfaces to making mobile data useful an array of wireless devices. deliveryOne and profitable QUALCOMM’s BREW solution was is an in-network deployed offering conceived to meet the need for an open that provides customers unified and uniform applications and services content delivery. platform for wireless devices, and to help accelerate wireless data worldwide. an innovative new unified content delivery system deliveryOne suite It combines QUALCOMM’s BREW solution The acquisition of U.K.-based Trigenix QUALCOMM’s acquisition of United and QSenses media content delivery this year enabled QUALCOMM to provide Kingdom-based ELATA this year enables system, allowing operators to consolidate uiOne, a solution tailored to wirelessly wireless network operators in Europe all content services for all device platforms deliver themes and personalized user and elsewhere to manage their data under a single service delivery system. experiences with dynamic content, services without interrupting or adding designed for rapid, low-cost integration any additional infrastructure to their deliveryOne is a solution tailored to work in into an operator’s service offering. existing system. conjunction with any device type to provide content services with added business and security features for operators. qualcomm 2005 13
  18. 18. execution > making wireless work for business > 3g benefits business productivity and effectiveness. enabling business without And enterprises benefit from conve- boundaries customers by driving down The need for mobile connectivity is nience, cost savings and optimized their costs and increasing growing dramatically. Solutions are performance. productivity. it also helps being delivered on a wide variety of enable customer service platforms, and workers want access to For WCDMA networks, notebook cards improvements and can create the same kinds of capabilities that are powered by QUALCOMM chipsets are new revenue opportunities. available in the office, such as access now available in the marketplace that to email with large attachments and to take advantage of the high-speed data Internet services. The availability of capabilities of HSDPA. Several laptop advanced 3G networks satisfies this manufacturers have also announced desire by enabling notebook computer plans to produce laptops with embed- users to enjoy wireless broadband ded HSDPA connectivity. connectivity anywhere they can make a wireless phone call. QUALCOMM continues to leverage its expertise in wireless solutions to help Several industries came together this enterprise customers transform the year to offer notebook computers way they do business. QUALCOMM integrated with EV-DO technology, Wireless Business Solutions (QWBS) making wide-area wireless broadband delivers high-reliability workflow-based service even easier to use. business solutions for target vertical markets, with behind-the-firewall Notebooks embedded with high-speed enterprise system integration. data connectivity improve employee 14 qualcomm 2005
  19. 19. Among the many other business-to- The roots of this success began with Because of QUALCOMM’s long-standing business solutions gaining market the Company’s first commercial history of working with governments, traction are the T2™ Untethered Trailer- product in 1988, the OmniTRACS® QGOV was in a unique position to create TRACS® asset management solution mobile communications solution. The timely industry solutions that played a and a growing suite of application OmniTRACS system has revolutionized valuable role in helping early responders service provider web services. transportation and logistics in the U.S. deal with the aftermath of Hurricane and in other major markets worldwide, Katrina this year. and is now in service with more than leveraging commercial 6,000 businesses in 39 countries. In cooperation with our industry part- wireless for government QUALCOMM Government Technologies ners in the region, including Alltel, (QGOV) leverages QUALCOMM’s core The OmniTRACS system continues Globalstar, Sprint Nextel, and Verizon competencies and technologies to evolve to meet the transportation Wireless, we were proud to work to- to deliver wireless solutions to gov- industry’s changing needs. The next gether with the Federal Emergency ernment users, enabling them to generation of the solution, the Management Agency and the U.S. accomplish their missions in a secure OmniVision™ mobile computing plat- military. Together, we provided deploy- manner with commercially available form, will leverage 3G technology and able base station systems, Globalstar devices. QGOV is also dedicated to incorporate innovations, including Satellite phones, OmniTRACS® vehicle high-speed satellite links, over-the-air tracking devices and other support adapting and modifying its commercial software deployment and a text-to- services that enabled rescue and products to provide specialized capabili- speech user interface. restoration teams to communicate. ties for the government that enable interoperable communications anywhere and anytime. In addition, it leverages QWBS continues to introduce new advances in commercial wireless tech- offerings for the transportation and nology for government needs. A prime logistics market while expanding into example is QUALCOMM’s development new areas. A recent example was the of a secure wireless device certified successful launch of the GlobalTRACS® for top-secret communications, which equipment management solution for enables total end-to-end security for the construction equipment sector. government agencies. qualcomm 2005 15
  20. 20. technology performance leadership leadership data leadership low-cost initiatives tiered solutions innovating new capabilities 16 qualcomm 2005
  21. 21. QUALCOMM uses its automated anechoic chamber facilities to evaluate over-the-air performance of next-generation wireless portable devices, to support integration and test activities of prototype hardware developed by OEMs and licensees and to investigate novel antenna design concepts for new wireless devices. envisioning what lies ahead Fueled by scientific curiosity and inspired by professional collaboration, QUALCOMM and its partners at all levels of the wireless world are driving the industry forward by bringing ever-newer services and features to market. While successfully innovating new technologies, products and services, we are also working to reduce time to market and to drive down costs for our industry partners and for the consumers and enterprises who rely on wireless connectivity in their daily lives. qualcomm 2005 17
  22. 22. innovation > dedicated to advancing wireless communications industry, fostering competition and an unwavering commitment to spawning innovation. research and development QUALCOMM’s strong and ongoing investment in research and development QUALCOMM Technology Licensing (QTL) has been a cornerstone for the Company’s grants licenses to use the Company’s strategy from the very beginning. It has intellectual property portfolio, which grown and prospered by developing and includes certain patent rights essential applying advanced technologies for to (or useful in) the manufacturing, sale wireless telecommunications products and/or use of CDMA-based products. and services. And through internal QTL has licensed more than 130 wire- growth, investment, widespread less equipment manufacturers, over 60 licensing, strategic partnerships and of which include WCDMA. CDMA tech- acquisition, QUALCOMM remains nology is synonymous with QUALCOMM committed to being the leader in the innovation and is the basis for 3G development of wireless technology networks around the world. far into the future. Our patent portfolio is the most widely and extensively licensed portfolio in an industry-enabling the industry. Achieved through bilat- patent portfolio The Company’s strong intellectual eral, arm’s length negotiations and the property position provides revenue to operation of free market forces, the fund significant innovation, technology large number of QUALCOMM license development and future growth. Our agreements have established the value portfolio helps to solidify QUALCOMM’s of QUALCOMM’s patent portfolio for role as a leading contributor in the 3G standards. ongoing success of the wireless operator choices help fuel market competition QUALCOMM’s strong investment in R&D Thanks in part to QUALCOMM’s leadership, has led to more than 4,000 U.S. patents today’s wireless industry is robust and and patent applications and more than growing with 3G devices readily available 27,000 foreign filings. The Company’s broad from a broad base of manufacturers. Over licensing strategy has been a catalyst for the past decade, QUALCOMM licensees industry growth, helping to create new have commercialized more than 1,000 competition while driving down average phone models spanning many price points, selling prices for 3G handsets and providing operators with flexibility to meet wireless devices. customer demands. 18 qualcomm 2005
  23. 23. helping to enable a growing $150+ billion industry One reason behind the rapid global growth of 3G has been QUALCOMM’s revenues, in billions cdma/wcdma subscribers, in millions inclusive approach to doing business. By licensing a wide range of equipment manufacturers, encouraging innovative 894 M applications, supporting equipment manufacturers with a total solution, and $475 focusing on making the airlink more efficient for operators, the Company has helped 3G CDMA evolve and grow at a faster pace than the second-genera- tion technologies that preceded it. a broad-based expertise Through this collaborative approach, QUALCOMM has helped drive wireless industry standards. The Company has consistently developed solutions that are backwards compatible, making it easier and less costly for operators to migrate and upgrade their legacy networks to 3G, while ensuring fast Estimated Industry Total 254 M Industry — CDMA/WCDMA time to market for device designers Infrastructure Revenues and manufacturers. 189 M Industry — CDMA/WCDMA $155 B Handset Revenues 145 M 17.8 B Industry — CDMA/WCDMA Platform- and technology-agnostic in Service Revenues 35.8 B $114.4 B their approach to problem-solving, the CDMA (CDMA2000 and WCDMA) 14.5 B Subscribers engineers at QUALCOMM are augment- $93.1 B 101.4 B 22.3 B 13.0 B ing the Company’s core competencies 17.0 B 77.5 B in CDMA with a growing expertise in 63.1 B complementary wireless technologies, including OFDM. 03 02 04 09 estimated Sources: Infrastructure Revenue, Average of Gartner Group (09/04) and Strategy Analytics (12/05) Service Revenue, Strategy Analytics (08/05) Handset Revenue Strategy Analytics (06/05) CDMA/WCDMA Subscribers EMC (11/05) qualcomm 2005 19
  24. 24. innovation > we continue to focus on performance leadership for 3g wireless cost-effective prices. This is desirable become commercially available less integrated solutions to because it produces higher revenue than 12 months later. Additional drive down costs QUALCOMM is continuously focused per user and increases profitability HSDPA handsets and devices are on lowering the costs and increasing the across the wireless value chain. To that expected throughout 2006 as the effectiveness of wireless technology. end, QUALCOMM continues to innovate Company samples new solutions for With the most advanced and highly with new solutions aimed at increasing high-speed uplink packet access integrated 3G CDMA chipset solutions wireless capacity and speed. (HSUPA), which delivers support for (semiconductors and system software) low-latency applications. in the world today, the Company helps The New Receive Diversity Solution manufacturers achieve savings by This year QUALCOMM announced the The Fourth-Generation Vocoder™ reducing their bill of materials costs industry’s first single-chip receive (4GV™) Solution and enabling faster time to market. diversity solution. It uses an additional To enhance EV-DO Rev. A, QUALCOMM Consumers enjoy the benefits of having antenna and associated receive chain designed the 4GV codec. Wireless oper- smaller, lighter devices with more ad- to support improved signal reception, ators can double their network capacity vanced features and longer battery life. enabling higher data throughput and sig- by deploying 4GV in conjunction with nificant increases in network capacity. receive diversity technology. The Quality A New Single Chip Architecture of Service (QoS) feature enriches the This year, QUALCOMM announced the The Next Evolution in High-Speed Data user experience for delay-sensitive appli- world’s only single-chip CDMA2000 EV-DO solutions have enabled wireless cations, including IP-based services solution. By integrating multimedia, users to experience advanced data like VoIP and other real-time applica- baseband, radio transceiver and power applications and Internet access at tions such as push-to-talk, video management into a single package, broadband speeds. The next evolution telephony and multi-player gaming the QUALCOMM Single Chip™ (QSC™) of CDMA2000, EV-DO Revision A, is services that combine immediate voice family of products helps drive down planned for launch in 2006. Along with with simultaneous delivery of video handset costs. major capacity improvements, it sup- or pictures. ports significantly faster data rates. A New Transceiver Solution QUALCOMM was first to market with a new division focused on The first RF CMOS-based transceiver commercial solutions for the new tech- next-generation display for CDMA2000 was introduced this nology and offers complete solutions technology year. Integrated into QUALCOMM’s for EV-DO Rev. A. The new QUALCOMM MEMS Tech- single-chip solution, it overcomes the nologies (QMT) division is focused on interference sometimes experienced QUALCOMM has also emerged as an rapidly increasing the capability of from placing the receive and transmit industry leader in high-speed downlink display screens, while driving down functions on the same device. packet access (HSDPA) technology, cost and power consumption. the next feature of the WCDMA (UMTS) standard that enables new services QMT is developing iMoD™ displays—a increasing voice capacity requiring higher data speeds and next-generation display technology and data speed To meet growing demand for rich greater network capacity. The Company for a full range of mobile products. multimedia, operators want to sampled the world’s first HSDPA solu- This potentially industry-transforming deliver wireless high-speed data at tion in early 2005 and saw devices display technology combines thin film 20 qualcomm 2005
  25. 25. while innovating and supporting new technology breakthroughs > IP datacasting, such as stock price optics with micro technologies to information create an always-on display that is a new qualcomm subsidiary easily viewable in virtually any environ- FLO Technology, one of QUALCOMM’s ment. This will enable new applications MediaFLO™ USA, Inc. is deploying and multicast innovations, is a new air inter- and open new market opportunities. will operate a nationwide U.S. wireless face technology. It has advantages over multicast network, delivering a diverse other mobile multicast technologies, content lineup of streaming and a revolutionary new Clipcast™ video and audio channels. such as: multimedia system The Company will provide wholesale The MediaFLO System is comprised multimedia delivery services to U.S. > Faster channel switching time of two components: FLO Technology wireless operators, with plans to launch > Superior mobile reception and the MediaFLO Media Distribution commercial operation of the new network in the fourth quarter of 2006. > Greater air-link efficiency System (MDS). Together they deliver > Optimized power consumption an efficient over-the-air multimedia For wireless network operators, solution that enables wireless MediaFLO USA will aggregate and The MediaFLO Media Distribution operators to cost-effectively deliver distribute shared content. Wireless System is an end-to-end solution from high-quality audio and video content operators will have the option to integrate, via MediaFLO, unique QUALCOMM that enables efficient to their subscribers. This system content they may acquire. delivery of secure, high-quality net- enables multicasting of: work-scheduled multimedia content For content providers, MediaFLO USA over wireless networks to millions of > Up to 20 high-quality QVGA (320x240 represents a new distribution channel. subscriber handsets. The MDS coordi- pixels) video channels at up to 30 It is a dedicated network, built to deliver large amounts of high-quality content nates the distribution of content and frames per second to large numbers of users at the the updating of the Media Program > Up to 10 stereo audio channels lowest cost. Guide, which subscribers use to access (HE AAC+ parametric stereo) the content. The MDS is versatile > Up to 800 minutes of Clipcast™ Verizon Wireless is the first U.S. wireless enough to be deployed over any IP (short format) media per day service provider signed on to offer MediaFLO once the network becomes packet data network. commercially available. QUALCOMM and Verizon Wireless expect to launch mobile TV services over the MediaFLO a one-to-many service and data delivery platform network in approximately half of the markets already covered by Verizon Content Providers: Wireless’ EV-DO-based broadband < > Video Content network, enabling Verizon Wireless to News, Sports, offer real-time mobile TV services of Movies, Weather, > unprecedented quality to its subscribers. MediaFLO 3G Network Music… < > Media Distribution Content Providers: > System File Services putting tv in your News, Text Files, wireless phone < > Music Files, Stocks… qualcomm 2005 21
  26. 26. a wireless solution > For tracking and routing work orders to the field force “We knew if we finished one extra job per technician per month through new routing efficiencies, the wireless solution would pay for itself. That made our decision to implement this system a no-brainer.” Steve Phillips Director, Memphis Division Time Warner Cable a wireless solution > For commercializing applications and services “QUALCOMM continues to listen to our needs as an operator and advance the technological capabilities of the BREW ecosystem, enabling us to differentiate our services and offer wireless subscribers in Japan the most advanced data offerings.” Seiichiro Sakai Director of Product Management Department, “au” Service and Product Division, KDDI together with our partners 22 qualcomm 2005
  27. 27. a wireless solution a wireless solution > For delivering rich multimedia capabilities > For enabling physicians to to network subscribers prescribe medication “We’re amazed at the success we’ve seen “Wireless e-prescribing makes so far with BREW. As a result of the great doctors smarter by enabling BREW technology... we’re taking our them to screen for interactions customer experience to the next level, and find the most cost-effective beyond voice. We see our Get It Now treatments. It also adds a layer offering, based on BREW, as the next of accountability, which reduces step in the evolution of creating a richer our costs.” customer experience.” Winston Wong, Pharm. D. Director, Pharmacy Management Bill Stone CareFirst BlueCross BlueShield Vice President, Market Segmentation Verizon Wireless we are a catalyst for wireless progress Our work benefits every link in the wireless value chain. The chain includes operators of wireless networks and manufacturers of mobile devices and infrastructure equipment. It also extends to applications developers and content providers. But the ultimate winners are the wireless users who benefit from an expanding array of features and functions on their wireless devices and an improved user experience. qualcomm 2005 23
  28. 28. partnerships > we are proud to participate in the success of our industry The rapid growth of 3G CDMA has been made possible in part by an extraordinary collaboration at every level within the wireless industry. As the saying goes, the whole is greater than the sum of its parts, and the 3G ecosystem is no exception. Understanding that every customer and partner is interdependently linked, QUALCOMM focuses on enabling others as the key to achieving long-term growth and success. understanding customer needs enabling our industry partners Network Operators Businesses and Enterprises Network operators worldwide are upgrading Businesses and enterprises across all their existing systems to 3G or deploying new industries are discovering how to streamline systems to previously unserved areas. And operations, increase worker productivity and QUALCOMM is providing the road maps to achieve compelling return on investment enable seamless transition to CDMA2000 by leveraging 3G wireless into their work and WCDMA. processes. QUALCOMM partners with these customers to build technology solutions that Manufacturers are transforming the way business works. Manufacturers are under increasing pressure to develop, test and deliver innovative and Government differentiated devices with compelling QUALCOMM brings unique competencies in features and advanced data capabilities. adapting 3G wireless technology, applica- QUALCOMM’s integrated solutions and tions and other technologies to bear on safety services help them control costs and achieve and security issues, including Homeland faster time to market. Security and other initiatives on the local, state and national level. Application Publishers and Developers Application publishers and developers need In support of our government as it protects to streamline their development and marketing and defends our homeland, QUALCOMM’s processes. The BREW system is one way that interoperable wireless technology empowers QUALCOMM helps ensure a steady supply of government agencies to have immediate applications, including: music, 3D games, access to critical and sensitive voice and assisted-GPS services, photos, video and more. data information, anytime and anywhere. Content Providers and Media Companies Consumers Content providers and media companies Consumers have come to expect and will be able to further extend their brands demand sophisticated wireless experiences. into the wireless space next year when QUALCOMM and its partners in the wireless QUALCOMM expects to launch MediaFLO, value chain are joined together to meet that a cost-effective and efficient method to demand. That is our mission and our deliver high-quality multimedia content to a ongoing passion. large number of subscribers for easy viewing on mobile handsets. 24 qualcomm 2005