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Qualcomm Inc.
(QCOM-NASDAQ)
SUMMARY
SUMMARY DATA
Risk Level *
Low,
Type of Stock Large-Blend
Industry Wireless Equipm
Zacks Industry Rank * 42 out of 267
Current Recommendation
NEUTRAL

Prior Recommendation
Outperform
Date of Last Change
04/09/2013

Current Price (02/18/14)
$75.60
Target Price
$79.00
Qualcomm reported mixed financial results for the first
quarter of fiscal 2014. Although net income outpaced
the Zacks Consensus Estimate, total revenue fell below
the same. Notably, management raised its previously
given financial outlook for full fiscal 2014. We believe
that the long-term fundamentals of Qualcomm remain
intriguing given the steadily growing demand for 4G
LTE-enabled mobile handsets in developed countries,
rapid transition from 2G to 3G/4G in China and other
emerging markets and increasing licensing revenues.
Qualcomm has a very healthy cash position. On the
other hand, decreasing growth rate of the high-end
smartphones, intensifying competition in the low-end
smartphone chipset segment and litigation issues in
China are near term concerns. We, therefore, maintain
our long term Neutral recommendation on Qualcomm.
52-Week High $76.75
52-Week Low $59.02
One-Year Return (%) 17.40
Beta 1.05
Average Daily Volume (sh) 10,879,907

Shares Outstanding (mil) 1,689
Market Capitalization ($mil) $127,688
Short Interest Ratio (days) 2.82
Institutional Ownership (%) 23
Insider Ownership (%) 0

Annual Cash Dividend $1.40
Dividend Yield (%) 1.85

5-Yr. Historical Growth Rates

Sales (%) 23.3
Earnings Per Share (%) 24.1
Dividend (%) 17.1

P/E using TTM EPS 18.9
P/E using 2014 Estimate 16.4
P/E using 2015 Estimate 14.7

Zacks Rank *: Short Term
1

3 months outlook 3 - Hold
* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates
(In millions of $)
Q1 Q2 Q3 Q4 Year
(Dec) (Mar) (Jun) (Sep) (Sep)
2012
4,681 A 4,943 A 4,626 A 4,871 A 19,121 A
2013
6,018 A 6,124 A 6,243 A 6,480 A 24,866 A
2014
6,622 A 6,497 E 6,667 E 7,057 E 26,843 E
2015
7,411 E 29,361 E
Earnings Per Share Estimates
(EPS is operating earnings before non-recurring items, but including employee
stock options expenses)
Q1 Q2 Q3 Q4 Year
(Dec) (Mar) (Jun) (Sep) (Sep)
2012

$0.85 A $0.90 A $0.73 A $0.76 A $3.25 A
2013

$1.14 A $1.05 A $0.92 A $0.91 A $4.01 A
2014

$1.13 A $1.09 E $1.14 E $1.26 E $4.62 E
2015

$1.30 E $5.15 E
Projected EPS Growth - Next 5 Years % 12

February 19, 2014
Equity Research QCOM | Page 2

OVERVIEW
Qualcomm Inc. (QCOM), designs, manufactures, and markets digital wireless telecom products and
services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-
based integrated circuits (ICs) and system software for wireless voice and data communications as well
as global positioning system (GPS) products. The company also licenses many of its 5,700+ patents and
intellectual property to manufacturers of wireless equipment. Qualcomm usually receives one-time
license fees and ongoing royalties from companies using CDMA technology and associated protocols.
Qualcomm also develops a wide range of wireless solutions, such as MediaFLO for mobile video
broadcast and BREW (Binary Runtime Environment for Wireless); a handset platform intended to drive
wireless data applications. Qualcomms business is organized into three reporting segments as follows:

Qualcomm CDMA Technologies (QCT): This segment reports operating results for sales of
CDMA-based integrated circuit devices (chips) and system software for wireless voice and data
communications, as well as GPS products. QCT s integrated circuit (IC) products are used mainly
in mobile phones, wireless data access cards, and infrastructure equipments. QCT offers a broad
portfolio of products, that supports CDMA2000 1X, 1xEV-DO, EV-DO Revision A, EV-DO
Revision B and UMB. Qualcomm also develops IC that supports GSM/GPRS, WCDMA, HSDPA
and HSUPA technologies. QCT accounted for nearly 67.2% of the total revenue in fiscal 2013.

Qualcomm Technology Licensing (QTL): This segment reports revenues received from
licenses to the intellectual property portfolio, which includes CDMAOne, CDMA2000 1X EV-
DO/1xEV-DV, TD-SCDMA, and WCDMA technology solutions. QTL receives revenues from
license fees as well as royalties based on global sales by licensees of products incorporating or
using Qualcomms intellectual property. QTL generated approximately 30.4% of the total revenue
in fiscal 2013.

Qualcomm Wireless & Internet (QWI): This segment provides convergence services to the
wireless data market using BREW and QChat products, and also hardware and analytical support
to the U.S. government agencies. The Internet division provides technology to support and
accelerate the growth of the wireless data market. The Enterprise division provides equipment,
software and services to enable companies to have mobile interconnection. The Government
division provides hardware and analytical expertise involving wireless communications
technologies to the government agencies. QWI accounted for the remaining 2.4% of the total
revenue in fiscal 2013.
REASONS TO BUY

Qualcomm benefits from the significant growth of 3G wireless technologies and smartphones in the
emerging markets, particularly in China. The next-generation super-fast 4G Long Term Evolution
(LTE) technology has also boosted Qualcomm. The growing acceptance of the LTE technology has
prompted the mobile handset manufacturers to develop phones that will be compatible with this
network. Qualcomm has firmly established its leadership position in the high-end smartphone
segment. The company is the major chipset provider for Apple and Samsung, which together
constitute 40% of the smarphone and 50% of the tablet markets globally. In addition, Qualcomms
Gobi mobile Internet connectivity solutions will provide 3G/4G LTE connectivity to those devices that
will run on Windows 8 software. Qualcomm is the sole chipset developer for both Windows-based
smartphones and notebooks.

Qualcomm currently has more than 250 royalty bearing licensees worldwide. Additionally, the
company has over 90 single-mode OFDMA licensees. Qualcomm has introduced its next-generation
Equity Research QCOM | Page 3

processors called Snapdragon 600 and 800. These chipsets will provide 40%-75% increased
performance over the S4 Pro series and are the first chips operating on the TSMC 28nm technology.
Snapdragon 600 will have Quad Core Krait 300 CPU running up to 1.9 GHz and Adreno 320 GPU.
Snapdragon 800 will include Quad Core Krait 400 CPU running up to 2.3 GHz and Adreno 330 GPU.
These LTE-enabled chipsets will also have integrated 802.11 ac Wi-Fi connections. Shipment for
Snapdragon 600 and Snapdragon 800 chipsets are expected to ramp up going forward. Qualcomm
has launched its innovative RF360 Front End Solutions. This new technology will solve the problem
of LTE fragmentation faced by most of the large handset manufacturers.

During the first quarter of fiscal 2014, Qualcomm shipped 213 million MSM chipsets, up 17% year
over year. This figure was far better than the company s guidance of a mid-point of 202.5 million.
Average selling price (ASP) of mobile handsets with an in-build Qualcomm chipset during this
quarter was around $219-$225. Over 1,350 devices are using Snapdragon chipsets and another 500
devices are based on its Reference Design solutions. Qualcomm has introduced a 64-bit
microprocessor for mobile handsets called Snapdragon 410. The processor is integrated with 4G
LTE (Long-Term Evolution) connectivity technology. Snapdragon 410 is designed for phones priced
at $150 or less, particularly targeting the upcoming nationwide LTE network deployment in China.

Acquisition of Atheros Communications has transformed Qualcomm into an integrated chipset
developer for the mobile computing market. Qualcomm can play as a single window to any wireless
gadget maker (mobile phone/tablets) for an integrated Snapdragon chipset platform supporting Wi-
Fi. Besides mobile computing, Qualcomm can now diversify in the consumer electronics segment,
particularly in the home networking market. Atheros manufactures Wi-Fi chips for televisions, video
games, printers, and other home devices. Qualcomm has already started working on the reference
design for set-top boxes and other home connected devices.

Qualcomm has a highly diversified product portfolio. Several original equipment manufacturers are
adopting high-speed 3G and 4G technologies for connecting tablets, eReaders, machine-to-machine
communication devices, and gaming devices. Qualcomms state-of-the-art Snapdragon platform and
Gobi platform for global wireless connectivity support almost all varieties of mobile broadband
equipment. Recently, Qualcomm unveiled an innovative smartwatch called Toq . This smartwatch
can simultaneously receive phone calls, send messages and play music.

In Jan 2014, Qualcomm acquired a portfolio of patents from Hewlett-Packard for an undisclosed
amount. The portfolio comprises 1,400 granted and pending patent applications from the U.S. and
about 1,000 granted and pending patent applications from other countries including China, England,
Germany, Japan and South Korea. The patent portfolio covers a wide range of technologies that
include fundamental mobile operating system techniques. Acquisition of this patent portfolio will
enable Qualcomm to more aggressively expand into the global mobility market.
REASONS TO SELL

Aggressive competition in the mobile phone chipset market may hurt Qualcomms profit in the future.
The company is facing severe competitive threat from its closest rival, Intel, which has been
redesigning its chipsets for the mobile computing market. Intel has started shipment of its first multi-
mode LTE baseband modem. Competition is likely to emanate from formidable rivals like Broadcom
and Nvidia. Broadcom already introduced its first LTE baseband chipset in the market and Nvidia
introduced Tegra 4i, its first LTE-integrated application processor. There is also competition from
low-cost chip suppliers like Mediatek of Taiwan, VIA Technologies of China and Spreadtrum
Communications. Although, the global smartphone market is expected to maintain its momentum in
the next 4-5 years, the major part of this growth is likely to come from the low-cost emerging
markets, which may pressurize Qualcomms margins.
Equity Research QCOM | Page 4

The ongoing global economic volatility may severely impact the telecommunications industry, which
in turn may negatively affect the demand for Qualcomm developed chipsets. Qualcomms future
growth is dependent upon the continuous deployment of CDMA/OFDMA-based network
technologies. If the emerging markets fail to maintain the current rate of installing high-speed 3G,
next-generation 4G or any hybrid 3G-4G wireless networks, the demand for smartphones will
decline, which will affect Qualcomms financials.

Qualcomm is facing an anti-monopoly investigation by the National Development and Reform
Commission (NDRC), the regulatory authority of China. The company stated that it isn't aware of any
activity that violates the anti-monopoly law in China and will continue to cooperate with NDRC. The
investigation is likely to impede Qualcomms growth in China. There are many such pending
litigation cases relating to infringement of patent rights against Qualcomm throughout the world. If
the company loses these pending cases, then it will put pressure on the company s cash flow.

The smartphone market has become intensely competitive resulting in lower ASP, which in turn,
may negatively impact Qualcomms royalty business. Fluctuation in royalty rates and weaker-than-
expected smartphone demand may hurt Qualcomms top line. Qualcomm generates most of its
revenues from licensing and royalties. However, the terms and duration of the deals are not fully
disclosed. Since Qualcomm is more aggressively entering into mass market and the Asian markets,
we believe that margin pressure will remain in the near future. Management stated that the ASP of
mobile handset with an in-built Qualcomm chipset during fiscal 2014 will be around $216 -$230,
which is $3 less than the prior-year level.
RECENT NEWS
First Quarter of Fiscal 2014 Financial Results Jan 29, 2014
Qualcomm Reported Mixed Results
On a GAAP basis, quarterly net income from continuing operations was $1,444 million or $0.84 per share
compared with $1,903 million or $1.09 per share in the year-ago quarter. However, adjusted (excluding
special items) earnings per share came in at $1.13, easily beating the Zacks Consensus Estimate of
$1.10. Quarterly total revenue of $6,622 million was up 10% year over year, but fell below the Zacks
Consensus Estimate of $6,700 million. Segment wise, Qualcomm CDMA Technologies businesses
contributed $4,616 million of revenues in the first quarter, up 12% over the prior-year quarter. Quarterly
EBT margin was 20%. Qualcomm Technology Licensing generated $1,900 million in revenues, up 8%
year over year. Quarterly EBT margin was 88%.
Quarterly operating income was $1,493 million compared with $2,088 million in the year-ago quarter.
Gross margin was 59.1% compared with 65.3% in the year-ago quarter. Quarterly operating margin was
21.8% compared with 31.6% in the prior-year quarter. In the reported quarter, the company returned
$590 million (35 cents per share) to its shareholders in the form of cash dividends and another $1 billion
through buyback of 14.2 million shares of common stock.
During the first quarter of fiscal 2014, Qualcomm generated $2,781 million of cash from operations
compared with $1,975 million in the prior-year quarter. Free cash flow, in the reported quarter, was
$2,571 million against $1,770 million in the year-ago quarter. At the end of the first quarter of fiscal 2014,
Qualcomm had $31,610 million of cash and marketable securities and no outstanding debt on its balance
sheet compared with $29,406 million of cash and marketable securities and no outstanding debt at the
end of fiscal 2013.
Second Quarter of Fiscal 2014 Financial Guidance
Equity Research QCOM | Page 5

The first-quarter revenues are expected in the range of $6.1 billion - $6.7 billion. GAAP earnings per
share are projected to be $0.99

$1.09. Non-GAAP earnings per share are likely to range between
$1.03 - $1.13 including $0.13 per share of stock-based compensation expense. Qualcomm is expected to
ship 180 195 million MSM chipsets in the second quarter of fiscal 2014.
Fiscal 2014 Financial Guidance
The fiscal 2014 revenues are expected in the $26 billion - $27.5 billion range. GAAP earnings per share
are likely to be between $4.33 and $4.53. Non-GAAP earnings per share are expected in the band of
$4.49 - $4.69 including $0.51 per share of stock-based compensation expense. ASP of mobile handset
with an in-built Qualcomm chipset during fiscal 2014 is projected around $216 -$230.
VALUATION
Qualcomm is at present trading at 16.4x our fiscal 2014 earnings estimate, which is at a massive
discount to the industry average but a slight premium to the S&P 500. With respect to our forward fiscal
2015 earnings estimate, the stock is currently trading at 14.7x, this is also at a huge discount to the
industry average but at par with the S&P 500. In our view, the company is in a position to benefit over
time, as the demand for high-end smartphones and tablets are increasing gradually, supported by rapid
deployment of 3G and super-fast 4G networks throughout the world. Qualcomm has a diversified product
prortfolio, a powerful pipeline full of innovative products and a solid list of clientele. Nevertheless, we
believe that the stock is currently fairly valued and will not provide above-martket gain anytime soon. We,
therefore, maintain our Neutral recommendation with a target price of $79, based on 17.1x our fiscal
2014 earnings estimate., a premium over the S&P 500.
Key Indicators

P/E
F1
P/E
F2
Est. 5-Yr

EPS Gr%
P/CF
(TTM)
P/E
(TTM)
P/E
5-Yr
High
(TTM)
P/E
5-Yr
Low
(TTM)
QUALCOMM INC (QCOM) 16.4 14.7 14.3 15.9 18.9 29.6 15.8

Industry Average 357.8 26.8 15.1 25.9 137.5 291.7 32.5
S&P 500 15.7 14.7 10.7 14.9 18.0 27.7 12.0

NOKIA CP-ADR A (NOK) 24.0 19.7 3.5 22.5 89.2 161.2 4.9
ERICSSON LM ADR (ERIC) 16.5 14.2 8.4 9.3 15.1 23.1 4.1
ZTE CORP U-ADR (ZTCOY) 16.0 14.9 30.0

30.1 7.3
MOTOROLA SOLUTN (MSI) 18.3 16.4 7.0 12.1 15.0 388.0 14.6
TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow

P/B
Last
Qtr.
P/B
5-Yr High
P/B
5-Yr Low
ROE
(TTM)
D/E
Last Qtr.
Div Yield
Last Qtr.
EV/EBITDA
(TTM)
QUALCOMM INC
(QCOM) 3.4 4.2 2.7 18.3 0.0 1.9 11.9

Industry Average
3.3 3.3 3.3 5.3 0.3 0.5 11.7
S&P 500
4.8 9.8 2.9 25.4

2.1

Equity Research QCOM | Page 6

Earnings Surprise and Estimate Revision History

Equity Research QCOM | Page 7

DISCLOSURES & DEFINITIONS
The analysts contributing to this report do not hold any shares of QCOM. The EPS and revenue forecasts are the Zacks Consensus
estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal
views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,
related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this
report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to
accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet
the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an
offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a
position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the
securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to
twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve
months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The
current distribution of Zacks Ratings is as follows on the 1060 companies covered: Outperform - 17.5%, Neutral - 75.5%, Underperform

6.3%.
Data is as of midnight on the business day immediately prior to this publication.
Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in
earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model
assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks
Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a
company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of
investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In
determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5
th
group has the highest
values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the
second, third, and fourth groups of stocks, respectively.