qualcomm financial analysis report

ACCOUNTING FINANCE AND CONTROL

GROUP PROJECT REPORT

Politecnico di Milano

Submission Date : 09.01.2017

ALIBERT Victor - ARANEDA Rubn - ARSLAN Murat Yucel - BAYSAL Ismail - CEVIK Ahmet Can

i AFC - Group Project Work

TABLE OF CONTENTS

1. PRESENTATION AND STRATEGY OF QUALCOMM ........................................................... 1

1.1. OVERALL PRESENTATION ............................................................................................... 1

1.2. MARKET VALUE DESCRIPTION ...................................................................................... 2

1.3. BIG PICTURE (STEEP ANALYSIS)................................................................................. 2

1.4. COMPETITION ANALYSIS (PORTERS FIVE FORCES) ................................................ 2

1.5. QUALCOMM STRATEGIC OBJECTIVES AND CULTURE ............................................ 3

1.5.1. SWOT ANALYSIS ......................................................................................................... 3

1.5.2. SUBSEQUENT CRITICAL SUCCESS FACTORS ....................................................... 4

2. FINANCIAL ANALYSIS ............................................................................................................. 5

2.1. OVERALL COMPANYS PERSPECTIVE .............................................................................. 5

2.1.1. REVENUES ......................................................................................................................... 5

2.1.2. EBIT ..................................................................................................................................... 6

2.1.3. TOTAL ASSET ................................................................................................................... 6

2.1.4. EFFECTIVE TAX RATE ................................................................................................... 7

2.1.5. RESIDUAL INCOME ......................................................................................................... 8

2.2. SHAREHOLDERS PERSPECTIVE ......................................................................................... 8

2.2.1 RETURN ON EQUITY ........................................................................................................ 8

2.2.2. PAYOUT RATIO ................................................................................................................ 9

2.3. LIQUIDITY .............................................................................................................................. 10

2.4. COST STRUCTURE ................................................................................................................ 12

2.4.1. DEBT TO EQUITY ........................................................................................................... 12

3. VALUE DRIVER ANALYSIS ................................................................................................... 13

3.1. FINANCIAL PERSPECTIVE .................................................................................................. 13

3.1.1. WEIGHTED AVERAGE COST OF CAPITAL (WACC) ............................................... 13

3.1.2. PAYOUT RATIO .............................................................................................................. 13

3.1.3. EFFICIENCY OF INTANGIBLE ASSETS ..................................................................... 14

3.1.4. MARKET SHARE............................................................................................................. 14

3.2. CUSTOMER PERSPECTIVE .................................................................................................. 15

3.2.1. FINAL CUSTOMER SURVEY ........................................................................................ 15

3.2.2. NUMBER OF CLAIMS .................................................................................................... 15

3.2.3. MAXIMUM DELAY ........................................................................................................ 16

3.3. INTERNAL PROCESS PERSPECTIVE ................................................................................. 16

3.3.1. FLEXIBILITY RELATED TO THE MIX ........................................................................ 16

3.3.2. SUPPLY CHAIN CONTROL ........................................................................................... 16

ii AFC - Group Project Work

3.4. LEARNING AND GROWTH PERSPECTIVE ....................................................................... 17

3.4.1. EMPLOYEE TRAINING .................................................................................................. 17

3.4.2. TOP TALENT RECRUITMENT ...................................................................................... 17

3.4.3. INNOVATION FLEXIBILITY (TIME TO MARKET) ................................................... 18

3.5. ENVIRONMENT AND SOCIAL PERSPECTIVE ............................................................. 18

3.5.1. CO2 EMISSION ............................................................................................................ 18

3.5.2. DONATION .................................................................................................................. 19

4. BALANCE SCORECARD (THIRD GENERATION) ............................................................... 19

5. RISK CATALOGUE ................................................................................................................... 21

6. METHOD SELECTION .............................................................................................................. 22

7. CRITICAL ANALYSIS .............................................................................................................. 22

BIBLIOGRAPHY ................................................................................................................................ 25

ANNEX................................................................................................................................................ 26

LIST OF FIGURES

Figure 1. Market Presence of Qualcomm .............................................................................................. 1 Figure 2. Porter's Five Forces for Qualcomm ........................................................................................ 3 Figure 3. QCT and QTL distribution in Revenues and EBIT in 2015 ................................................... 5

Figure 4 Distribution of current and non-current assets per year .......................................................... 7 Figure 5. ROE, P/E and PEG for Qualcomm and the semiconductor industry ..................................... 9

Figure 6. Dividends and Net Profit per year ........................................................................................ 10 Figure 7. Debt-to-Equity per year for Qualcomm and Broadcom ....................................................... 12

Figure 8. Efficiency of intangible assets per year for Qualcomm ....................................................... 14 Figure 9. Importance-Grade matrix ..................................................................................................... 15 Figure 10. Hours of training per employee per year ............................................................................ 17

Figure 11. CO2 emissions per year ...................................................................................................... 18 Figure 12. Value tree for Qualcomm ................................................................................................... 23

LIST OF TABLES

Table 1. STEEP analysis for Qualcomm ............................................................................................... 2 Table 2. SWOT Analysis for Qualcomm ............................................................................................... 4 Table 3. Revenues of QCT and QTL segments per year ....................................................................... 5 Table 4. Total assets per year ................................................................................................................. 6 Table 5. Effective Tax Rate per year ..................................................................................................... 7

Table 6. Residual Income for Qualcomm and Broadcom per year ........................................................ 8 Table 7. ROE, Net Profit and Shareholders Equity per year ................................................................ 8 Table 8. Payout Ratio (%) and Dividend ($ Million) per year ............................................................ 10 Table 9. Quick Ratio for Qualcomm per year ...................................................................................... 10 Table 10. Inventory Turnover and Average Collection Time per year ................................................ 11

Table 11. Liquidity indicators per year for different semiconductor companies ................................. 11 Table 12. Interest Coverage Ratio of Qualcomm ................................................................................ 13

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1 AFC - Group Project Work

1. PRESENTATION AND STRATEGY OF QUALCOMM

1.1. OVERALL PRESENTATION Qualcomm is a semiconductor company founded in 1985, which related to the network and

communication equipment industry headquartered in California, US. The semiconductor market is

worth $350 billion which is relatively small but this market has a 5 times enabling factors by

supporting huge markets such as electronics and services. Qualcomm is one of the leader companies

in the development and commercialization of the CDMA (Code Division Multiple Access) and

OFDMA (Orthogonal Frequency Division Multiple Access) technologies, at present, two of the main

digital technologies to transmit data or voice of users by wireless networks. The company is also the

owner of intellectual property related to the products that make use of any of both technologies

CDMA or OFDMA in mobile communication products. Furthermore, Qualcomm designs and

manufactures products and services based on its digital communication technologies, the main of

them are the integrated circuits (chips or chipsets), both for wired and mobile devices, and the

system software used in mobile devices and wireless operators services.

Qualcomm is structured in three operating segments: the QCT (Qualcomm CDMA

Technologies) and QTL (Qualcomm Technology Licensing), the two reportable segments by which

the business is conducted; and the QSI (Qualcomm Strategic Initiatives). The QCT segment is the

developer and supplier of integrated circuits, software and other devices based on CDMA, OFDMA

and the technologies. The QTL segment is the granter of licenses and rights to use Qualcomms

intellectual property. The third segment, QSI is focused on making strategic investment to open or

expand technological opportunities and also to support the design and introduction of new products

and services.

Figure 1. Market Presence of Qualcomm

At 2015 Qualcomm has 33.000 employees. More than

175 office locations distributed in 33 countries in the 5

continents.

Qualcomms current competitors are Broadcom,

Ericsson, HiSilicon Technologies, Intel, Marvell Technology,

Microchip Technology Inc., Texas Instruments, NVidia,

Samsung Electronics and Spreadtrum.

Solutions

Automotive

Health Care

Internet of Things

Mobile Computing

Networking


1.2. MARKET VALUE DESCRIPTION

During the period of our analysis (September 2013 - September 2015) the stock value of

Qualcomm has mainly decreased (cf. graph annex 4). After, a peak in May 2014 following the good

results of 2013, many bad events have impacted Qualcomm and the vision of investors. The first big

one was the announcement of Samsung in February 2015 (first mobile phone manufacturer in the

World) to stop using Qualcomm Snapdragon microprocessor for its Galaxy S series because of

overheating problem. In February 2015, China also condemned Qualcomm to pay a $975 million

fine for breaking Anti-Monopolys law. These two events not only affected the profitability of

Qualcomm but also the trust of Investors. After this story, Qualcomm acquired CSR plc in August

2015, having first a positive effect (market value rocketed) but then the decrease continued until the

end of 2015. But in February 2016, Qualcomm decided to organize an analyst meeting in order to

present its long term strategy and make it clear for all investors. This marked the end of a long

decrease of the market value and in the end in 2016, Qualcomm stock started recovering.

1.3. BIG PICTURE (STEEP ANALYSIS)

In Table 1 it is shown the STEEP analysis made for Qualcomm.

Socio-demographic Mobile technologies are very trendy.

Everybody and every company get digital devices giving a big opportunity to Qualcomm.

Technological CDMA technology is a base for emerging technology

4G protocol widely adopted and 5Gs coming (on October 17 2016, Qualcomm has presented the first 5G modem).

Qualcomm has to care about IP protection.

Ecological/Health

There have been some studies highlighting the bad effect of wireless communication technologies.

Even though we have not recorded any impact on health (and on Qualcomm results) for now, companies in the industry are trying to

innovate in order to avoid health problems.

Economic

Qualcomm needs to hedge its operations and sales risks as economy is uncertain and a big collapse in the market can happen and is very

difficult to predict.

Opportunities in China (especially in the licensing activity)

Political Qualcomm is strongly dependent on the customers inside the geographical markets where it operates. Thus any change in politics can

hugely impact the results of Qualcomm. Table 1. STEEP analysis for Qualcomm


1.4. COMPETITION ANALYSIS (PORTERS FIVE FORCES)

In order to understand the industry attractiveness of Qualcomm, Porters Five Forces analysis

was conducted (see Figure 2, cf. Annex 5 for the detail).

(Qualcomm operates in an intense competitive environment)

1.5. QUALCOMM STRATEGIC OBJECTIVES AND CULTURE

In order to cope with this highly competitive environment, Qualcomm has developed a strong

corporate culture based on innovation, pioneering, risk taking and its employees are aligned on value

such as rebellion, dream and geek.

The main mission of Qualcomm can be summarized by the CEO himself:

"Were fascinated by technology and always working to push it forward. Our job is to be

impatient. Thats our role in the mobile industry, and our future. (Steve Mollenkopf, CEO)

1.5.1. SWOT ANALYSIS

By analyzing Qualcomms Strengths, Weaknesses, Opportunities and Threats, Qualcomm has

also a clear deliberate strategy to compete (see Table 2).

Figure 2. Porter's Five Forces for Qualcomm


SWOT

Opportunities:

First actor to present a

modem in 5G (growth in 3G/4G

protocols)

Mobile banking solution (and

other trendy mobile solutions)

Internet of Things (even

Everything)

New licensing activities (5G)

Threats:

Legislation in China

(already fined)

Economic recession and

less investments (starting to

recover in 2016)

Strengths:

Large market share

Efforts in R&D (Cf.

annual report)

100000 pending/granted

patents (source:

Qualcomm Website)

Top 100 innovators

according to Thompson

Reuters ranking

Strong brand

recognition (different

from awareness), loyal

customers (strong base)

High flexibility thanks

to licensing (and assured

cash flow in the short

term)

How to use strengths to take

opportunities?

Invest in R&D and innovation

to seize new market

opportunities (cf. financial

report).

How to use strengths to

reduce the

impact/likelihood of

threats?

Innovate to be a pioneer in

the future challenges and

recover from the economic

crisis.

Weaknesses:

Weak activity in non

CDMA technologies

Low brand awareness

due to low marketing

efforts in this direction

How to overcome Weaknesses

to take opportunities?

Extend its activity in order to be

ready for all opportunities.

Strengthen its brand awareness

to become a first choice as

communication technologies

provider (e.g.: social network

activity).

How to overcome

Weaknesses to avoid

threats to become a

reality?

Avoid technology

dependence in a fast moving

world (digital).

Table 2. SWOT Analysis for Qualcomm

1.5.2. SUBSEQUENT CRITICAL SUCCESS FACTORS

- Increase R&D expenses and efficiency - Increase intangible assets productivity - Control market share (as it is closely related to profitability) - Meet customers requirements to seize the opportunities - Increase flexibility in the digital fast moving world (outsourcing, licensing) - Increase knowledge and competencies and be up-to-date (digital requirement) - Be environment friendly as semiconductors require critical mineral resources


2. FINANCIAL ANALYSIS1

2.1. OVERALL COMPANYS PERSPECTIVE

2.1.1. REVENUES

Qualcomm is a major player in chipset industry. The revenues have the 4th biggest in the

industry (2014-15) after Intel, Samsung and SK Hyinx (cf. annex 1) [1].

Table 3. Revenues of QCT and QTL segments per year

In 2015, although the revenues from

QCT business was 67% of overall revenues

(see Figure 3), QTL contributed on the EBIT of

company by 74% [2]. QCT makes high revenue

by selling chips at competitive prices and this

revenue is spent on R&D (Research and

Development). QCT uses technology

developed from R&D to manufacture mobile

chips on a larger scale. Then, QTL licenses this

technology to other handset makers. This

results in high profit margins from QTL, as

dual revenue is earned from a single R&D

expense. Thus, licensing business generates

more cash with fewer expenses compared to

chip making.

Qualcomm had a decrease of revenues around $1 billion between 2014 and 2015 (see Table

3). Although the trend of revenues was promising to an increase of nearly 9% on the market,

Qualcomm faced a decrease of 4,6% at the end of 2015. There were many reasons behind this

decrease but especially two major factors: South Korea and China Market. Qualcomm has a global

1 Cf. annex 5 for the formulas

Revenues 2015

(Million $)

2014

(Million $)

Delta

(%)

Equipment and Services 17.079 18.625 -8,3

License 8.202 7.862 +4,3

Revenues 25.281 26.487 -4,6

67

26

33

74

2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenues EBIT

QCT QTL Other

Figure 3. QCT and QTL distribution in Revenues and EBIT in

2015


sales activity and 99% of 2015 revenues came from international markets. China, South Korea, and

Taiwan are the major markets of Qualcomm in terms of revenues (cf. annex 2).

In 2014, South Korean market represented 23% of Qualcomms revenues and Samsung

Electronics was the first customer in this market. In the early 2015, Samsung decided not to use

Qualcomm chipsets on upcoming Samsung devices as technical speculations arose and Qualcomm

lost one of its big customers. At the end of 2015, the revenues generated by South Korean market

were reduced to 16% and Samsung case caused a dramatic decrease of revenues (nearly 8%) [3].

On the other hand, Chinese market is the biggest portion of revenues with 53% in 2015.

Licensing business of Qualcomm (QTL) had realized that certain licensees in China did not fully

comply with their contractual obligations. In 2014, total reported device sales recorded $243,6

billion and increased by 3% to $250,9 billion. Thus, QTL revenues were negatively impacted from

illegal use of licenses as it was expected to increase more [4].

2.1.2. EBIT

Qualcomms EBIT has been affected in a negative way during 2015 principally because of

two factors: the 4,6% decrease in revenues explained above and also an increase in the total costs

and expenses of 3% equivalent to $568 million. This negative increase can be attributed mainly to

one important event: a $975 million fine imposed to Qualcomm by the China National Development

and Reform Commission after 14 months of government investigation [5], because the QTL section

and some interactions between the QTL and QCT of the Company violated Chinese anti-monopoly

Law. The Chinese government also forced Qualcomm to change its business practices in China, such

as the ones related to the licensing of patents for mobile phones sold in China [6]. This fine was

considered in the Other Costs item which, along with some other minor changes in its structure,

was increased in 167,15%. These two factors made the EBIT decrease in 23,50% that is equivalent to

a drop of $1.774 million.

2.1.3. TOTAL ASSET

Table 4. Total assets per year

The total assets increased from 2014 to 2015 by 4,57% (see Table 4). This effect is due to an

increase in non-current assets (see Figure 4). There is a decrease of 1,40% in the current assets with

respect to these periods equivalent to 314 million dollars mainly caused by decreases in cash and

2015

(Million $)

2014

(Million $)

Absolute Diff.

(Million $)

Delta

(%)

Total Assets 50.796 48.574 +2.222 +4,57


cash equivalents and accounts receivables. The decrease

in cash and cash equivalents is a result of an $11.200

million payment to repurchase shares of Qualcomms

common stock, which is partially offset by $9.900

million from the issuance of notes and net cash provided

by operating activities. On the other side, the accounts

receivables decrease is related to the lower sales of the

QCT segment, not completely offset by the timing of

payments of some licensees. The increase of the non-

current assets is concentrated on three main items:

goodwill, other intangible assets and other assets. These

three increases are strongly related to Qualcomms $2.3

billion acquisition of CSR to the QCT segment. CSR is a

developer of multifunction semiconductor platforms and

technologies for the automotive, consumer and voice and music areas. This acquisition together

with the four other ones made during the period of 2015 is in line with the strategy of the company

of growing in the automotive infotainment and Internet of Things (IoT) categories and expanding the

portfolio of connectivity technologies.

2.1.4. EFFECTIVE TAX RATE

Table 5. Effective Tax Rate per year

Qualcomm pays taxes in the USA and Singapore, where the headquarter for non-USA

activities is located. Although companys Pre Tax Profit (EBT) decreased 29, 55% in 2015 compared

to 2014, Effective Tax Rate increased in 2015 (see Table 5). The reason is that reduction in tax

benefits from foreign income (taxed other than US) reduced from 20% to 14 %( more tax charged on

income obtained from foreign activities in 2015). In general not only Qualcomm, both also the

Semiconductor Industry Association also complains about high tax rates conducted by the American

government (federal corporate tax of 35% which is much more than OECD countries rates of 25%)

which forces US companies to move away to other locations such as Taiwan, China, etc.

2015

(%)

2014

(%)

Delta

(%)

Effective Tax Rate 0,18791 0,14171 +33

0

10.000

20.000

30.000

40.000

50.000

60.000

2014 2015

Mill

ion

$

Year

Total Assets

Non-currentassets

Current assets

Figure 4 Distribution of current and non-current

assets per year


2.1.5. RESIDUAL INCOME

Table 6. Residual Income for Qualcomm and Broadcom per year

Regarding the overall companys profitability, Qualcomm reported bad result since the RI

decreased by $3.539 billion (see Table 6) and a decrease of 30% of ROI. This is due to a new debt

policy contracted in 2015 mainly for the Capital Return Program (cf. Debt to Equity section bellow)

without any fruit in the EBIT (cf. EBIT section) because these debts have been essentially contracted

to return money to shareholders and not for new investments (the CAPEX decreased between 2014

and 2015 by $191 million). Between 2014 and 2015 exercises, the WACC of Qualcomm has

increased from 9,2% to 12,6% [16] which can be explained by an increasing risk of Qualcomm.

Indeed, Qualcomm has issued a $11 billion debt in 2015 (increase of debt-to-equity ratio) and in the

same time, CFFO decreased as well as Net Profit. Despite the bad performance of Qualcomm in

2015, the company generated higher returns on investment than its costs to company (Company ROI

in 2015 is 15,6% and WACC is 12,6%)[20]. Regarding Broadcom, even with a negative RI (meaning

that Broadcom is not able to pay all its obligation with its operating income), we observe an

improvement on the contrary. Broadcom is a very indebted company (we highlight it in the cost

structure section) but its investment has been fruitful (increase of EBIT).

2.2. SHAREHOLDERS PERSPECTIVE

2.2.1 RETURN ON EQUITY

Qualcomm has a ROE of 20,3% in 2014 and 16,8% in 2015 (see Table 7). Between two

years, ROE decreased by 17, 2% due to the 33,9% decrease of net profit. ROE had been seriously

affected by the anti-trust issues held in China on mobile application processor market. Also, the

decision of short and long-term debt increased financial interests paid and caused in a minor

proportion the decrease of ROE (cf. annex 3 for visualization).

Table 7. ROE, Net Profit and Shareholders Equity per year

On the other hand, even though Qualcomm had a decrease of ROE at the end of 2015, 16,8%

of ROE is still superior to the industry average (6,94% for 2015). For instance, Broadcom showed a

2015

($ Million)

2014

($ Million)

Delta

($)

Qualcomm RI 418,78 3.958,47 -3.539,69

Broadcom RI -6.935,70 -7.307,84 372

Return on Equity (ROE) 2015

($ Million)

2014

($ Million)

Delta

(%)

Net Profit 5.268 7.964 -33,9

Shareholders' Equity 31.414 39.166 -19,8

ROE 16,8 20,3 -17,2


dramatic drop of ROE and finished the year with 8,55% which shows that Qualcomm was generating

more return for its equity holders than its major competitor. Other competitors in chipmaker industry

such as Intel and Texas Instruments also finished the year with a decreasing ROE and stayed around

17-19% which shows that the overall industry suffered from decrease of ROE in 2015 compared to

2014.

In order to show that Qualcomm is an attractive company in terms of investing, it is needed to

mention P/E which is a ratio for valuing a company that measures its share price relative to its

earnings-per-share and PEG which is a measure combined with P/E and market growth rate (CAGR).

Generally, high P/E suggests that investors expect more in future compared to companies

with a lower P/E. On the other hand, the lower PEG shows high growth rate of companys

expectations in earnings.

Figure 5. ROE, P/E and PEG for Qualcomm and the semiconductor industry

In 2015, Qualcomms high ROE, low P/E and low PEG compared to the industry average

show that the company has created wealth for its shareholders and drawn more buying interests of

shares than the average (see Figure 5). Accordng to these three measure (shareholders expectation),

Qualcomm is an attractive company for investors (also companys ROE,16,8% is greater than its

cost of equity which is 13,77% which indicates that company was a good investment for equity

holders in 2015 for its shareholders.[20]). However considering its higher ROE, lower P/E and lower

PEG, Intel could be another attractive choice in the market. Controversially, Broadcom gives us a

signal to stay away with its lower ROE, higher P/E and higher PEG.

2.2.2. PAYOUT RATIO

Dividends paid to companys shareholders increased in the period 2014-2016. Although

companys net profit decreased by 20% in 2015 compare to 2014, dividends increased by 5,4% in

2015 (see Figure 6).

Qualcomm Intel Texas Inst. Broadcom Industry

ROE 16,8 17,82 19,71 8,55 6,94

PE 17,18 11,85 17,66 28,48 19,55

PEG 1,018 0,689 0,704 3,148 1,02

0

5

10

15

20

25

30

in b

illio

n $


Figure 6. Dividends and Net Profit per year

This is due to Qualcomms Capital Return Program. On March 9 2015 declaration of

Capital Return Program to repurchase common stock results up to $15 billion. The aim of the

program is to return at least 75% of companys cash flow to its stockholders.

The company paid $2,88 billion to its shareholders as dividends and $11,25 billion of share

repurchasing in 2015 fiscal year. In 2015 the company returned approximately $14.125 billion to

shareholders via dividends and share repurchasing. Since September 27, the company repurchased

and retired 24,6 million of its common outstanding shares for $1,4 billion. In total, the company

spent $15 billion for Capital Return Program in 2015.

Payout ratio is an important indicator to determine the proportion of earnings paid out to

shareholders. To show the impact of Qualcomms share repurchasing program on dividends, we also

calculated the payout ratio of 2016.

Although, there is 20,4% reduction in 2015 compare to 2014 in the companys net profit,

payout ratio increased 36,16% to 52,44% in 2016 compare to 2014 (see Table 8). This is the result of

companys capital return program that company increased the amount of dividend paid out to its

shareholders despite the drop in net income.

Table 8. Payout Ratio (%) and Dividend ($ Million) per year

2.3. LIQUIDITY

2.586 2.8802.990

7.964

5.2685.702

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

2014 2015 2016

in b

illio

n d

olla

r

Dividends Net Profit Dorusal (Dividends)

2016 2015 2014

Payout Ratio (%) 52,44 36,16 37,78

Dividend ($ Million) 2.990 2.880 2.586

Liquidity (1) 2015

($ Million)

2014

($ Million)

Delta

(%)

Cash + Short Term Investment + Receivables 19.285 19.977 -3,46%

Current Liabilities 6.100 6.013 1,45%

Quick Ratio 3,16 3,32 -4,84%

Table 9. Quick Ratio for Qualcomm per year


As it is shown in Table 9, Qualcomm is able to meet all its short-term obligations with its

most liquid assets since it has a quick ratio equal to 3,16. However, Qualcomms quick ratio

decreased 4,84% in 2015 compare to 2014. On the one hand, this is explained by a decrease in the

cash equivalents due to payments to repurchase shares of Qualcomms commons stock offset by

proceeds on operating activities. On the other hand, there is an increase of 1,45% on the current

liabilities, explained by a new short-term debt acquired because of a Commercial Paper Program

started in March, 2015, offset by a decrease in the trade accounts payable.

Table 10. Inventory Turnover and Average Collection Time per year

In Table 10, we can see a decrease of 6,73% in the inventory turnover of 2015 compared to

the 2014 period, which is negative in terms of liquidity and has a direct relationship with the

decrease in the sales explained above (revenues section). Additionally, there is an increase in the

total inventories, explained mainly by the acquisition of the semiconductor developer CSR which

increases the work-in-progress and finished goods and a decrease in the QCT segment inventories

due to the lower cost product mix and average unit costs. This results in a final increase of the

finished goods (17,48%) and a decrease in the work-in-process goods (16,16%).

For the average collection time of receivables there is a reduction of 14,69%, equivalent to 5

days approximately, which should be good because it means that on average the customers are taking

less time to pay Qualcomm, so the liquidity increases. Nevertheless, it is important to consider that

the reason of the decrease in the accounts receivables is principally the lower sale revenues of the

QCT segment.

Liquidity (3) Quick Ratio

(%)

Inventory Turnover

(day)

Avg. Payable

Collection Time (day)

2015 2014 2015 2014 2015 2014

Qualcomm 3,16 3,32 16,94 18,17 28,36 33,24

Broadcom 2,54 2,35 13,02 8,23 54,50 66,86

Intel 1,92 1,15 10,71 13,08 31,56 28,92

Texas Inst. 1,72 1,80 7,69 7,31 32,71 34,86

Table 11. Liquidity indicators per year for different semiconductor companies

Liquidity (2) 2015

($ Million)

2014

($ Million)

Delta

(%)

Revenues 25.281 26.487 -4,55

Inventory 1.492 1.458 +2,33

Inventory Turnover 16,94 18,17 -6,73

Trades receivable 1.964 2.412 -18,57

Average Collection Time 28,36 33,24 -14,69


Compared to the main competitors we can see that Qualcomm has a better liquidity situation

(see Table 11). For the short-term financial situation Qualcomm is superior by considering the quick

ratio indicator, but also it might be noticed that none of them has problems to meet with short-term

obligations. For the inventory turnover, all the competitors have lower values that if it is too low

could be bad for the competitors considering the continuous innovation characteristic of this industry

and the risk of having excess of old inventories (obsolescence). Finally, the average collection time

of receivable is similar with companies as Intel or Texas Instrument, but is almost half of the time

that Broadcom has, which is a notorious advantage of Qualcomm over our benchmark in terms of

liquidity through better customer management.

2.4. COST STRUCTURE

2.4.1. DEBT TO EQUITY

We can observe an increase of 150% of the

Qualcomm's Debt-to-Equity ratio mainly due to an

increase of the short and long term debt (see Figure 7).

In 2014 the debts with explicit interest rates were 0

(since Qualcomm repaid all its debts). But in 2015

Qualcomm invested in an aggregated long term debt of

$10 billion as well as a short term debt of $1 billion.

The long term aggregated debt is composed of parts

with floating interest rates and parts with fixed interest

rates (rates between 0.43% and 4.74%) and the maturity dates are in 2018-2045. The short term debt

has an interest rate of 0.19% and a maturity of 38 days. These new debts can be partially explained

by the Capital Return Program (cf. time series analysis of dividends above) and especially for the

ASR agreement (stock repurchase program) and also for other corporate purposes. In the future,

Qualcomm intends to request new debts for these reasons.

The company had cash and cash equivalents but the majority of them were available overseas

($25,6 billion at overseas, $5,3 billion in US). Overcapitalization at overseas was another reason for

Qualcomm to issue $10 billion debt (using cash at overseas might lead heavy tax issues for

company), because debt is tax deductible and companys Interest Coverage Ratio is 55,5 that

company can cover interests comfortably with its EBIT (see Table 12).

As a consequence, Debt-to-Equity ratio increases, making Qualcomm riskier (cf. increase of

WACC). If we take a look at Broadcom, we can first notice that this ratio is higher, meaning that

Broadcom is more dependent to debtholder than Qualcomm to raise its capital. But it was not the

Qualcomm Broadcom

2015 0,616986057 1,246924056

2014 0,240208344 2,234967623

0

0,5

1

1,5

2

2,5

Figure 7. Debt-to-Equity per year for Qualcomm and

Broadcom


case in 2011/12/13 because it is mainly due to a new long term debt in 2014 that they repaid partially

in 2015 (thus explaining a decrease of the debt to equity ratio).

Another point that can be highlighted is the fact that Qualcomm operates in two main

activities QCT and QTL which require totally different cost structures (this is the reason why some

shareholders pressure Qualcomm to separate these activities in two different entities). A QCT

activity requires indeed a low debt-to-equity ratio like Mediatek (competitor of Qualcomm in QCT

only) with a ratio of about 10%. On the other hand, InterDigital (a competitor of Qualcomm in QTL

only) has a ratio of about 97%. Qualcomm, with 61%, has a position in the middle which creates

some problems of capital structure management.

Although Qualcomm is contracting new debts

and planning to debt in future, it does not seem

problematic. Because the company has the ability to

recover all of its interest expenses that Qualcomm

can use debt to find right financial mix to fund their operations.

3. VALUE DRIVER ANALYSIS Here is our selection of value drivers to enable Qualcomm to control its activities and choices

with regard to the list of critical success factors that we elaborated in the strategic analysis.

3.1. FINANCIAL PERSPECTIVE

3.1.1. WEIGHTED AVERAGE COST OF CAPITAL (WACC)

This indicator represents the minimum

return that a company must secure to pay its

debtholders and shareholders for the risk they

take by providing capital (cf. financial analysis for more details). We can especially highlight an

increase in 2015 (from about 9% to about 12%) and the fact that Qualcomm overpassed the industry

average of 9.68%.

3.1.2. PAYOUT RATIO

This is an important indicator for industries

where investments are critical because the pressure

from shareholders must be taken into account. For

Qualcomm, even though it is fundamental to invest in

Interest Coverage Ratio 2015 2014

Qualcomm 55,5 1.510

Industry average 37,13 49,26

Table 12. Interest Coverage Ratio of Qualcomm

Purpose Measure the risk of management

Formula

+ + (1 )

+

Purpose

Measure the balance between

investment (fundamental in

the semiconductor industry)

and satisfying shareholders

Formula


order to innovate in a digital fast moving world, we observe that the Capital Return Program is an

important signal of pressure from shareholders that Qualcomm must satisfy (cf. financial analysis for

the calculation).

3.1.3. EFFICIENCY OF INTANGIBLE ASSETS

In the semiconductor industry and even more currently, the management of intangible assets

is crucial. Indeed the value is more and more transferred from hardware to software. Therefore this

indicator enables Qualcomm to check the relevance of its shift in intellectual property and other

intangible assets. For Qualcomm the efficiency of intangible assets decreases between 2014 and

2015 (see Figure 8). According the US Patents and Trademark Office Report, Qualcomm is the

second patents creator in the US (IBM is in the 1st place) [17].

3.1.4. MARKET SHARE

The usual definition of market share is the proportion of revenue in a given market. In the

semiconductor industry, the former executive (and still member of the board of directors) of ST

Microelectronics Pietro Palella said during a conference at Polimi that the profit is closely related to

the market share. It is therefore important to control this variable in order to control the future

profitability and thus ability of investing.

We can see on the chart in Annex 1 that the market share of Qualcomm decreased between

2014 and 2015 as well as the profitability that we explain in the financial analysis section.

Purpose Measure the quality of

investment in

intangible assets

(patents, goodwill,

other IP)

Formula

Purpose Measure the weight of Qualcomm

in the semiconductor industry

Formula Share of revenue (or profitability)

2014 2015

Ratio 1,23089983 0,758052272

0

0,2

0,4

0,6

0,8

1

1,2

1,4

Figure 8. Efficiency of intangible assets per year for Qualcomm


3.2. CUSTOMER PERSPECTIVE

3.2.1. FINAL CUSTOMER SURVEY

Purpose Get feedback about the

quality responsiveness of

the final products (ex:

microprocessor of

smartphones) in order to

increase customer

satisfaction

Formula Qualitative analysis (see

Figure 9)

Unit of analysis Customers of customers of

Qualcomm using the

devices with the

Qualcomm technologies

Frequency For each new

technological release

Source of data Qualitative survey of

customers (can done by

Qualcomms customer and

provided to Qualcomm)

3.2.2. NUMBER OF CLAIMS

Qualcomm has few big customers

(sometimes a customer can also be a competitor if

it is vertically integrated in the value chain) so it

is very important to keep them. Thus getting

feedback from them is a key activity. In 2015,

Qualcomm lost a huge part of its revenue when

Samsung decided to drop Snapdragon 810 [15]

because of an overheating problem. This is the

kind of quality conformance problem that

Qualcomm can avoid by collecting early

feedbacks.

Purpose Get feedback about the

quality conformance of the

products in order to

increase customer

satisfaction

Formula Number of claims

Unit of analysis Customers of Qualcomm

(manufacturer)

Frequency Once a quarter

Source of data Qualitative survey of

customers

Key priority

Keep up

No relevance

Possible overkill

Importan

ce

Grade

Figure 9. Importance-Grade matrix


3.2.3. MAXIMUM DELAY

It is crucial for Qualcomm to manage its

delays and to keep them reasonable. Very long

delays like it occurred with the Snapdragon 810

(one year delay) can be very annoying for

customers which commit to release new product.

For instance Apple, which releases a new iPhone

every year in September, cannot delay it even for

one month.

3.3. INTERNAL PROCESS PERSPECTIVE

3.3.1. FLEXIBILITY RELATED TO THE MIX

For Qualcomm, the ability to change the

composition of the range of products is key since

the digital industry that Qualcomm serves is very

fast moving. With IoT, Qualcomm is for instance

requested to increase its range of low frequency

products (5G standards are based on this

principle). The higher this ratio, the less a company has flexibility. It also increases the risk because

a small variation of the revenue can cause a big variation of the EBIT (Operating Leverage). It

happened to Qualcomm in 2015: a variation of 5% of the revenue resulted in a variation of 23% of

the EBIT even though Qualcomm is a fabless company (it outsources its fabrication). Other than

outsourcing, it is also thanks to its licensing activity that Qualcomm gets more flexible and the

licensing will increase sharply in the coming years according to the economic trends.

3.3.2. SUPPLY CHAIN CONTROL

Qualcomm is a fabless company meaning that

it outsources the fabrication of its QCT

technologies. Therefore, the costs of sales

include the costs paid to third parties for the

production and the delivery of products.

Measuring the evolution of the proportion of

these costs of the revenues is thus a way to see the control it has on its supply chain. In 2015, this

Purpose Avoid big delays that

could make Qualcomm

lose important customers

Formula Maximum delay of

delivery

Unit of analysis Customers of Qualcomm

(manufacturer)

Frequency Once a quarter

Source of data Internal data about delay

(registered by Qualcomm

itself)

Purpose Measure the flexibility to

change the mix of products

Formula

Unit of analysis Proportion of costs

Frequency Once a year

Source of data Annual report

Purpose Measure the independence of

Qualcomm in the value chain

Formula Cost of sales

Unit of analysis $


Source of data Annual report


ratio was 41% compared to 40% in 2014. Despite the bad economic results of Qualcomm in 2015,

Qualcomm was able to keep stable its control over the supply chain. In the Qualcomm sustainability

report, it is also mentioned that Qualcomm strives to decrease conflict by using the conflict free

smelter program (get a picture of the conflicts for mineral resources).

3.4. LEARNING AND GROWTH PERSPECTIVE

3.4.1. EMPLOYEE TRAINING

Training has different objectives. First it increases the global knowledge of employees.

Secondly, it motivates employees to increase the quality of the output. Moreover it is crucial in the

semiconductor industry because it is a fast moving world where being up-to-date is key. As a

consequence, according to a survey conducted in 2009, 97% of Qualcomm employees feel

committed in Qualcomm success (although it decreased compared to 98% in 2006) [11]. We can

notice a significant decrease between 2013 and 2014 (see Figure 10), but this is explained by an

introduction of mandatory courses enrollment in 2013 [14]. Apart from such exceptional events,

Qualcomm tends to maintain stable a minimum amount of training. Qualitatively, we observe an

increase of online courses.

3.4.2. TOP TALENT RECRUITMENT Apart from training, another

way to increase the level of

education is by efficient recruitment.

This aims at increasing the efficiency

and innovativeness of Qualcomm.

For that purpose, Qualcomm

multiplies its partnerships with

Purpose Measure the investment in

training to assure a

constant improvement of

its workforce

Formula

Unit of analysis Hours/employee


Source of data Qualcomm sustainability

report

Purpose Measure of the education of

employees in order to increase

efficiency and innovativeness

Formula

Unit of analysis Hours/employee


Source of data Qualcomm HR data

0

20

40

60

80

2013 2014 2015

Individual contributor Management Executive

Figure 10. Hours of training per employee per year


0,018

0,019

0,02

0,021

0,022

0,023

2013 2014 2015

Universities. In 2014 Qualcomm created at its San Diego headquarters the Qualcomm Thinkabit Lab

to bring student and educators into a dedicated place [12].

3.4.3. INNOVATION FLEXIBILITY (TIME TO MARKET)

Qualcomm plays a major role in new

technologies design. Indeed Qualcomm is

considered as a leader for the 3G, 4G and

recently 5G standards definition and design. To

keep this position, Qualcomm must take care of

its time to market. As an example, the 4G TTM

can be approximated by 5 years (2005-2010) and

the 5G technologies by 7 years (2013-2020) if

Qualcomm sticks to its deadline.

3.5 ENVIRONMENT AND SOCIAL PERSPECTIVE

3.5.1 CO2 EMISSION

The environmental conscious being increasingly important, it is also a serious concern for

Qualcomm, especially because there is more and more attention on this aspect from the customer

perspective but also the final customers (companies such as Samsung and Apple must provide good

green results and thus consider this criterion to choose suppliers). Qualcomm has achieved to

constantly decrease its greenhouse gas (see Figure 11) and its long term objective is to decrease it by

30% by 2025 [14]. Qualcomm supports a global climate agreement in a number of ways, including

as a signatory to the Climate Declaration and by participating in the United Nations Framework

Convention on Climate Change meetings since 2009. To obtain this result, Qualcomm generates

electricity to meet its site needs and utilizes the waste heat to provide cooling to its headquarters

buildings.

Purpose Measure Qualcomms

flexibility to innovate

(large change of Quality)

Formula Time elapsing between the

beginning of design phase

and the first solution sold

Unit of analysis Time

Frequency After each big innovation

release

Source of data Qualcomm internal data

Purpose Measure Qualcomm

environment impact

Formula CO2

Unit of analysis CO2 metric tons


Source of data Qualcomm sustainability

report Figure 11. CO2 emissions per year


3.5.2DONATION Qualcomm has also developed a

philanthropic program which corresponds to the

top of the corporate social responsibility pyramid

to meet stakeholders expectation. As a result,

since 2000, Qualcomm has donated more than

$240 million [9]. This philanthropic program is

focused on region where Qualcomm is present.

4. BALANCE SCORECARD (THIRD GENERATION)

Purpose Measure how much

Qualcomm gives back to

the society

Formula Total donation

Unit of analysis $


Source of data Qualcomm philanthropic

report

Objective Measure Target Possible initiatives

FIN

AN

CIA

L

Risk management WACC

n.a.

9,68%

(industry

average)

Control/improve the costs

structure (Debt-to-equity).

Better cash management

(avoid CFFO instabilities).

Shareholders

pressure impact PAYOUT RATIO

Return

75% of FCFE

Balance shareholders return

and long term investment

(Capital Return Program).

Share repurchasing.

Quality of

investment in

intangible assets

n.a

>1,20 (2014

value)

Reduce time to market.

Get more expertise/efficiency

in R&D.

Weight in the

industry MARKET SHARE

n.a.

increase

Investment in marketing.

Price decrease.

CU

ST

OM

ER

Quality

responsiveness FINAL USER SURVEY -

Integrate result from previous

surveys.

Increase lean practices to be

in touch the final customer

from the beginning of the

design process.

Pressure customers like

Samsung to get data from end

users.

Quality

conformance NB OF CLAIMS 0

Increase control reliability

and frequency.

Increase automation (with

human touch)

Implement 6 sigma and lean

methodologies


Delivery

reliability MAXIMUM DELAY n.a.

Review and improve design

scheduling.

Maintain contact and

pressure suppliers for

production and shipping

deadlines

INT

ER

NA

L

Mix flexibility

n.a.

Increase outsourcing for non-

strategic activities.

Energy and space savings

Supply chain

control

Cost of sales

n.a.

keep stable at

40%

Increase outsourcing for non-

strategic activities.

Decrease conflict through its

conflict free smelter program.

LE

AR

NIN

G A

ND

GR

OW

TH

Employee training

n.a.

Create mandatory session

more regularly to avoid big

changes over time.

Increase online training that

fits well to the workforce.

Increase group training to

develop team spirit.

Top talent

recruitment

n.a.

>20% (recent

and

acceptable

stable value)

Qualcomm developed the

thinkabit Lab at its

headquarters to develop

relations with universities.

Organize conferences in

selected universities

worldwide.

Develop brand equity for a

better attractiveness.

Innovation

flexibility Time to market

n.a.

Collaboration with other

actors to join the research

resources.

Benefit from learning.

Closer relations with

authorities and higher

collaboration to reduce the

long standardization.

EN

VIR

ON

ME

NT

AN

D

SO

CIA

L

Qualcomm

environment

impact

CO2

Reduce by

30% by 2025

Qualcomm supports global

climate agreements

(participation in the United

Nations Framework

Convention on Climate

Change meetings since

2009).

Reduce consumption of

carbon fuels.

Self-generation of electricity

to meet site needs.


5. RISK CATALOGUE

Market Industry

Losing power on licensing business (market share)

Qualcomms competitor Broadcom effects the operating margins

(2015) the reduction of the margins is around 20%.

M1

New advances in CDMA can affect the QCT volume M2

Low costs Asian chip producer competitors (Mediatek) M3

Vertical integration of customers (Apple and Samsung in-house

production)

M4

Management Innovations from competitors Man1

Operations Management

and Production/Logistics

Forward vertical integration of suppliers O1

Sustainability of patents (continuous patents generation) O2

Strategy/Marketing/Sales Investments in evolving technology S1

Organization/IT/Corporate QCT/QTL merged versus splitting C1

Shareholders pressure C2

Finance As the mobile phone market starts showing signs of maturity,

Qualcomm's future growth is at risk.

F1

Human Resources Decrease of competences/education HR1

Legal Fines (example: China) L1

Royalty payments L2

Risk Factor Type Impact(1-

3)

Probability(0-

1)

Market Industry

M1 3 0,5

M2 2 0,4

M3 3 0,7

M4 2 0,5

Management Man1 1 0,1

Operations Management

and Production/Logistics

O1 2 0,2

O2 3 0,2

Strategy/Marketing/Sales S1 3 0,1

Organization/IT/Corporate C1 2 0,1

C2 3 0,5

Qualcomm

philanthropic

activity

Total donation

n.a

$16

million/year

(average rate

sofar)

Qualcomm participates

(follower) or creates (leader)

donation programs or

communities.

Qualcomm developed an

employee volunteer program

(QCares) to encourage

employees.

M1 , C2

M2

M3

M4

Man1

O1 O2

S1C1

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0 1 2 3 4

http://www.investopedia.com/articles/markets/020316/biggest-risks-investing-qualcomm-stock-qcom-brcm.asphttp://www.investopedia.com/articles/markets/020316/biggest-risks-investing-qualcomm-stock-qcom-brcm.aspfile:///C:/Users/Rubn/Downloads/The%20Biggest%20Risks%20of%20Investing%20in%20Qualcomm%20Stock%20(QCOM,%20BRCM)%20|%20Investopedia%20http:/www.investopedia.com/articles/markets/020316/biggest-risks-investing-qualcomm-stock-qcom-brcm.asp%23ixzz4TWh92eq0


6. METHOD SELECTION First of all, for the choice of indicators and value drivers, the explanation is dedicated and

mentioned throughout this report.

Time Horizon

We have decided to conduct the financial analysis for 2 periods (2014 and 2015) in order to

measure the evolution of Qualcomms financial choices and results. Although Qualcomm 2016

annual report was available since the beginning of our analysis it wasnt the case of some

competitors and especially Broadcom (our main competitor). For some indicators, it was useful to

consider 2016 for the purpose of showing future effects (for instance for the shareholders return

program). We started in 2014 because it was the beginning of a huge collapse of Qualcomms stock

value that we wanted to analyze.

Competitors

Our main competitor is Broadcom since it has a similar structure and strategy with QCT and

QTL businesses. For some financial indicators, we have enlarged out competitors panel for more

relevance (for instance, we used a large panel of competitors for the market share in order to cover

the whole market).

Value Drivers Framework

As a framework for the value drivers analysis, our choice was to use the balance scorecard.

2015 was indeed a transition year for Qualcomm so that no clear strategy can be extracted to explain

the choices of Qualcomm. In the coming years, Qualcomm will make it clearer. Moreover we used

the third generation of BSC in order to link the value drivers to list some alternatives to achieve its

targets. Last but not least, we considered a sustainability quadrant since it is fundamental nowadays

(growing conscious) and especially in the semiconductor industries as it requires a high level of

critical raw materials.

7. CRITICAL ANALYSIS

Based on value tree of company in Figure 12, it can be concluded that Qualcomm (QCOM) is

still capable of creating value although its low performance during 2015, which was a transition year

for the company [18].

From the cost of capital point of view, 3% increase in the companys WACC means that for

every dollar the company spends on an investment, the company must make additional 3 cent

(compare to 2014) plus the cost of investment to make investment feasible for the company. As a


result it can be said that QCOM s operations become riskier; therefore, it might be considered less

attractive for investors compared to 2014. This is negative considering the importance of investment

in this kind of industry.

Figure 12. Value tree for Qualcomm

In terms of revenues, companys QCT segment (main revenue provided by this segment) lost

its market share and thus overall companys value affected negatively. Despite drop in its value,

QCOM has an important advantage to change its current situation, Time to Market (innovation

flexibility) that provide strong position to QCOM in the industry at past, now and probably in the

future. The company is leader in technologies used widely as standards in communication

technologies (such as 3G and 4G) and it is also one of the precursors of 5G. Moreover, in order to

sustain innovative climate of company, QCOM tries to attract top talent employees. By doing this,

company expect to generate more value in the future.

On the other hand, QCOM should manage its delays (maximum delay) and number of claims

better to prevent drop in its revenues. Both delay and overheating problems in Snapdragon 810

Ente

rpri

se V

alu

e

(EV

)

Cost of Capital

WACC

Terminal Value

Net Cash Flow

Cash Flows EBITDA

Revenues

Equipment and Services

Market Share

Time to Market

Claim Number

Maximum Delay

Licensing

Quality of Investments

Top Talent Recruitment

Mix Flexibility

Expenses

R&D Expenses

Final Customer Survey

Top Talent Recruitment

Selling & General

ExpensesEmployee Training

Cost of sales

Supply Chain Control

Other Expenses

Invested Capital

OWC

Fixed Assets

Payout Ratio


harmed QCOM s image, and company lost its important customer, Samsung, for the S6 model,

which had an huge impact on companys revenues in a negative way. Although, companys overall

revenues decreased in 2015, QTL segments revenues have been increasing. The reason is mostly

about growth in flexibility for QTL segment due to its licensing activities. However, in 2015,

although revenues from QTL segment increased, quality of investments in intangible assets

decreased that affected companys value negatively. Efficiency of Intangible Assets is really

important for company because QCOM is the second patent creator in US after IBM [17].

For QCOM s expenses, three main sources can be identified: R&D, Selling,General and

Administrative(SG&A) and Cost of Sales expenses. Firstly, for R&D, the final customer survey is a

source of expense to create value. QCOM spends capital to this survey to develop its performance.

The results of this tool are used as feedback to enhance the quality of the products and services. If

company can better align with its final customer, it can generate more value for itself. Also, as

development expense, Top Talent Recruitment can be seen as expense for company in the short term.

However, as we discussed above, in the long term, it is important for sustaining innovative climate

and generating value for company.

Secondly, for the SG&A expenses, it is possible to see that QCOMs employees receive

training every year (20 hours in average). Although this item is considered as an expense for the

company, it is also a way to increase the value of the company because it allows employees to update

their knowledge, which can also lead to increase in revenues of companies. Finally, for the Cost of

Sales, the Supply Chain Control is one of the main strengths in QCOMs internal process. In 2015,

the company demonstrated a solid and stable control over the supply chain, which contributed in the

generation of value for the company.

From the Invested Capital point of view, it can be observed that the Payout Ratio increased

compared to past years although companys net profit decreased in 2015. Since, QCOM paid more

dividends to its shareholders (due to shareholders pressure) instead of investing more, so it was

negative situation in terms of QCOMs enterprise value.

To sum up, based on our research, financial and strategic analysis, it turns out that 2015 was a

transitional year for QCOM that has to make its direction clearer in terms of activities (QCT vs

QTL), volume (M&A or other ways of horizontal/vertical integration) and geographical location. For

this purpose, QCOM has some alternatives like the merge with Intel, seen as a potential win-win

operation although it would create anti-monopoly problems [19], or the split of QCT and QTL in

order to have dedicated strategies and dashboards and therefore being more efficient.


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[20]http://www.gurufocus.com/term/wacc/QCOM/Weighted%2BAverage%2BCost%2BOf%2BCapi

tal%2B%2528WACC%2529/Qualcomm%2BInc)

https://www.statista.com/statistics/270590/global-revenue-generated-by-semiconductor-vendors-since-2009/https://www.statista.com/statistics/270590/global-revenue-generated-by-semiconductor-vendors-since-2009/http://marketrealist.com/2015/12/qualcomm-gets-majority-profits-licensing-business/http://uk.businessinsider.com/qualcomm-to-pay-nearly-1-billion-to-end-chinese-antitrust-suit-2015-2?r=US&IR=Thttp://uk.businessinsider.com/qualcomm-to-pay-nearly-1-billion-to-end-chinese-antitrust-suit-2015-2?r=US&IR=Thttp://www.wsj.com/articles/qualcomm-settles-china-probe-1423518143http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htmhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjYl8LfkOzQAhXCShQKHVwQCAsQFggkMAE&url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2Fdotcom%2Fclient_service%2Fsemiconductors%2Fpdfs%2Fmosc_1_revised.ashx&usg=AFQjCNHRZPaT50NgCWkGx0VR3EzWR00kgQhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjYl8LfkOzQAhXCShQKHVwQCAsQFggkMAE&url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2Fdotcom%2Fclient_service%2Fsemiconductors%2Fpdfs%2Fmosc_1_revised.ashx&usg=AFQjCNHRZPaT50NgCWkGx0VR3EzWR00kgQhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjYl8LfkOzQAhXCShQKHVwQCAsQFggkMAE&url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2Fdotcom%2Fclient_service%2Fsemiconductors%2Fpdfs%2Fmosc_1_revised.ashx&usg=AFQjCNHRZPaT50NgCWkGx0VR3EzWR00kgQhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjYl8LfkOzQAhXCShQKHVwQCAsQFggkMAE&url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2Fdotcom%2Fclient_service%2Fsemiconductors%2Fpdfs%2Fmosc_1_revised.ashx&usg=AFQjCNHRZPaT50NgCWkGx0VR3EzWR00kgQhttps://www.qualcomm.com/company/sustainability/value-chain/societyhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwj49o-6rOzQAhWBXhoKHTnoCQ4QFgghMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2Fcsr-report-employees-and-workplace-2006.pdf&usg=AFQjCNFJ_X9WQIOCfK7XnKv8WBmE2K9HjAhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwj49o-6rOzQAhWBXhoKHTnoCQ4QFgghMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2Fcsr-report-employees-and-workplace-2006.pdf&usg=AFQjCNFJ_X9WQIOCfK7XnKv8WBmE2K9HjAhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwj49o-6rOzQAhWBXhoKHTnoCQ4QFgghMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2Fcsr-report-employees-and-workplace-2006.pdf&usg=AFQjCNFJ_X9WQIOCfK7XnKv8WBmE2K9HjAhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwj49o-6rOzQAhWBXhoKHTnoCQ4QFgghMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2Fcsr-report-employees-and-workplace-2006.pdf&usg=AFQjCNFJ_X9WQIOCfK7XnKv8WBmE2K9HjAhttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjIxpTyrOzQAhVD1RoKHWYOB3UQFggfMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2F2009-sustainability-report-workplace.pdf&usg=AFQjCNGEqsH6kJBKhR4FxxnR2rCUNs02KA&bvm=bv.141320020,d.d2shttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjIxpTyrOzQAhVD1RoKHWYOB3UQFggfMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2F2009-sustainability-report-workplace.pdf&usg=AFQjCNGEqsH6kJBKhR4FxxnR2rCUNs02KA&bvm=bv.141320020,d.d2shttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjIxpTyrOzQAhVD1RoKHWYOB3UQFggfMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2F2009-sustainability-report-workplace.pdf&usg=AFQjCNGEqsH6kJBKhR4FxxnR2rCUNs02KA&bvm=bv.141320020,d.d2shttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjIxpTyrOzQAhVD1RoKHWYOB3UQFggfMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2F2009-sustainability-report-workplace.pdf&usg=AFQjCNGEqsH6kJBKhR4FxxnR2rCUNs02KA&bvm=bv.141320020,d.d2shttps://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjIxpTyrOzQAhVD1RoKHWYOB3UQFggfMAE&url=https%3A%2F%2Fwww.qualcomm.com%2Fmedia%2Fdocuments%2Ffiles%2F2009-sustainability-report-workplace.pdf&usg=AFQjCNGEqsH6kJBKhR4FxxnR2rCUNs02KA&bvm=bv.141320020,d.d2shttps://www.qualcomm.com/company/sustainability/priorities/stem-educationhttps://www.qualcomm.com/media/documents/files/2014-gri-content-index.pdfhttps://www.qualcomm.com/documents/2015-qualcomm-sustainability-reporthttp://wccftech.com/samsung-drop-snapdragon-810-cpu-galaxy-s6-overheating-source-bloomberg/http://wccftech.com/samsung-drop-snapdragon-810-cpu-galaxy-s6-overheating-source-bloomberg/http://uk.businessinsider.com/why-apple-raised-65-billion-in-debt-2015-2?r=US&IR=Thttp://www.semiconductors.org/issues/patents/intellectual_property/https://www.stock-analysis-on.net/NASDAQ/Company/Qualcomm-Inc/Valuation/Enterprise-Valuehttps://www.stock-analysis-on.net/NASDAQ/Company/Qualcomm-Inc/Valuation/Enterprise-Valuehttp://mark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ANNEX Annex 1: revenues in the semiconductor industry

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2014

Intel Samsung SK Hynix Qualcomm

Micron Texas Instruments Toshiba Broadcom

STM Infineon Others


Annex 2: Qualcomm revenues from international markets

53 50 49

16 23 20

1311

11

18 16 20

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2014 2013

Revenues from International Markets

China South Korea Taiwan Others


Annex 3: ROE of the industry

Qualcomm Intel Texas Instrument Broadcom Industry

2015 16,8 17,82 19,71 8,55 6,94

2014 20,3 20,36 23,47 20,97 19,52

0

5

10

15

20

25

Ekse

n B

al

R O E O F I N D U S T RY


Annex 4: stock value variation


Annex 5: formulas for the financial analysis

- Cost of capital

=

+ + (1 )

+

[20]

- Residual Income =

- Invested capital = + +

- Return On Equity

=

- Payout Ratio

=

( )

- Quick Ration

=

+ +

- Debt To Equity

=

- Cash Flow to Debt

=

+


Annex 6: Porters 5 forces Internal rivalry: Very Intense

- Qualcomm is the leader but threatened by M&A between other actors.

Threat of New Entrants: Quite Low

- New entrants are essentially low costs players but as Qualcomm is the leader, the effect is

negligible.

Threat of Substitutes: High

- New satellite systems and GSM product can replace the CDMA technology. There are other

threatening substitutes like wireless technologies and land based phone services.

Bargaining Power of Buyers: High

- The high concentration of customers increases the dependency on them on the power of the buyers.

It is thus recommended to Qualcomm to increase its base of customers in order to reduce the impact

of losing one.

Bargaining Power of Suppliers: Moderate

- Qualcomm has an important number of patents, increasing its bargaining power over its suppliers.

- But Qualcomm is assembling components coming from suppliers. If these suppliers collaborate

also with Qualcomm's competitors, it could increase the delivery time of the components, reducing

the efficiency of Qualcomm.

qualcomm financial analysis report

Documents