qcom-20230326

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________

FORM 10-Q

_____________________

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 26, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 0-19528

QUALCOMM Incorporated

(Exact name of registrant as specified in its charter)

Delaware

95-3685934

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

5775 Morehouse Dr., San Diego, California

92121-1714

(Address of Principal Executive Offices)

(Zip Code)

(858) 587-1121

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	QCOM	Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock was 1,114 million at May 1, 2023.

QUALCOMM Incorporated

Form 10-Q

For the Quarter Ended March 26, 2023


		Page
	Risk Factors Summary	4

PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations	7
	Condensed Consolidated Statements of Comprehensive Income	8
	Condensed Consolidated Statements of Cash Flows	9
	Condensed Consolidated Statements of Stockholders’ Equity	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

SIGNATURES		54

Risk Factors Summary:

Our business is subject to numerous risks and uncertainties, including those described in the section labeled “Risk Factors” in “Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report. These risks include, but are not limited to, the following:

RISKS RELATED TO OUR OPERATING BUSINESSES

•We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected.

•Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).

•A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.

RISKS RELATED TO NEW INITIATIVES

•Our growth depends in part on our ability to extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets. Our research, development and other investments in these new and expanded product areas, industries and applications, and related technologies and products, as well as in our existing technologies and products, and new technologies, may not generate operating income or contribute to future results of operations that meet our expectations.

•We may engage in acquisitions and other strategic transactions or make investments, or be unable to consummate planned strategic acquisitions, which could adversely affect our results of operations or fail to enhance stockholder value.

RISKS RELATED TO SUPPLY AND MANUFACTURING

•We depend on a limited number of third-party suppliers for the procurement, manufacture, assembly and testing of our products manufactured in a fabless production model. If we fail to execute supply strategies that provide supply assurance, technology leadership and reasonable margins, our business and results of operations may be harmed. We are also subject to order and shipment uncertainties that could negatively impact our results of operations.

•There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises, geopolitical conflicts and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues.

RISKS RELATED TO CYBERSECURITY OR MISAPPROPRIATION OF OUR CRITICAL INFORMATION

•Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.

RISKS RELATED TO HUMAN CAPITAL MANAGEMENT

•We may not be able to attract and retain qualified employees, and recent changes to our hybrid work model may not be successful.

RISKS SPECIFIC TO OUR LICENSING BUSINESS

•The continued and future success of our licensing programs requires us to continue to evolve our patent portfolio and to renew or renegotiate license agreements that are expiring.

•Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business.

•Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations.

RISKS RELATED TO REGULATORY AND LEGAL CHALLENGES

•Our business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings.

RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION

•Our revenues depend on our customers’ and licensees’ sales of products and services based on CDMA, OFDMA and other communications technologies, including 5G, and customer demand for our products based on these technologies.

•Our industry is subject to intense competition in an environment of rapid technological change. Our success depends in part on our ability to adapt to such change and compete effectively; and such change and competition could result in decreased demand for our products and technologies or declining average selling prices for our products or those of our customers or licensees.

RISKS RELATED TO PRODUCT DEFECTS OR SECURITY VULNERABILITIES

•Failures in our products, or in the products of our customers or licensees, including those resulting from security vulnerabilities, defects or errors, could harm our business.

RISKS RELATED TO INTELLECTUAL PROPERTY

•The enforcement and protection of our intellectual property may be expensive, could fail to prevent misappropriation or unauthorized use of our intellectual property, could result in the loss of our ability to enforce one or more patents, and could be adversely affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property and by ineffective enforcement of laws in such jurisdictions.

•Claims by other companies that we infringe their intellectual property could adversely affect our business.

•Our use of open source software may harm our business.

GENERAL RISK FACTORS

•The COVID-19 pandemic, or a similar health crisis, may impact our business or results of operations in the future.

•We operate in the highly cyclical semiconductor industry, which is subject to significant downturns. We are also susceptible to declines in global, regional and local economic conditions generally. Our stock price and financial results are subject to substantial quarterly and annual fluctuations due to these dynamics, among others.

•Our business may suffer due to the impact of, or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are subject.

•There are risks associated with our debt.

•Tax liabilities could adversely affect our results of operations.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUALCOMM Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value amounts)

(Unaudited)


	March 26, 2023		September 25, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	3,488	$	2,773
Marketable securities	3,188		3,609
Accounts receivable, net	3,691		5,643
Inventories	6,858		6,341

Held for sale assets	816		733
Other current assets	1,032		1,625
Total current assets	19,073		20,724

Deferred tax assets	2,477		1,803
Property, plant and equipment, net	5,281		5,168
Goodwill	10,579		10,508
Other intangible assets, net	1,727		1,882
Held for sale assets	1,251		1,200
Other assets	7,974		7,729
Total assets	$	48,362	$	49,014

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	1,430	$	3,796
Payroll and other benefits related liabilities	1,227		1,486
Unearned revenues	277		369
Short-term debt	499		1,945

Held for sale liabilities	648		581
Other current liabilities	3,785		3,689
Total current liabilities	7,866		11,866
Unearned revenues	104		144
Income taxes payable	1,084		1,472
Long-term debt	15,486		13,537

Held for sale liabilities	116		119
Other liabilities	4,008		3,863
Total liabilities	28,664		31,001

Commitments and contingencies (Note 6)

Stockholders’ equity:

Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding	—		—
Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,114 and 1,121 shares issued and outstanding, respectively	—		195
Retained earnings	19,280		17,840
Accumulated other comprehensive income (loss)	418		(22)


Total stockholders’ equity	19,698		18,013
Total liabilities and stockholders’ equity	$	48,362	$	49,014

See accompanying notes.

QUALCOMM Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Revenues:
Equipment and services	$	7,846	$	9,417	$	15,630	$	18,098
Licensing	1,429		1,747		3,108		3,770
Total revenues	9,275		11,164		18,738		21,868

Costs and expenses:
Cost of revenues	4,153		4,648		8,197		8,951
Research and development	2,210		2,034		4,461		3,963
Selling, general and administrative	614		624		1,238		1,232
Other	208		—		288		—
Total costs and expenses	7,185		7,306		14,184		14,146

Operating income	2,090		3,858		4,554		7,722
Interest expense	(179)		(137)		(348)		(275)
Investment and other (expense) income, net	(16)		(298)		60		(158)
Income from continuing operations before income taxes	1,895		3,423		4,266		7,289
Income tax expense	(193)		(489)		(291)		(956)
Income from continuing operations	1,702		2,934		3,975		6,333
Discontinued operations, net of income taxes	2		—		(36)		—


Net income	$	1,704	$	2,934	$	3,939	$	6,333

Basic earnings (loss) per share:
Continuing operations	$	1.53	$	2.61	$	3.55	$	5.63
Discontinued operations	—		—		(0.03)		—
Net income	$	1.53	$	2.61	$	3.52	$	5.63
Diluted earnings (loss) per share:
Continuing operations	$	1.52	$	2.57	$	3.52	$	5.55
Discontinued operations	—		—		(0.03)		—
Net income	$	1.52	$	2.57	$	3.49	$	5.55
Shares used in per share calculations:
Basic	1,116		1,125		1,119		1,124
Diluted	1,123		1,140		1,127		1,141

See accompanying notes.

QUALCOMM Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Net income	$	1,704	$	2,934	$	3,939	$	6,333
Other comprehensive income, net of income taxes:
Foreign currency translation gains (losses)	72		(41)		234		(83)
Net unrealized gains (losses) on available-for-sale debt securities	21		(61)		36		(80)
Net unrealized gains on derivative instruments	16		270		134		272
Other gains	6		—		6		—
Other reclassifications included in net income	10		(11)		30		(22)
Total other comprehensive income	125		157		440		87
Comprehensive income	$	1,829	$	3,091	$	4,379	$	6,420

See accompanying notes.

QUALCOMM Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Six Months Ended
	March 26, 2023		March 27, 2022
Operating Activities:
Net income from continuing operations	$	3,975	$	6,333
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	868		834

Income tax provision less than income tax payments	(631)		(403)


Share-based compensation expense	1,262		994
Net (gains) losses on marketable securities and other investments	(45)		213

Impairment losses on other investments	101		21

Other items, net	16		(56)
Changes in assets and liabilities:
Accounts receivable, net	1,964		(501)
Inventories	(396)		(1,337)
Other assets	615		(1,812)
Trade accounts payable	(2,358)		979
Payroll, benefits and other liabilities	(672)		(371)
Unearned revenues	(86)		(139)
Net cash used by operating activities from discontinued operations	(61)		—
Net cash provided by operating activities	4,552		4,755
Investing Activities:
Capital expenditures	(851)		(1,074)
Purchases of debt and equity marketable securities	(22)		(936)
Proceeds from sales and maturities of debt and equity marketable securities	491		1,563






Acquisitions and other investments, net of cash acquired	(61)		(288)

Proceeds from sales of property, plant and equipment	121		—
Proceeds from other investments	11		97
Other items, net	(4)		—
Net cash used by investing activities from discontinued operations	(42)		—
Net cash used by investing activities	(357)		(638)
Financing Activities:
Proceeds from short-term debt	4,668		1,462
Repayment of short-term debt	(4,668)		(1,462)

Proceeds from long-term debt	1,880		—
Repayment of long-term debt	(1,446)		—

Proceeds from issuance of common stock	232		187
Repurchases and retirements of common stock	(2,173)		(2,129)
Dividends paid	(1,676)		(1,529)
Payments of tax withholdings related to vesting of share-based awards	(332)		(562)


Other items, net	(43)		(11)

Net cash used by financing activities	(3,558)		(4,044)

Effect of exchange rate changes on cash and cash equivalents	46		(16)
Net increase in total cash and cash equivalents	683		57
Total cash and cash equivalents at beginning of period (including $326 million classified as held for sale at September 25, 2022)	3,099		7,116
Total cash and cash equivalents at end of period (including $294 million classified as held for sale at March 26, 2023)	$	3,782	$	7,173

See accompanying notes.

QUALCOMM Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share data)

(Unaudited)


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Total stockholders’ equity, beginning balance	$	18,810	$	11,333	$	18,013	$	9,950

Common stock and paid-in capital:
Balance at beginning of period	$	—	$	—	$	195	$	—
Common stock issued under employee benefit plans	194		186		232		187
Repurchases and retirements of common stock	(827)		(640)		(1,418)		(662)
Share-based compensation	656		516		1,323		1,037
Tax withholdings related to vesting of share-based payments	(23)		(62)		(332)		(562)

Balance at end of period	—		—		—		—

Retained earnings:
Balance at beginning of period	18,517		11,275		17,840		9,822

Net income	1,704		2,934		3,939		6,333
Repurchases and retirements of common stock	(76)		(311)		(755)		(1,467)
Dividends	(865)		(785)		(1,744)		(1,575)
Balance at end of period	19,280		13,113		19,280		13,113

Accumulated other comprehensive income (loss):
Balance at beginning of period	293		58		(22)		128

Other comprehensive income	125		157		440		87
Balance at end of period	418		215		418		215

Total stockholders’ equity, ending balance	$	19,698	$	13,328	$	19,698	$	13,328

Dividends per share announced	$	0.75	$	0.68	$	1.50	$	1.36

See accompanying notes.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation and Significant Accounting Policies Update

Financial Statement Preparation. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. These condensed consolidated financial statements are unaudited and should be read in conjunction with our Annual Report on Form 10-K for our fiscal year ended September 25, 2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. We operate and report using a 52-53 week fiscal year ending on the last Sunday in September. Each of the three and six months ended March 26, 2023 and March 27, 2022 included 13 weeks and 26 weeks, respectively.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2. Composition of Certain Financial Statement Items


Inventories (in millions)
	March 26, 2023		September 25, 2022
Raw materials	$	219	$	221
Work-in-process	4,248		3,329
Finished goods	2,391		2,791
	$	6,858	$	6,341

Revenues. We disaggregate our revenues by segment (Note 7), by products and services (as presented on our condensed consolidated statement of operations), and for our QCT (Qualcomm CDMA Technologies) segment, by revenue stream, which is based on the industry and application in which our products are sold (as presented below). Beginning in the first quarter of fiscal 2023, QCT RFFE (radio frequency front-end) revenues, which were previously presented as a separate revenue stream, are now included within our Handset, Automotive and internet of things (IoT) revenue streams, as applicable, based on the industry and application in which the related RFFE products are sold. Prior period information has been recast to reflect this change. RFFE revenues include revenues from the sale of 4G, 5G sub 6 and 5G millimeter wave RFFE products (a substantial portion of which relate to mobile handsets) and exclude radio frequency transceiver components. This change aligns with changes made to our internal reporting of revenues. We believe this change provides a more meaningful presentation in understanding QCT revenues going forward, as we expect RFFE revenues to correspond with trends in Handsets, Automotive and IoT (as applicable) and is more consistent with how our revenue diversification is viewed externally. In certain cases, the determination of QCT revenues by industry and application requires the use of certain assumptions. Substantially all of QCT’s revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s (Qualcomm Technology Licensing) revenues represent licensing revenues that are recognized over time and are principally from royalties generated through our licensees’ sales of mobile handsets.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

QCT revenue streams were as follows (in millions):


			Three Months Ended				Six Months Ended
	March 26, 2023	March 27, 2022	March 26, 2023		March 27, 2022


Handsets (1)			$	6,105	$	7,349	$	11,860	$	14,338


Automotive (2)			447		371		903		659
IoT (3)			1,390		1,828		3,071		3,398
Total QCT revenues			$	7,942	$	9,548	$	15,834	$	18,395

(1) Includes revenues from products sold for use in mobile handsets.

(2) Includes revenues from products sold for use in automobiles, including connectivity, digital cockpit and advanced driver assistance systems (ADAS) and automated driving (AD).

(3) Primarily includes products sold for use in the following industries and applications: consumer (including computing, voice and music and extended reality (XR)), edge networking (including mobile broadband and wireless access points) and industrial (including handhelds, retail, transportation and logistics and utilities).

Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods generally include certain QCT sales-based royalty revenues related to system software, certain amounts related to QCT customer incentives and QTL royalty revenues recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, which includes the impact of the reporting by our licensees of actual royalties due) and were as follows (in millions):


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Revenues recognized from previously satisfied performance obligations	$	170	$	185	$	337	$	367

Unearned revenues (which are considered contract liabilities) consist primarily of certain customer contracts for which QCT received fees upfront and QTL license fees for intellectual property with continuing performance obligations. In the six months ended March 26, 2023 and March 27, 2022, we recognized revenues of $241 million and $340 million, respectively, that were recorded as unearned revenues at September 25, 2022 and September 26, 2021, respectively.

Remaining performance obligations, which are primarily included in unearned revenues (as presented on our condensed consolidated balance sheet), represent the aggregate amount of the transaction price of certain customer contracts yet to be recognized as revenues as of the end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements.

Concentrations. A significant portion of our revenues are concentrated with a small number of customers/licensees of our QCT and QTL segments. The comparability of customer/licensee concentrations for the interim periods presented are impacted by the timing of customer/licensee device launches and/or innovation cycles and other seasonal trends, among other fluctuations in demand. Revenues from each customer/licensee that were 10% or greater of total revenues were as follows:


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Customer/licensee (x)	27	%	19	%	31	%	22	%
Customer/licensee (y)	25		19		19		19
Customer/licensee (z)	*		10		*		*

*Less than 10%

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Expenses. Other expenses in the three and six months ended March 26, 2023 consisted of $208 million and $288 million, respectively, in restructuring and restructuring-related charges, substantially all of which related to severance costs, resulting from certain cost reduction initiatives committed to in fiscal 2023. We expect these actions to be substantially completed (including payments of the related severance) by the end of fiscal 2023. We may incur additional restructuring and restructuring-related charges, as the actual amount of costs may differ from our current expectations and estimates, and as we further evaluate our operating expenses.


Investment and Other (Expense) Income, Net (in millions)
	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Interest and dividend income	$	59	$	20	$	114	$	37
Net gains (losses) on marketable securities	9		(240)		20		(223)
Net (losses) gains on other investments	—		(21)		—		73

Net gains (losses) on deferred compensation plan assets	21		(43)		47		(30)
Impairment losses on other investments	(87)		(20)		(101)		(21)



Other	(18)		6		(20)		6
	$	(16)	$	(298)	$	60	$	(158)

Note 3. Income Taxes

We estimate our annual effective income tax rate to be 8% for fiscal 2023, which is lower than the U.S. federal statutory rate, primarily due to (i) a significant portion of our income qualifying for preferential treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate, which includes certain benefits discussed below from the new requirement to capitalize research and development expenditures for federal income tax purposes, (ii) benefits from our federal research and development tax credit and (iii) benefits related to foreign currency gains on a noncurrent receivable related to our refund claim of Korean withholding tax. Our effective tax rate of 10% for the second quarter of fiscal 2023 was higher than our estimated annual effective tax rate of 8% primarily due to foreign currency gains realized in the first quarter of fiscal 2023 on a noncurrent receivable related to our refund claim of Korean withholding tax.

Beginning in fiscal 2023, for federal income tax purposes, we are required to capitalize and amortize domestic research and development expenditures over five years and foreign research and development expenditures over fifteen years (such expenditures were previously deducted as incurred). Our cash flows from operations will be adversely affected due to significantly higher cash tax payments. However, since the resulting deferred tax asset is established at the statutory rate of 21% (rather than the effective tax rate of 13% to 16% after considering the FDII deduction), capitalization favorably affects our provision for income taxes and results of operations. The adverse cash flow impact and favorable tax provision impact will diminish in future years as capitalized research and development expenditures continue to amortize.

Income taxes payable (recorded in other current liabilities) were $1.3 billion and $634 million at March 26, 2023 and September 25, 2022, respectively. This increase was primarily due to the recent announcement (IR-2023-33) by the Internal Revenue Service (IRS), which postponed our remaining current year U.S. federal income tax-payment deadlines until October 2023.

Note 4. Capital Stock

Stock Repurchase Program. On October 12, 2021, we announced a $10.0 billion stock repurchase program. The stock repurchase program has no expiration date. At March 26, 2023, $5.9 billion remained authorized for repurchase under our stock repurchase program.

Shares Outstanding. Shares of common stock outstanding at March 26, 2023 were as follows (in millions):


Balance at September 25, 2022			1,121
Issued			11
Repurchased			(18)
Balance at March 26, 2023			1,114

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Dividends. On March 8, 2023, we announced a 7% increase in our quarterly dividend per share of common stock from $0.75 to $0.80, which is effective for dividends payable after March 23, 2023. On April 12, 2023, we announced a cash dividend of $0.80 per share on our common stock, payable on June 22, 2023 to stockholders of record as of the close of business on June 1, 2023.

Earnings Per Common Share. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed by dividing net income by the combination of the weighted-average number of common shares outstanding and the weighted-average number of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans, during the reporting period. The following table provides information about the diluted earnings per share calculation (in millions):


	Three Months Ended		Six Months Ended
	March 26, 2023	March 27, 2022	March 26, 2023	March 27, 2022
Dilutive common share equivalents included in diluted shares	7	16	8	17
Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period	5	—	5	—

Note 5. Debt

Long-term Debt. In November 2022, we issued unsecured fixed-rate notes, consisting of $700 million of fixed-rate 5.40% notes and $1.2 billion of fixed-rate 6.00% notes (collectively, November 2022 Notes) that mature on May 20, 2033 and May 20, 2053, respectively. The net proceeds from the November 2022 Notes were used to repay $946 million of fixed-rate notes and $500 million of floating-rate notes that matured in January 2023 and the excess will be used for general corporate purposes.

At March 26, 2023, the aggregate fair value of our outstanding floating- and fixed-rate notes, based on Level 2 inputs, was approximately $15.1 billion.

Interest Rate Swaps. At September 25, 2022, we had outstanding forward-starting interest rate swaps with an aggregate notional amount, denominated in U.S. dollars, of $1.6 billion. During the first quarter of fiscal 2023, in connection with the issuance of the November 2022 Notes, we terminated these swaps, and the related gains of $334 million, included within accumulated comprehensive income, are being recorded as a reduction to interest expense over the hedged portions of the related debt.

Commercial Paper Program. We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. At March 26, 2023 and September 25, 2022, we had $499 million of outstanding commercial paper recorded as short-term debt.

Note 6. Commitments and Contingencies

Legal and Regulatory Proceedings.

Consolidated Securities Class Action Lawsuit: On January 23, 2017 and January 26, 2017, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our then current and former officers and directors. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact in connection with certain allegations that we are or were engaged in anticompetitive conduct. The complaints sought unspecified damages, interest, fees and costs. On May 4, 2017, the court consolidated the two actions, and on July 3, 2017, the plaintiffs filed a consolidated amended complaint asserting the same basic theories of liability and requesting the same basic relief. On May 23, 2022, the plaintiffs filed a motion for class certification, and a hearing on the motion was held on October 19, 2022. On March 20, 2023, the court issued an order granting in part and denying in part the plaintiffs’ motion for class certification. The order denied class certification on the basis of alleged misrepresentations relating to our chip-level licensing practices, but certified a class on the basis of alleged misrepresentations relating to the separate operations of QCT and QTL. No trial date has been set.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On April 3, 2023, we filed a petition with the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) seeking permission to appeal the district court’s class certification order. We believe the plaintiffs’ claims are without merit.

Consumer Class Action Lawsuits: Beginning in January 2017, a number of consumer class action complaints were filed against us in the United States District Courts for the Southern and Northern Districts of California, each on behalf of a putative class of purchasers of cellular phones and other cellular devices. In April 2017, the Judicial Panel on Multidistrict Litigation transferred the cases that had been filed in the Southern District of California to the Northern District of California. On July 11, 2017, the plaintiffs filed a consolidated amended complaint alleging that we violated California and federal antitrust and unfair competition laws by, among other things, refusing to license standard-essential patents to our competitors, conditioning the supply of certain of our baseband chipsets on the purchaser first agreeing to license our entire patent portfolio, entering into exclusive deals with companies, including Apple Inc., and charging unreasonably high royalties that do not comply with our commitments to standard setting organizations. The complaint sought unspecified damages and disgorgement and/or restitution, as well as an order that we be enjoined from further unlawful conduct. On July 5, 2018, the plaintiffs filed a motion for class certification, and on September 27, 2018, the court granted that motion. We appealed the district court’s class certification order to the Ninth Circuit. On September 29, 2021, the Ninth Circuit vacated the class certification order, ruling that the district court had failed to correctly assess the propriety of applying California law to a nationwide class, and remanded the case to the district court. On June 10, 2022, the plaintiffs filed an amended complaint, limiting the proposed class to California residents rather than a nationwide class. On August 1, 2022, we filed a motion to dismiss the amended complaint, and on November 15, 2022, the court held a hearing on our motion. On January 6, 2023, the court issued an order granting in part and denying in part our motion to dismiss. The order preserved the plaintiffs’ claims related to exclusive dealing under California antitrust and unfair competition laws and dismissed the remainder of the plaintiffs’ claims, which were related to our licensing practices. On April 7, 2023, we filed a motion for summary judgment on the plaintiffs’ remaining claims. A hearing on our motion is scheduled for July 20, 2023. We believe the plaintiffs’ claims are without merit.

Since November 2017, several other consumer class action complaints have been filed against us in Canada (in the Supreme Court of British Columbia and the Quebec Superior Court), Israel (in the Haifa District Court) and the United Kingdom (in the Competition Appeal Tribunal), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging violations of certain of those countries’ competition and consumer protection laws. The claims in these complaints are similar to those in the U.S. consumer class action complaints. The complaints seek damages. We believe the plaintiffs’ claims are without merit.

ParkerVision, Inc. v. QUALCOMM Incorporated: On May 1, 2014, ParkerVision filed a complaint against us in the United States District Court for the Middle District of Florida alleging that certain of our products infringed seven ParkerVision patents. On August 21, 2014, ParkerVision amended the complaint, alleging that we infringed 11 ParkerVision patents and sought damages and injunctive and other relief. ParkerVision subsequently reduced the number of patents asserted to three. The asserted patents are now expired, and injunctive relief is no longer available. ParkerVision continues to seek damages related to the sale of many of our radio frequency (RF) products sold between 2008 and 2018. On March 23, 2022, the court entered judgment in our favor on all claims and closed the case. On April 20, 2022, ParkerVision filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. We believe that ParkerVision’s claims are without merit.

Arm Ltd. v. QUALCOMM Incorporated: On August 31, 2022, Arm Ltd. (ARM) filed a complaint against us in the United States District Court for the District of Delaware. Our subsidiaries Qualcomm Technologies, Inc. and NuVia, Inc. (Nuvia) are also named in the complaint. The complaint alleges that following our acquisition of Nuvia, we and Nuvia breached Nuvia’s Architecture License Agreement with ARM (the Nuvia ALA) by failing to comply with the termination obligations under the Nuvia ALA. The complaint seeks specific performance, including that we cease all use of and destroy any technology that was developed under the Nuvia ALA, including processor core technology. ARM also contends that we violated the Lanham Act through trademark infringement and false designation of origin through unauthorized use of ARM’s trademarks and seeks associated injunctive and declaratory relief. ARM further seeks exemplary or punitive damages, costs, expenses and reasonable attorney’s fees, and equitable relief addressing any infringement occurring after entry of judgment. We believe ARM’s claims are without merit.

On September 30, 2022, we filed our Answer and Counterclaim in response to ARM’s complaint denying ARM’s claims. Our counterclaim seeks a declaratory judgment that we did not breach the Nuvia ALA or the Technology License Agreement between Nuvia and ARM and that, following the acquisition of Nuvia, our architected cores (including all further developments, iterations or instantiations of the technology we acquired from Nuvia), server System-on-Chip (SoC) and

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

compute SoC are fully licensed under our existing Architecture License Agreement and Technology License Agreement with ARM (the ARM-Qualcomm Agreements). We further seek an order enjoining ARM from making any claim that our products are not licensed under the ARM-Qualcomm Agreements, are not ARM-compliant or that we are prohibited from using ARM’s marks in the marketing of any such products. On October 26, 2022, we filed an Amended Counterclaim seeking additional declaratory relief that certain statements ARM is making in the marketplace concerning our rights under the ARM-Qualcomm Agreements are false, and that ARM has no right to prevent us from shipping our products, which are validly licensed. Trial is scheduled to begin on September 23, 2024.

Korea Fair Trade Commission (KFTC) Investigation (2015): On March 17, 2015, the KFTC notified us that it was conducting an investigation of us relating to the Korean Monopoly Regulation and Fair Trade Act (MRFTA). On December 27, 2016, the KFTC announced that it had reached a decision in the investigation, finding that we violated provisions of the MRFTA. On January 22, 2017, we received the KFTC’s formal written decision, which found that the following conducts violate the MRFTA: (i) refusing to license, or imposing restrictions on licenses for, cellular communications standard-essential patents with competing modem chipset makers; (ii) conditioning the supply of modem chipsets to handset suppliers on their execution and performance of license agreements with us; and (iii) coercing agreement terms including portfolio license terms, royalty terms and free cross-grant terms in executing patent license agreements with handset makers. The KFTC’s decision orders us to: (a) upon request by modem chipset companies, engage in good-faith negotiations for patent license agreements, without offering unjustifiable conditions, and if necessary submit to a determination of terms by an independent third party; (b) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chipsets; (c) not demand unjustifiable conditions in our license agreements with handset companies and, upon request, renegotiate existing patent license agreements; and (d) notify modem chipset companies and handset companies of the decision and order imposed on us and report to the KFTC new or amended agreements. According to the KFTC’s decision, the foregoing will apply to transactions between us and the following enterprises: (1) handset manufacturers headquartered in Korea and their affiliate companies; (2) enterprises that sell handsets in or to Korea and their affiliate companies; (3) enterprises that supply handsets to companies referred to in (2) above and the affiliate companies of such enterprises; (4) modem chipset manufacturers headquartered in Korea and their affiliate companies; and (5) enterprises that supply modem chipsets to companies referred to in (1), (2) or (3) above and the affiliate companies of such enterprises. The KFTC’s decision also imposed a fine of 1.03 trillion Korean won (approximately $927 million), which we paid on March 30, 2017.

On February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. The Seoul High Court held hearings concluding on August 14, 2019, and on December 4, 2019, announced its judgment affirming certain portions of the KFTC’s decision and finding other portions of the KFTC’s decision unlawful. The Seoul High Court cancelled the KFTC’s remedial orders described in (c) above, and solely insofar as they correspond thereto, the Seoul High Court cancelled the KFTC’s remedial orders described in (d) above. The Seoul High Court dismissed the remainder of our action to cancel the KFTC’s decision. On December 19, 2019, we filed a notice of appeal to the Korea Supreme Court challenging those portions of the Seoul High Court decision that are not in our favor. The KFTC filed a notice of appeal to the Korea Supreme Court challenging the portions of the Seoul High Court decision that are not in its favor. On April 12, 2023, the Korea Supreme Court delivered its judgment, which dismissed all appeals by both Qualcomm and the KFTC, affirming the judgment of the Seoul High Court. The Korea Supreme Court judgment concludes the appeal process.

Korea Fair Trade Commission (KFTC) Investigation (2020): On June 8, 2020, the KFTC informed us that it was conducting an investigation of us relating to the MRFTA. The KFTC did not provide a formal notice on the scope of its investigation, but we believe it concerned our business practices in connection with our sale of RFFE components. On April 18, 2023, the KFTC informed us that it had closed its investigation without finding any violation.

Icera Complaint to the European Commission (EC): On June 7, 2010, the EC notified and provided us with a redacted copy of a complaint filed with the EC by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that we were engaged in anticompetitive activity. On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On July 18, 2019, the EC issued a decision finding that between 2009 and 2011, we engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost with the intention of hindering competition and imposed a fine of approximately 242 million euros. On October 1, 2019, we filed an appeal of the EC’s decision with the General Court of the European Union. From March 13, 2023 to March 15, 2023, the court held a hearing on our appeal. The court has not yet issued a ruling. We believe that our business practices do not violate the European Union (EU) competition rules.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In the third quarter of fiscal 2019, we recorded a charge of $275 million to other expenses related to the EC fine. We provided a financial guarantee in the first quarter of fiscal 2020 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding and included in other current liabilities.

Contingent Losses and Other Considerations: We will continue to vigorously defend ourselves in the pending matters described above. However, litigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss, particularly in antitrust and trade regulation investigations. Other than with respect to the EC fine related to the Icera Complaint to the European Commission, we have not recorded any accrual at March 26, 2023 for contingent losses associated with these matters based on our belief that losses, while reasonably possible, are not probable. Further, any possible amount or range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows. We are engaged in numerous other legal actions not described above arising in the ordinary course of our business (for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights) and, while there can be no assurance, we believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

Note 7. Segment Information

We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT semiconductor business and our QTL licensing business. QCT develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies, including RFFE, for use in mobile devices; automotive systems for connectivity, digital cockpit and ADAS/AD; and IoT including consumer electronic devices; industrial devices; and edge networking products. QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our cloud AI inference processing initiative.

The table below presents revenues and EBT for reportable segments (in millions):


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Revenues
QCT	$	7,942	$	9,548	$	15,834	$	18,395
QTL	1,290		1,580		2,814		3,398
QSI	7		6		13		14
Reconciling items	36		30		77		61
Total	$	9,275	$	11,164	$	18,738	$	21,868
EBT
QCT	$	2,107	$	3,340	$	4,291	$	6,455
QTL	871		1,154		1,988		2,560
QSI	(53)		(269)		(61)		(147)
Reconciling items	(1,030)		(802)		(1,952)		(1,579)
Total	$	1,895	$	3,423	$	4,266	$	7,289

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reconciling items for revenues and EBT in the previous table were as follows (in millions):


	Three Months Ended				Six Months Ended
	March 26, 2023		March 27, 2022		March 26, 2023		March 27, 2022
Revenues
Nonreportable segments	$	36	$	30	$	77	$	61


EBT

Unallocated cost of revenues	$	(47)	$	(53)	$	(112)	$	(106)
Unallocated research and development expenses	(494)		(433)		(1,018)		(886)
Unallocated selling, general and administrative expenses	(126)		(138)		(292)		(292)
Unallocated other expenses (Note 2)	(208)		—		(288)		—
Unallocated interest expense	(178)		(137)		(348)		(275)
Unallocated investment and other income (expense), net	36		(34)		123		(11)
Nonreportable segments	(13)		(7)		(17)		(9)
	$	(1,030)	$	(802)	$	(1,952)	$	(1,579)

Note 8. Acquisitions

Veoneer. On October 4, 2021, we and SSW Partners, a New York-based investment partnership, entered into a definitive agreement to acquire Veoneer, Inc. (Veoneer). The transaction closed on April 1, 2022 (the Closing Date). Total cash consideration paid in the transaction was $4.7 billion, consisting of (i) $4.6 billion paid in respect of Veoneer’s outstanding capital stock and equity awards and amounts paid to settle Veoneer’s convertible senior notes (which were converted at the election of the note holders and settled in cash in the third quarter of fiscal 2022) and (ii) a $110 million termination fee paid to Magna International Inc. (Magna) in the first quarter of fiscal 2022. We funded substantially all of the cash consideration payable in the transaction in exchange for (i) the Arriver business (which SSW transferred to us shortly after the Closing Date) and (ii) the right to receive a majority of the proceeds upon the sale of the Non-Arriver businesses by SSW Partners. We intend to incorporate Arriver’s computer vision, drive policy and driver assistance technologies into our Snapdragon automotive platform to deliver an integrated software SoC ADAS platform for automakers and Tier-1 automotive suppliers. SSW Partners retained Veoneer’s Tier-1 automotive supplier businesses, primarily consisting of the Active Safety and the Restraint Control Systems businesses (the Non-Arriver businesses), which it intends to sell in multiple transactions.

At March 26, 2023, we had agreed to provide certain funding of approximately $300 million to the Non-Arriver businesses while SSW Partners sells these businesses, of which approximately $50 million of funding remained available to the Non-Arriver businesses. Such amounts, along with cash retained in the Non-Arriver businesses, are expected to be used to fund working and other near-term capital needs, as well as certain costs incurred in connection with the close of the acquisition.

Although we do not own or operate the Non-Arriver businesses, we are the primary beneficiary, within the meaning of the Financial Accounting Standards Board (FASB) accounting guidance related to consolidation (ASC 810), of these businesses under the variable interest model. Factors considered in reaching this conclusion included, among others: (i) our involvement in the design of and our funding of substantially all of the total cash consideration payable in the transaction and (ii) our obligations to absorb losses and rights to receive returns from the Non-Arriver businesses.

In December 2022, Magna entered into a definitive agreement to acquire the Active Safety business from SSW Partners for approximately $1.5 billion in cash, subject to working capital and other purchase price adjustments. The sale is subject to certain regulatory approvals and other customary closing conditions. We expect that SSW Partners will complete the sale of both Non-Arriver businesses within fiscal 2023, subject to any required regulatory approvals and other closing conditions being met. Accordingly, the assets and liabilities of the Non-Arriver businesses (the majority of which relate to the Active Safety business) are consolidated and presented as held for sale on our condensed consolidated balance sheet, and the operating results are presented as discontinued operations.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our accounting purchase price was approximately $4.3 billion, substantially all of which relates to our share of cash consideration at close for the outstanding common shares of Veoneer and the Magna termination fee and excludes Veoneer’s convertible senior notes that are reflected as an assumed liability.

The allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values was as follows (in millions):


Cash	$	30
Current held for sale assets, net of costs to sell (1)	626
Completed technology-based intangible assets	349
In-process research and development (IPR&D)	298
Goodwill	2,793
Noncurrent held for sale assets (1)	1,186
Other assets	326
Total assets	5,608
Current held for sale liabilities (1)	(677)
Convertible senior notes	(352)
Noncurrent held for sale liabilities (1)	(128)
Other liabilities	(200)
Total liabilities	(1,357)
Net assets acquired	$	4,251

(1) Held for sale assets and liabilities relate to the Non-Arriver businesses and were measured at fair value less costs to sell (including SSW Partners’ estimated return with respect to the sale proceeds of the Non-Arriver businesses), which was estimated using a market approach based on significant inputs that were not observable. The Non-Arriver businesses’ assets are not available to be used to settle our obligations, and the Non-Arriver businesses’ creditors do not have recourse to us. SSW Partners owns and operates the Non-Arriver businesses, and its funding of the purchase price for Veoneer was recorded as a component of held for sale liabilities. The underlying classes of assets and liabilities held for sale have not been presented because such amounts are not material.

Goodwill related to this transaction was allocated to our QCT segment, $471 million of which is expected to be deductible for tax purposes. Goodwill is primarily attributable to assembled workforce and certain synergies expected to arise after the acquisition. Completed technology-based intangible assets will be amortized on a straight-line basis over the weighted-average useful life of nine years. IPR&D relates to a single project that is expected to be completed in fiscal 2025. Upon completion, we expect the IPR&D to be amortized over its useful life of seven years. We valued the completed technology and IPR&D using an income approach based on significant unobservable inputs.

The Non-Arriver businesses are presented as discontinued operations on a one quarter reporting lag. Pro forma results of operations have not been presented because the effects of this acquisition were not material to our consolidated results of operations. The cash flows used by the Non-Arriver businesses are reflected as discontinued operations and are classified as operating, investing and financing activities in the consolidated statements of cash flows.

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. Fair Value Measurements and Marketable Securities

The following table presents our fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March 26, 2023 (in millions):


	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	1,779	$	367	$	—	$	2,146
Marketable securities:
Corporate bonds and notes	—		2,943		—		2,943
Equity securities	145		—		—		145
Mortgage- and asset-backed securities	—		84		—		84
U.S. Treasury securities and government-related securities	—		16		—		16



Total marketable securities	145		3,043		—		3,188
Derivative instruments	—		37		—		37
Other investments	731		—		20		751
Total assets measured at fair value	$	2,655	$	3,447	$	20	$	6,122
Liabilities

Derivative instruments	$	—	$	210	$	—	$	210
Other liabilities	730		—		—		730
Total liabilities measured at fair value	$	730	$	210	$	—	$	940

At March 26, 2023 and September 25, 2022, our marketable securities were all classified as current and were primarily comprised of available-for-sale debt securities (substantially all of which were corporate bonds and notes).

The contractual maturities of available-for-sale debt securities were as follows (in millions):


	March 26, 2023
Years to Maturity
Less than one year	$	1,463
One to five years	1,496


No single maturity date	84
Total	$	3,043

Debt securities with no single maturity date included mortgage- and asset-backed securities.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in “Part I, Item 1” of this Quarterly Report and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended September 25, 2022 contained in our 2022 Annual Report on Form 10-K.

This Quarterly Report (including but not limited to this section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. Additionally, statements concerning future matters such as our future business, prospects, results of operations or financial condition; research and development or technology investments; new or enhanced products, services or technologies; emerging industries or business models; design wins or product launches; industry, market or technology trends, dynamics or transitions; our expectations regarding future demand or supply conditions or macroeconomic factors; strategic investments or acquisitions, and the anticipated timing or benefits thereof; cost reduction initiatives and associated restructuring charges; legal or regulatory matters; U.S./China trade or national security tensions; vertical integration by our customers; competition; annual effective tax rates; and other statements regarding matters that are not historical are also forward-looking statements.

Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Second Quarter Fiscal 2023 Overview

Revenues for the second quarter of fiscal 2023 were $9.3 billion, a decrease of 17% compared to the year ago quarter, with net income of $1.7 billion, a decrease of 42% compared to the year ago quarter. Key items from the second quarter of fiscal 2023 included:

•QCT and QTL revenues were negatively impacted by the weakness in the macroeconomic environment (which negatively impacted consumer demand for smartphones and other devices that incorporate our products and technologies) and our customers drawing down on their inventory (which is at elevated levels given the rapid deceleration in consumer demand and the easing of supply constraints that occurred during the second half of calendar 2022).

•QCT revenues decreased by 17% in the second quarter of fiscal 2023 compared to the year ago quarter due to lower handset and IoT revenues, partially offset by higher automotive revenues.

•QTL revenues decreased by 18% in the second quarter of fiscal 2023 compared to the year ago quarter.

Our Business and Operating Segments

We develop and commercialize foundational technologies and products used in mobile devices and other wireless products. We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents and other rights.

We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our cloud AI inference processing initiative.

Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Substantially all of our

products and services businesses, including QCT, and substantially all of our engineering and research and development functions, are operated by Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.

Seasonality. Many of our products and much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. Our revenues have historically fluctuated based on consumer demand for devices, as well as on the timing of customer/licensee device launches and/or innovation cycles (such as the transition to the next generation of wireless technologies). This has resulted in fluctuations in QCT revenues in advance of and during device launches incorporating our products and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future.

Results of Operations


Revenues (in millions)
	Three Months Ended						Six Months Ended
	March 26, 2023		March 27, 2022		Change		March 26, 2023		March 27, 2022		Change
Equipment and services	$	7,846	$	9,417	$	(1,571)	$	15,630	$	18,098	$	(2,468)
Licensing	1,429		1,747		(318)		3,108		3,770		(662)
	$	9,275	$	11,164	$	(1,889)	$	18,738	$	21,868	$	(3,130)

Second quarter 2023 vs. 2022

The decrease in revenues in the second quarter of fiscal 2023 was primarily due to:

- $1.6 billion in lower equipment and services revenues from our QCT segment

- $290 million in lower licensing revenues from our QTL segment

First six months 2023 vs. 2022

The decrease in revenues in the first six months of fiscal 2023 was primarily due to:

- $2.5 billion in lower equipment and services revenues from our QCT segment

- $584 million in lower licensing revenues from our QTL segment


Costs and Expenses (in millions, except percentages)
	Three Months Ended								Six Months Ended
	March 26, 2023			March 27, 2022			Change		March 26, 2023			March 27, 2022			Change
Cost of revenues	$	4,153		$	4,648		$	(495)	$	8,197		$	8,951		$	(754)
Gross margin	55		%	58		%			56		%	59		%

Second quarter and first six months 2023 vs. 2022

Gross margin percentage decreased in the second quarter and first six months of fiscal 2023 primarily due to a decrease in QCT gross margin.


	Three Months Ended								Six Months Ended
	March 26, 2023			March 27, 2022			Change		March 26, 2023			March 27, 2022			Change
Research and development	$	2,210		$	2,034		$	176	$	4,461		$	3,963		$	498
% of revenues	24		%	18		%			24		%	18		%