Quarterly report pursuant to Section 13 or 15(d)

Segment Information (Notes)

v3.20.1
Segment Information (Notes)
 6 Months Ended
Mar. 29, 2020
Segment Reporting [Abstract]  
Segment Information 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 CDMA, OFDMA and other technologies for use in mobile devices, wireless networks, devices used in the Internet of Things (IoT), broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems. QTL grants licenses to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments and includes revenues and related costs associated with development contracts with an equity method investee. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and other technology and service initiatives.
We evaluate the performance of our segments based on earnings (loss) before income taxes (EBT). Segment EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in our management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and charges include certain interest expense, certain net investment income, certain share-based compensation, gains and losses on our deferred compensation plan liabilities and related assets and certain research and development expenses, selling, general and
administrative expenses and other expenses or income that were deemed to be not directly related to the businesses of the segments. Additionally, unallocated charges include recognition of the step-up of inventories and property, plant and equipment to fair value, amortization of certain intangible assets and certain other acquisition-related charges, third-party acquisition and integration services costs and certain other items, which may include major restructuring and restructuring-related costs, goodwill and long-lived asset impairment charges and litigation settlements and/or damages.
The table below presents revenues, EBT and total assets for reportable segments (in millions):
Three Months Ended Six Months Ended
March 29,
2020		 March 31,
2019		 March 29,
2020		 March 31,
2019
Revenues
QCT $ 4,100    $ 3,722    $ 7,719    $ 7,461   
QTL 1,072    1,122    2,477    2,141   
QSI 10    98    30    125   
Reconciling items 34    40    66    97   
Total $ 5,216    $ 4,982    $ 10,292    $ 9,824   
EBT
QCT $ 667    $ 542    $ 1,145    $ 1,140   
QTL 671    674    1,689    1,264   
QSI (208)   17    (210)   25   
Reconciling items (532)   (427)   (1,079)   (1,063)  
Total $ 598    $ 806    $ 1,545    $ 1,366   
March 29,
2020		 September 29,
2019
Assets
QCT $ 3,286    $ 2,307   
QTL 1,465    1,541   
QSI 1,281    1,708   
Reconciling items 25,906    27,401   
Total $ 31,938    $ 32,957   
Segment assets are comprised of accounts receivable and inventories for all reportable segments other than QSI. QSI segment assets include certain non-marketable equity instruments, receivables and other investments. Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable and non-marketable securities, property, plant and equipment, deferred tax assets, goodwill, intangible assets, operating lease assets, noncurrent income taxes receivables, deferred compensation plan assets and assets of nonreportable segments.
QCT accounts receivable increased by 75% in the first six months of fiscal 2020 from $908 million to $1.59 billion, primarily driven by an increase in revenues combined with the timing of integrated circuit shipments during the quarter and a decrease in the relative proportion of customer incentive arrangements that are recorded in accounts receivable. QCT inventories increased by 21% in the first six months of fiscal 2020 from $1.40 billion to $1.70 billion, primarily driven by the ramp in 5G.
At March 29, 2020, 26% of total accounts receivable included royalties from Guangdong OPPO Mobile Telecommunications Corp., Ltd. (Oppo) and BBK Communication Technology Co., Ltd. (vivo) (who were previously disclosed as two key Chinese licensees), primarily from sales made in the last four fiscal quarters (including amounts that are not yet due) under license agreements that expired on March 31, 2020. We entered into new long-term, world-wide patent license agreements with these licensees, effective as of April 1, 2020, covering 3G/4G/5G multimode devices. We also reached agreements with these licensees to provide for payment of amounts due under the license agreements that expired on March 31, 2020 and for which certain of such amounts for prior periods were withheld while good faith negotiations
occurred. The licensees have agreed to make full payment in the near term according to agreed upon payment schedules. These licensees/customers continue to make timely payments on purchases of integrated circuit products. No reversals of revenues were recognized in the second quarter of fiscal 2020 as a result of these agreements.
QSI segment assets, which primarily consist of non-marketable and marketable equity investments, decreased by 25% in the first six months of fiscal 2020 from $1.71 billion to $1.28 billion, primarily due to certain impairment losses on other investments (Note 2) and the sale of certain marketable equity investments.
Reconciling items for revenues and EBT in the previous table were as follows (in millions):
Three Months Ended Six Months Ended
March 29,
2020		 March 31,
2019		 March 29,
2020		 March 31,
2019
Revenues
Nonreportable segments $ 34    $ 40    $ 66    $ 97   
$ 34    $ 40    $ 66    $ 97   
EBT
Unallocated cost of revenues $ (84)   $ (104)   $ (175)   $ (218)  
Unallocated research and development expenses (216)   (190)   (475)   (337)  
Unallocated selling, general and administrative expenses (56)   (84)   (172)   (148)  
Unallocated other income (expenses) (Note 2) 23    18    23    (130)  
Unallocated interest expense (145)   (159)   (293)   (313)  
Unallocated investment and other (expense) income, net (30)   109    52    130   
Nonreportable segments (24)   (17)   (39)   (47)  
$ (532)   $ (427)   $ (1,079)   $ (1,063)