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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

For the fiscal year ended September 26, 2004

OR

For the transition period from                     to                     .

Commission file number 0-19528

QUALCOMM Incorporated

Registrant’s telephone number, including area code: (858) 587-1121

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

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

     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.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

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     State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 26, 2004 was $48,250,582,026.*

      The number of shares outstanding of the registrant’s common stock was 1,639,081,639 as of November 1, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the registrant’s 2005 Annual Meeting of Stockholders, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended September 26, 2004.

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*

Excludes the Common Stock held by executive officers, directors and stockholders whose ownership exceeds 5% of the Common Stock outstanding at March 26, 2004. This calculation does not reflect a determination that such persons are affiliates for any other purposes.

 

QUALCOMM INCORPORATED
Form 10-K
For the Fiscal Year Ended September 26, 2004
Index

 

TRADEMARKS AND TRADE NAMES

     QUALCOMM®, QUALCOMM CDMA University®, QUALCOMM Wireless Business Solutions®, OmniTRACS®, OmniOne®, GlobalTRACS™, TruckMAIL™, OmniExpress®, QConnect™, T2™, Eudora®, QCP-®, QCT®, MSM™, CSM™, MSM5500®, MSM6000®, MSM6025™, MSM6050™, MSM6100™, MSM6150™, MSM6200™, MSM6250™, MSM6275™, MSM6280™, MSM6300™, MSM6500™, MSM6550™, MSM6700™, MSM6800™, MSM7200™, MSM7500™, MSM7600™, CSM5500™, CSM6700™, CSM6800™ gpsOne™, radioOne®, SnapTrack®, BREW®, BREW SDK®, BINARY RUNTIME ENVIRONMENT FOR WIRELESS®, MediaFLO™, QPoint™ and QCHAT® are trademarks and/or service marks of QUALCOMM Incorporated. QUALCOMM, QUALCOMM Wireless Business Solutions, QWBS, QUALCOMM CDMA Technologies, QCT, QUALCOMM Technology Licensing, QTL, QUALCOMM Wireless Systems, QWS, QUALCOMM Wireless & Internet Group, QWI, QUALCOMM Internet Services, QIS, QUALCOMM Consumer Products, QCP, QUALCOMM Strategic Initiatives, QSI and SnapTrack are trade names of QUALCOMM Incorporated.

     cdmaOne® is a trademark of the CDMA Development Group, Inc. CDMA2000® is a registered trademark and certification mark of the Telecommunications Industry Association. Globalstar™ is a trademark and service mark of Globalstar, L.P., and Globalstar® is a trademark of Loral Qualcomm Satellite Services, Inc.

     All other trademarks, service marks and/or trade names appearing in this document are the property of their respective holders.

 

     In this document, the words “we,” “our,” “ours” and “us” refer only to QUALCOMM Incorporated and not any other person or entity.

PART I

Item 1. Business

     This Annual Report (including the following section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” 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 Annual Report. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

     Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, 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 Annual Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual 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 Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

     We were incorporated in 1985 under the laws of the state of California. In 1991, we reincorporated in the state of Delaware. We operate and report using a 52-53 week fiscal year ending the last Sunday in September. Our 52-week fiscal years consist of four equal quarters of 13 weeks each, and our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter. The financial results for our 53-week fiscal years and our 14-week fiscal quarters will not be exactly comparable to our 52-week fiscal years and our 13-week fiscal quarters. Each of the fiscal years ended September 30, 2004, 2003, and 2002 include 52 weeks. For presentation purposes, all fiscal periods presented or discussed in this report have been presented as ending on September 30. For example, our 2004 fiscal year ended on September 26, 2004, but we present our 2004 fiscal year as ending on September 30, 2004.

Overview

     In 1989, we publicly introduced the concept that a digital communication technique called CDMA could be commercially successful in wireless communication applications. CDMA stands for Code Division Multiple Access and is one of the three main technologies currently used in digital wireless communications networks. CDMA and the two other main digital wireless communications technologies, TDMA (which stands for Time Division Multiple Access) and GSM (which is a form of TDMA and stands for Global System for Mobile Communications) are the digital technologies used to transmit a wireless phone user’s voice or data over radio waves using the wireless phone operator’s network. CDMA works by converting speech into digital information, which is then transmitted in the form of a radio signal over the phone network. These digital wireless phone networks are complete phone systems comprised primarily of base stations, or “cells,” which are geographically placed throughout a service or coverage area. Once communication between a wireless phone user and a base station is established, the system detects the movement of the wireless phone user and the communication is handed off to another base station, or cell, as the wireless phone user moves throughout the service area.

     Because we led the development and commercialization of CDMA technology, we own significant intellectual property, including patents, patent applications and trade secrets, portions of which we license to other companies and implement in our own products. The wireless communications industry generally recognizes that a company seeking to develop, manufacture and/or sell products that use CDMA technology will require a license from us.

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     There are currently four versions of CDMA technology recognized worldwide as public wireless standards. The version known as cdmaOne was the first commercially deployed CDMA-based phone system and is popularly referred to as a second generation technology. The other three versions of CDMA are popularly referred to as third generation (3G) technologies and known commonly throughout the wireless industry as:

•		CDMA2000, including 1X, 1xEV-DO (where DO refers to Data Optimized) and 1xEV-DV (where DV refers to Data and Voice);
•		Wideband CDMA (WCDMA) or Universal Mobile Telecommunications Systems (UMTS); and
•		Time Division Duplex CDMA, such as Time Division Synchronous-CDMA (TD-SCDMA) and Time Division Duplexing-CDMA (TDD-CDMA).

     CDMA2000 and WCDMA are deployed today in commercial mobile phone networks throughout the world. In addition to increasing voice capacity, these 3G CDMA technologies enable greater data capacity and higher data rates.

     Our revenues. We generate revenues by licensing portions of our CDMA technology to other manufacturers of CDMA products (such as wireless phones and the hardware required to establish and operate a CDMA wireless network). Revenues are generated through licensing fees and royalties on CDMA-based products sold by our licensees. We also sell products and services, which include the following, all of which are described in greater detail below:

•		CDMA-based integrated circuits (also known as chips) and the related software used in wireless phones (also known as subscriber units and handsets) and wireless networks;
•		Radio Frequency chips used in wireless phones and sold in conjunction with our CDMA-based integrated circuits;
•		Messaging and other services and related equipment and software used by transportation and other companies to communicate with and track their equipment fleets;
•		Software products and services related to BREW (which stands for Binary Runtime Environment for Wireless), a package of products that enable software developers to create applications, or programs, to run on mobile phones. BREW includes porting tools and technical assistance for device manufacturers and the BREW Distribution System (BDS) that allows for over-the-air distribution of applications to mobile phones and coordinates billing and payment for wireless operators; and
•		Software and hardware development services.

     We make strategic investments to promote the development of new CDMA products as well as the adoption of CDMA by more mobile phone service providers. We also provide products and services to service providers and other customers of Globalstar LLC, a company that operates a worldwide, low-Earth-orbit satellite-based telecommunications system.

     Our engineering resources. We have significant engineering resources, including engineers with substantial expertise in CDMA technology. Using these engineering resources, we expect to continue to develop new versions of CDMA, develop new technologies that use CDMA, participate in the formulation of new wireless telecommunications standards and technologies and assist in deploying wireless voice and data communications networks around the world.

     Our integrated circuits business. We develop and supply CDMA-based integrated circuits and system software for use in wireless voice and data communications, multimedia functions and global positioning. Our integrated circuit products and software are used in wireless devices, particularly phones, and infrastructure equipment. The wireless integrated circuits include the Mobile Station Modem (MSM), Radio Frequency (RF) and Power Management (PM) devices. The wireless phone integrated circuits and software perform voice and data communication, multimedia and global positioning functions, radio conversion between radio and baseband signals and power management. The infrastructure equipment integrated circuits provide the core baseband CDMA modem functionality in the operator’s equipment. These software products are the systems that control the phone and the functionality imbedded in our integrated circuit products. Because of our broad and unique experience in designing and developing CDMA-based products, we not only design the integrated circuit, but, by designing the RF devices, PM devices and accompanying software products, we thereby design the entire supporting system. This

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approach enables us to optimize the performance of the wireless phone itself with improved product features, as well as the integration and performance of the network system. Our design of the entire system also allows CDMA systems and devices manufactured by our customers to come to market faster. We provide our integrated circuits and related system software, including reference designs and tools, to many of the world’s leading wireless phone and infrastructure equipment manufacturers. We plan to add additional features and capabilities to our future integrated circuit products to help our customers reduce the costs and size of their products and to simplify our customers’ design processes. We also design and create multimode and multiband integrated circuits incorporating other wireless standards for global roaming markets. In addition, we will continue to provide high quality support to enable our customers to reduce the time required to design their products and bring their products to market faster.

     Our asset tracking and messaging business. We design, manufacture and sell equipment and provide satellite and terrestrial-based two-way data messaging and position reporting services to transportation companies, private fleets, construction equipment fleets and other enterprise companies throughout parts of the world. These products permit our customers to track the location of their vehicles or other assets and to communicate with them en route. These products and services use commercially available satellite and wireless terrestrial-based networks to permit this communication. Our customers use these products to communicate with drivers, monitor vehicle location and performance, provide automated driver logs, fuel tax reporting, security and enhanced customer service. Our products, which collect and transmit this data, are also integrated with our customers’ operations software, such as dispatch, payroll and accounting, so our customers can better manage their information and operations. Using our asset tracking and messaging infrastructure, we also provide a managed wireless data service, QConnect, to other service providers. For example, we provide the QConnect service to CardioNet, a provider of outpatient cardiac telemetry technology services, where we manage the wireless data service connectivity between CardioNet mobile monitoring devices and the CardioNet Monitoring Center.

     Our phone software and related services business. We provide our BREW (Binary Runtime Environment for Wireless) product and services to network operators, handset manufacturers and application developers. We support the development and delivery of over-the-air wireless applications and services. The BREW product and services include the BREW SDK (software development kit) for developers, the BREW applications platform (i.e. software programs) and interface tools for device manufacturers, and the BREW Distribution System that enables network operators to get applications from developers to market and coordinate the billing and payment process. The BREW platform is a software application that provides an open, standard platform for wireless devices, which means that BREW can be made to interface with many software applications, including those developed by others. We make the BREW SDK available, free of charge, to any qualified person or company interested in developing a new product for wireless communications. BREW leverages the capabilities available in integrated circuits and system software, enabling our customers to develop feature-rich applications and content while reducing memory and maximizing system performance of the wireless phone itself. BREW can be used on wireless phones and other devices that support wireless technologies other than CDMA2000, such as GSM, GPRS (General Packet Radio System), EDGE (Enhanced Data Rates for GSM Evolution) and WCDMA. We also provide QChat, which enables push-to-chat functionality on CDMA-based wireless devices, and QPoint, which enables operators to offer E-911 and location-based applications and services.

     Subscriber growth. In September 2004, EMC World Cellular Information Service (EMC), a researcher and publisher of wireless industry market intelligence, forecast that there will be 1.7 billion mobile phone users, also referred to as subscribers, by the end of this calendar year and that the figure will grow to nearly 2.5 billion globally by the end of 2009. Wireless networks based on cdmaOne and CDMA2000 have been commercially deployed in 69 countries around the world. In July 2004, In-Stat/MDR, a provider of research, assessments and market forecasts of semiconductor and advanced communications equipment and services, published a report estimating that CDMA2000 and WCDMA will capture the largest market share in terms of number of subscribers by 2009. The CDMA Development Group (CDG) is an international consortium of companies that joined together to lead the adoption and evolution of CDMA wireless systems around the world. According to the CDG, from 2002 through the first half of 2004, the CDMA subscriber base increased by an average of 30% per year, making it the fastest growing wireless standard of all leading cellular technologies. In June 2004, the CDG reported that there were more than 212 million CDMA subscribers worldwide. CDMA is the leading mobile phone technology in North America with market share of 47% at June 2004 according to the CDG. As reported by the CDG, the North America CDMA market has nearly 86 million subscribers at June 2004, representing annual growth of 24%. In the Asian Pacific market, the largest and fastest-growing region for CDMA, CDMA operators added nearly 26 million subscribers during the year ended June 2004, bringing the total number of CDMA subscribers in this region to over 88 million, an increase of 41% over the prior year. In January 2002, China Unicom

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launched its nationwide CDMA network, and in September 2004, China Unicom announced that it had nearly 26 million CDMA subscribers. In Latin America and the Caribbean, the number of CDMA subscribers grew by 18% during the year ended June 2004, reaching nearly 35 million through 40 CDMA operators.

     Next generation technologies. We have already developed and deployed the next generation of our CDMA technology, or what is being called 3G. Our 3G technology, CDMA2000 1X, was first deployed commercially in October 2000 in South Korea. Another 3G technology, CDMA 1xEV-DO, was first deployed commercially in January 2002 in South Korea. As of September 2004, South Korea has accumulated over 31 million CDMA2000 subscribers according to operator web sites. As of September 2004, there are over nine million 1xEV-DO subscribers, most of which are in South Korea. As of September 2004, there are at least 107 commercial 3G operators located in 48 countries. In the United States there are 14 operators that have commercially deployed CDMA2000 1X, making CDMA2000 1X the first 3G technology to be commercially available in North America. In September 2004, more than 500 different models of CDMA2000 user devices are being sold across all markets, according to public reports made available at www.cdg.org.

     Further investments. We continue to invest heavily in research and development focused on extending the market for CDMA-based products and services. We are developing and commercializing CDMA technology and products to support high-speed wireless Internet access and multimode, multiband, multinetwork products that can use cdmaOne, CDMA2000 1X/1xEV-DO, GSM/GPRS/EDGE, Wireless Local Area Network (WLAN), WCDMA, HSDPA (High Speed Downlink Packet Access), FLO and all OFDM (Orthogonal Frequency Division Multiplexing) networks. Among the technologies we are developing that will use these networks are BREW, Push-to-Talk over Cellular, the MediaFLO content distribution and GPS position location technologies.

     We are devoting significant research and development resources to developing high-speed wireless data and Internet access products using our CDMA technology, including efforts to meet and exceed the standards for 3G products set by the International Telecommunications Union (ITU). Many CDMA wireless phone network operators that have integrated new features, such as Internet access, GPS position location and advanced multimedia capabilities like digital photos and video clips, into their products, made possible by our 3G CDMA2000 1X technology, have experienced increased numbers of subscribers, handset replacements and average revenue per user. Our 1xEV-DO technology also permits CDMA wireless network providers to separately process voice transmissions and data transmissions, allowing them to optimize each type of transmission. We believe the transfer rate of 1xEV-DO will satisfy the demand for high-speed, cost-effective, fixed and mobile alternatives for Internet access, competing with digital subscriber line, cable and satellite networks.

     Wireless Local Area Networks (WLAN), such as Wi-Fi (Wireless Fidelity), are complementary to Wide Area Networks (WAN), such as CDMA2000 and WCDMA. They both provide affordable high-speed wireless access to the World Wide Web. The high-speed data air link and limited coverage of Wi-Fi is well suited for private networks (e.g. enterprises, campuses and homes) and certain public “hot spots” (e.g. airports, conference halls and coffee shops) where data usage is expected to be high in a limited portable and stationary environment, whereas 3G CDMA networks are ideally suited for geographically diverse voice and data coverage (e.g. cities, highways and neighborhoods). Because wireless operators are looking to use Wi-Fi to extend their coverage indoors and include Wi-Fi services in their monthly billing structure, we have begun developing our own core chip for handling Wi-Fi services based on the 802.11 standard and plan to incorporate it into our future multimode 3G CDMA chips. This same customer-focused and business-driven approach is intended to be used to analyze and adopt any other type of wireless technology or service that may exist or is being developed.

     We intend to continue our active support of CDMA-based systems and the technologies and features CDMA permits in order to grow our royalty revenues and integrated circuit and software revenues. We also plan to continue to broadly grant royalty-bearing licenses to our technology and patents for CDMA and other wireless applications. From time to time, we may also make acquisitions to meet certain technology needs, to access development resources or to pursue new business opportunities. In October 2004, we completed the acquisition of all of the outstanding capital stock of Iridigm Display Corporation, a privately held display technology company, and Trigenix Limited, a privately held mobile user interface company, for a total of approximately $193 million in cash and the exchange of stock options with an estimated aggregate fair value of approximately $17 million. The convergence of consumer electronics products, including cameras, MP3 players, camcorders, GPS receivers and game consoles, into wireless devices is driving the increased adoption of 3G CDMA. With the inclusion of color displays in all types of phones,

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including models at the low end of the market, the cost of the display has become an even more significant driver in the overall cost of the handset. Iridigm’s patented display technology should cost significantly less to manufacture than a comparable liquid crystal display (LCD) because it requires fewer processing steps to produce, thus enabling advanced multimedia capabilities on all tiers of mobile devices, while providing performance, power consumption and cost benefits as compared to alternative display technologies. Our acquisition of Iridigm will accelerate the time to market for Iridigm’s display technology, which fits our overall strategy of rapidly increasing the capability of wireless devices while driving down cost, size and power consumption. Operators and device manufacturers need a secure modular approach for customizable phone user interfaces for the branding of handsets offered to their subscribers. Our acquisition of Trigenix complements our BREW offering by adding Trigenix’s user interface development tools to enhance our BREW user interface capabilities and time-to-market.

     We are developing our MediaFLO content distribution system and FLO (Forward Link Only) technology for delivery of low cost multimedia content to multiple subscribers. On November 1, 2004, we announced plans for a subsidiary, MediaFLO USA, Inc. (MediaFLO USA), that will deploy and operate a nationwide mediacast network to deliver high-quality video and audio programming to third generation mobile devices in the 700 MHz spectrum for which we hold licenses. The mediacast network will be based on our FLO technology and will use the MediaFLO media distribution system for content aggregation, delivery and viewing. MediaFLO USA is expected to require approximately $800 million in funding over the next four to five years, some of which may be provided by third parties.

     We make strategic investments to promote the worldwide adoption of CDMA products and services. Our strategy has been to invest in CDMA operators (also known as wireless phone operators, wireless network operators, wireless service providers or wireless operators), licensed device manufacturers and start-up companies that we believe open new markets for CDMA technology, support the design and introduction of new CDMA-based products or possess unique capabilities or technology. Most of our strategic investments entail a high degree of risk and will not become liquid until more than one year from the date of investment, if at all. To the extent such investments become liquid and meet strategic objectives, we attempt to make regular periodic sales of our interests in these investments that are recognized in investment income (expense). In some cases, we make strategic investments in early stage companies, which require us to consolidate or record our equity in losses of those companies. These losses will adversely affect our financial results until we exit from or reduce our exposure to these investments. We also provide financing to CDMA operators to facilitate the marketing and sale of CDMA equipment by licensed manufacturers. We have a commitment to provide equipment financing to customers of Ericsson on a shared basis with respect to Ericsson’s sale of CDMA infrastructure equipment. In November 2001, we acquired controlling interests in two CDMA operators in Brazil (the Vésper Operating Companies). We sold these two CDMA operators in fiscal 2004. We had a net cash inflow from strategic investments in fiscal 2004 and plan to continue to reduce the level of investment in wireless operators, other than investments in our MediaFLO USA subsidiary, from the levels of fiscal 2003 and before.

     Giving Back. At QUALCOMM, we are not only committed to being good corporate citizens, but also good neighbors in the communities we call home. We contribute collectively as a corporation, and we participate in ways that touch people’s lives on a personal level. We encourage our employees to give their time and considerable talents to the community, and their significant volunteer efforts are evident in, for example, schools, the arts, feeding the homeless and serving on the advisory boards of not-for-profit organizations. Every year, our goal is to donate approximately one to two percent of our pretax profits to community causes, with a focus on programs that promote education, health and human services, and culture and the arts. Our charitable giving and volunteerism programs are based on respect for community organizations, cooperative leadership development and philanthropic creativity.

Wireless Telecommunications Industry Overview

     From an international perspective, the International Telecommunications Union (ITU) is the central telecommunication standards setting organization. The ITU is recognized as an impartial, international organization within which governments and the private sector work together to advance the development of communications technology. The ITU’s standardization activities foster the growth of new technologies, such as mobile telephony, mobile broadcast and the Internet, as well as the emerging global information infrastructure which handles a mix of voice, data and rich multimedia signals. The ITU develops internationally-agreed technical and operating standards to foster seamless interconnection of the world’s communication networks and their subsystems. As the world of telecommunications, information technology and media content distribution rapidly converge, the role of the ITU is to forge new recommendations that promote the interoperability of equipment and facilitate the development of advanced communication networks. The ITU’s objective is to identify sound technical recommendations, which are then developed into internationally recognized ITU recommendations.

     The Telecommunications Industry Association (TIA) is the leading U.S. based non-profit trade association serving the communications and information technology industry. Through its worldwide activities, the TIA facilitates business development opportunities and a competitive market environment. The TIA provides a market-focused forum for its member companies, which manufacture or supply the products and services used in global communications. The TIA facilitates the convergence of new communications networks while working towards creating a competitive and innovative market environment. The TIA is a major contributor of voluntary industry standards that support global trade and commerce in communications products and systems.

     Other Standards Development Organizations (SDO), including, among others, the Telecommunications Industry Association (TIA) in the United States, the European Telecommunications Standards Institute (ETSI), the Telecommunications Technology Association (TTA) in Korea, the Association of Radio Industries and Businesses (ARIB) in Japan, and the Institute for Electrical and Electronic Engineers (IEEE), are non-profit standards and trade associations that also serve the communications and information technology industry. Through their worldwide activities, these organizations work together, in conjunction with the ITU, to develop common specifications to facilitate global business development opportunities. They each provide a market-focused forum for their member companies, which manufacture or supply the products and services used in global communications. They also facilitate the convergence of new communications networks while working towards creating a competitive and innovative market environment. Each organization contributes voluntary industry standards that support global trade and commerce in communications products and systems.

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     None of these organizations have the enforcement authority or the ability to protect intellectual property rights. These organizations merely ask participating companies to declare whether they believe they hold patents essential for compliance with a particular standard and whether they are willing to license such patents on a royalty-free basis or on a royalty- basis on fair, reasonable and nondiscriminatory terms.

     Usage of mobile phones and other types of wireless telecommunications equipment has increased dramatically in the past decade. It is estimated that there will be nearly 2.5 billion mobile subscribers worldwide by 2009, based on forecasts made in September 2004 by EMC. Growth in the market for wireless telecommunications services has traditionally been fueled by demand for voice communications. There have been several factors responsible for this increasing demand, including:

•		increased privacy, call clarity and security of digital networks based on digital second and third generation wireless technology standards;
•		lower cost of service, including flat-rate and bundled long-distance call pricing plans;
•		an increasingly mobile workforce with increased need for wireless voice communications;
•		a consumer base that desires to be accessible, informed and entertained within a mobile environment;
•		wireless networks becoming the primary communications infrastructure in developing countries due to the higher costs of and longer time required for installing wireline networks; and
•		regulatory environments worldwide favoring increased competition in wireless telecommunications.

     In addition to the tremendous demand for wireless voice services, wireless service providers are increasingly focused on providing wireless data services through mobile phones, including wireless access to the Internet, multimedia entertainment and position location services. In March 2004, International Data Corporation (IDC), a global market intelligence and advisory firm in the technology and telecommunications industries, estimated that over one billion people will be using the Internet by 2007. In May 2004, iGillott Research, a market strategy consultancy focused on the wireless and mobile communications industry and collaborative applications, estimated that in 2007 over 450 million wireless subscribers will use the Internet via handsets. We believe the growing availability of 3G-enabled handsets capable of performing a wide variety of consumer and enterprise applications will accelerate consumer demand for many wireless data services on a global basis and lead to an increased replacement rate in mobile devices using our technology and integrated circuits. High-speed and low cost data connectivity are important to the consumer and are driving the evolution of wireless standards. We expect that the spread of high-speed, cost-effective wireless data access will encourage the development of other remote supervision, position location and telematic automobile applications. However, the demand for such services is at an early stage of development.

     The adoption of wireless standards for mobile communications by individual countries is generally based on economic criteria and the technology preference of the telecommunication service providers operating in those countries. Approximately a decade ago, the European Community developed regulations requiring the use of a telecommunication standard known as Global System for Mobile Communications, commonly referred to as GSM. The use of this second generation wireless standard has spread throughout the world and is currently the basis for approximately 73% of the digital mobile communications in use according to EMC. The majority of the more than one billion GSM subscribers are expected to migrate to third generation CDMA services before the end of this decade.

The Evolution of Wireless Standards

     The significant growth in the use of wireless phones worldwide and demand for enhanced network functionality requires constant innovation to further improve network reliability, expand capacity and introduce new types of services. To meet these requirements, progressive generations of wireless telecommunications technology standards have evolved.

     First Generation. The first generation of wireless telecommunications, widely adopted in the late 1980s, was based on analog technology. While this generation helped increase the adoption of wireless telecommunications, the technology was characterized by inherent capacity limitations, minimal data transfer capabilities, low security, inconsistent service levels and significant power consumption.

     Second Generation. As the deployment of mobile phone systems grew, the limitations of analog technology drove the development of second generation, digital-based technologies, which are the primary technology standards

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in use today. Second generation digital technology provided for significantly enhanced efficiency within a broadcast spectrum as well as greatly increased capacity compared to analog systems. Second generation technologies also enabled numerous enhanced services, including paging, e-mail and facsimile, connections to computer networks, greater privacy, lower prices, a greater number of service options and greater fraud protection. The three main second-generation digital technologies are CDMA, called cdmaOne or IS-95A/B, a technology we developed and patented, TDMA and GSM, a form of TDMA.

     Our second generation CDMA technology offers 10 to 20 times the capacity of analog systems and more than three times the capacity of TDMA- and GSM-based systems through more efficient utilization of wireless operators’ licensed spectrum. Some of the advantages of CDMA technology over both analog and TDMA- and GSM-based technologies include enhanced call security, increased network capacity, network flexibility, compatibility with Internet protocols, lower power requirements, higher capacity for data and faster access to data (Internet), higher data throughput rates and easier transition to 3G networks. GSM has the benefit of roaming, being readily available as a result of the GSMA’s mandate. Currently, GSM low end handsets are somewhat lower priced than CDMA handsets, although this differential is diminishing.

     Many GSM operators are deploying 2.5G mobile packet data technologies, such as GPRS and EDGE (Enhanced Data Rates for GSM Evolution), as a bridging technology, while they wait for 3G WCDMA devices to become readily available. We do not believe that GPRS and EDGE effectively compete with 3G CDMA-based packet data services, either on a cost or performance basis, although these technologies have been deployed in GSM networks.

     Third Generation. As demand for wireless networks that carry both data and voice traffic at faster speeds has increased significantly, several 3G wireless standards were proposed to the ITU by a variety of companies and alliances. These proposals include both CDMA- and TDMA-based technologies. A technology standard selected for 3G must efficiently support significantly increased data speeds and capacity over limited spectrum bandwidth, thereby enabling new and enhanced services and applications such as mobile e-commerce, position location and mobile multimedia web browsing, including music and video downloads.

     CDMA-Based 3G Technology. In May 2000, the ITU adopted the 3G standard known as IMT-2000, which encompasses five terrestrial operating modes, three of them based on our CDMA intellectual property.

     The three IMT-2000 CDMA modes are:

     (1) CDMA2000, also known as Multi-Carrier, which includes CDMA2000 1X/1xEV-DO/1xEV-DV;

     (2) WCDMA, also known as Direct Spread or UMTS; and

     (3) Time Division Duplex, also known as TDD or TD-SCDMA.

     The two operating modes not based on CDMA are DECT+ and UWC-136, also known as Enhanced Data Rates for GSM Evolution (EDGE) for IS-136 TDMA and GSM-based networks.

     The two current commercial versions of CDMA2000 are: CDMA2000 1X and 1xEV-DO. These versions use a 1.25 megahertz (MHz) channel bandwidth to provide both voice communications and high-speed wireless data. CDMA2000 1X/1xEV-DO utilizes the same standard channel bandwidth as existing cdmaOne systems and, as a result, is compatible with wireless telecommunications operators’ existing network equipment, making the migration to 3G simple and affordable. We believe CDMA2000 1X provides approximately twice the voice capacity of cdmaOne and six to eight times that of TDMA-based networks. Additionally, a hybrid approach that utilizes signals from both the GPS satellite constellation and CDMA cell sites, and is also available for non-CDMA networks, has enabled CDMA system operators to meet the Federal Communications Commission (FCC) mandate requiring wireless operators to implement enhanced 911 (E911) wireless emergency location services. In the future, the performance of CDMA2000 1X and 1xEV-DO is expected to increase. Other enhancements, such as multicast services, higher-resolution displays, longer battery life, push-to-talk services and voice over Internet protocol are becoming available to improve the user experience and operator profitability.

     Commercial deployment of CDMA2000 1X began in October 2000 in South Korea where more than 31 million, or approximately 85%, of the nation’s total mobile service users were using this technology by the end of September 2004. Commercial deployment of CDMA2000 1X in North America, Brazil and Romania began in December 2001. KDDI commercially deployed CDMA2000 1X in Japan in April 2002 and reported more than 15 million CDMA2000 1X subscribers as of August 2004. In January 2002, China Unicom launched its nationwide CDMA network and had nearly 26 million CDMA subscribers at the end of September 2004. In May 2003, Reliance Infocomm launched its nationwide CDMA network in India and had over nine million subscribers at the end of September 2004.

     Commercial deployment of CDMA2000 1xEV-DO began in January 2002 in South Korea with the introduction of SKT’s high-speed mobile multimedia and broadcast service called “June.” As of September 2004, SKT and KTF

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reported more than nine million CDMA2000 1xEV-DO subscribers in Korea. Today, more than 80% of the CDMA market is in various stages of 1xEV-DO deployments and trials. For example, Verizon Wireless in the United States and KDDI in Japan began their nationwide roll-out of 1xEV-DO services on October 1, 2003 and November 28, 2003, respectively. As of September 2004, KDDI had more than one million 1xEV-DO subscribers. On August 2, 2004, Eurotel, a CDMA450 operator in the Czech Republic, became the first European operator to deploy 1xEV-DO in Europe. Sprint PCS has also announced its plans to begin its nationwide roll-out of 1xEV-DO-based services starting in the autumn of 2004. As of October 2004, ten wireless phone operators have commercially deployed our CDMA2000 1xEV-DO technology in South Korea, the United States, Japan, Brazil, Guatemala, Romania and the Czech Republic. More than a dozen other operators have publicly announced trials and are in the process of rolling out 1xEV-DO commercially over the next 12 months.

     We are seeing greater adoption of 1xEV-DO among operators worldwide. Consequently, commercial deployments of 1xEV-DV are uncertain, yet may possibly occur in the future.

     The European Community has focused primarily on the second mode of the IMT-2000 standard, known as WCDMA, which is based on our underlying CDMA technology. Most all of the world’s leading wireless phone and infrastructure manufacturers have licensed our technology, enabling them to utilize this WCDMA mode of the 3G technology. Our 3G CDMA licensees include Siemens, Nokia, Ericsson, Motorola, Lucent, Samsung, LG Electronics, Hitachi, NEC, Nortel, Toshiba, Sanyo, Sharp, Fujitsu, Denso, Agilent, Alcatel, Matsushita, Mitsubishi, and Kyocera, among others. We expect a significant growth in the WCDMA subscriber base over the next five years mostly in Japan (led by NTT DoCoMo) and Europe; thus, we have allocated a significant amount of engineering, production and business resources to adequately support this large growth opportunity.

     The TD-SCDMA mode is the least developed of the 3G CDMA alternatives. Support for the development of this version of the 3G technologies has been provided by the Chinese government.

     The three 3G CDMA wireless operating modes discussed above are all based on the underlying core principles of CDMA technology; however, the CDMA2000 mode enables a direct and relatively more economical conversion for current cdmaOne networks. WCDMA has been specifically designed to operate in GSM networks. We will continue to develop integrated circuits for the CDMA2000 and WCDMA modes, and expect to develop integrated circuits for all other modes of the 3G standard based on CDMA. In addition, our intellectual property rights include core and primary patents utilized by each of the 3G CDMA alternatives, and the royalty rate to be paid to us by subscriber unit licensees for 3G CDMA products is no less than the rate that a licensee will pay for second generation cdmaOne products.

     These three 3G CDMA wireless operating modes require separate implementations and are not interchangeable from a technological perspective. While the fundamental core technologies are derived from CDMA and are covered by our patents, they each require unique infrastructure products, network design and management. They are however being linked through multimode wireless devices.

Operating Segments

     Consolidated revenues from international customers as a percentage of total revenues were 79% in fiscal 2004, 77% in fiscal 2003 and 69% in fiscal 2002. During fiscal 2004, 43% and 18% of our revenue was from customers and licensees based in South Korea and Japan, respectively, as compared to 45% and 15% during fiscal 2003, respectively, and 39% and 18% during fiscal 2002, respectively.

     Risks related to our conducting business with customers and licensees outside of the United States are described in Risk Factors – “We are subject to the risks of our and our licensees conducting business outside of the United States.” Additional information regarding our operating segments is provided in the Notes to our Consolidated Financial statements. See “Notes to Consolidated Financial Statements, Note 10 – Segment Information.”

QUALCOMM CDMA Technologies Segment (QCT)

     QCT is a leading developer and supplier of integrated circuits and system software for wireless voice and data communications multimedia functions and global positioning products. QCT offers software and integrated circuits for wireless handsets and infrastructure equipment. These products provide customers with advanced wireless technology, enhanced component integration and interoperability, and reduced time to market. QCT provides integrated circuits and system software to many of the world’s leading wireless handset and infrastructure manufacturers. In fiscal 2004, QCT shipped approximately 137 million MSM integrated circuits for CDMA wireless devices worldwide. QCT revenues comprised 63% of total consolidated revenues in both fiscal 2004 and 2003 and

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54% of total consolidated revenues in fiscal 2002. Four major customers, Kyocera Wireless, LG Electronics, Motorola Inc. and Samsung Electronics Company constitute a significant portion of QCT’s revenues, such that the loss of any one of these customers could potentially reduce our revenues and harm our ability to achieve or sustain acceptable levels of operating results. QCT has subcontracted all of the manufacturing and assembly, and most of the testing, of its integrated circuits. QCT depends on a limited number of third parties to perform these functions, some of which are only available from single sources with which QCT does not have long-term contracts.

     QCT sells products to both wireless phone and infrastructure manufacturers. For wireless phone manufacturers, QCT’s products include baseband and system software, radio frequency, intermediate frequency, and power management devices. These highly integrated products enable manufacturers to design very small, feature-rich handsets with longer standby and talk times that support existing cdmaOne and 3G services. For wireless infrastructure manufacturers, QCT offers CDMA integrated circuits and system software that provide wireless standards-compliant processing of voice and data signals to and from wireless handsets. In addition to the key components in a wireless system, QCT provides our customers with system reference designs and development tools to assist in customizing features and user interfaces, to integrate our products with components developed by others, and to test interoperability with existing and planned networks. Together, the phone and infrastructure products and services form a complete system for the wireless communications industry. QCT is also closely aligned with manufacturers and operators in product plans, design specifications and development timelines.

     Our gpsOne wireless location feature has enabled a host of new value-added, high-precision location-based services such as friend finder, child safety, personal direction finding and mobile yellow page services, and has enabled CDMA system operators to meet the FCC’s E911 mandate. Using a hybrid approach that utilizes signals from both the GPS satellite constellation and cell sites, the gpsOne feature enhances location services availability, expands terrain coverage, accelerates the location determination process and provides better accuracy for callers, whether during emergency situations or while using GPS-enabled commercial applications. E911 deployments by CDMA operators in the United States are well under way. Approximately 50 million gpsOne-enabled terminals are in use today, supporting well in excess of 130 high-precision location-based services in Japan, South Korea, Thailand, Brazil and China.

     We have developed 1xEV-DO technology designed to provide reliable, cost-effective and always-on wireless data and Internet access to consumers. It is fully compatible with existing cdmaOne and CDMA2000 1X technologies, and has been standardized as part of the CDMA2000 mode of the 3G standard. The versatility of 1xEV-DO allows the technology to be embedded in phones, laptop and handheld computers, and other fixed, portable and mobile devices; 1xEV-DO enables manufacturers to deliver products with access to services that were previously only available through wired connections to the Internet or enterprise networks. The 1xEV-DO technology allows operators to leverage their current infrastructure investment and maintain compatibility with existing phone equipment. We designed and developed a complete package of products, including both infrastructure and phone integrated circuits, in support of the industry-wide movement to standardize, develop and deploy 1xEV-DO technology in CDMA2000 networks.

     Our MSM series integrated circuits are the primary integrated circuits in a CDMA wireless phone. Our Cell Site Modem (CSM) series integrated circuits are the primary integrated circuits in a wireless service provider’s base station equipment. The CSM5500 and MSM5500 integrated circuits offer 1xEV-DO handset and infrastructure modems for high-speed data. These products support the 1xEV-DO standard, as well as CDMA2000 1X, and offers compatibility with IS-95 A/B CDMA systems.

     QCT’s MSM6xxx family of products, incorporating radioOne technology, enables tiered products for CDMA2000 1X, 1xEV-DO, WCDMA and GSM/GPRS/EDGE networks. RadioOne technology MSMs, combined with accompanying companion RF components, perform the receive and transmit functions for wireless devices without requiring additional intermediate frequency components, thereby enabling manufacturers to reduce total device cost and size. The MSM6000 CDMA2000 1X integrated circuit is an entry-level product optimized for voice and short message service applications. The MSM6025 provides voice and limited data capabilities to support demand by operators worldwide for lower-tier handsets that also support data services. The MSM6050 integrated circuit offers basic data services for entry-level multimedia devices and gpsOne for position location services. The MSM6100 integrated circuit and system software is a highly integrated CDMA2000 1X multimedia product enabling lower system costs for manufacturers developing handsets with advanced multimedia applications. There are in excess of 120 separate handset designs expected to come to market in the next 12 months based on the MSM6000, MSM6025, MSM6050 and MSM6100. Many of these are being sold today.

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     Extending the MSM6xxx family of integrated circuits, we have also announced the development of the MSM6150 integrated circuit and system software for CDMA2000 1X and the MSM6550 integrated circuit and system software for CDMA2000 1X, 1xEV-DO and multimode GSM/GPRS. These highly integrated products address global market requirements for higher quality video and graphics performance on wireless devices. We began providing samples to customers of the MSM6300, a single-baseband 3G product for multimode and multiband CDMA2000 1X and GSM/GPRS, in September 2002. The MSM6300 and accompanying radioOne RF integrated circuits comprise the first world-phone integrated circuit enabling global roaming across wireless networks. In March 2003, Samsung was the first customer to introduce product based on this integrated circuit. In fiscal 2004, the MSM6300 has also been used in products introduced by LG, Motorola and Samsung into the China market. In fiscal 2003, we began providing initial samples to customers of the high-capacity, high-speed MSM6500 integrated circuit and system software that supports CDMA2000 1X, CDMA2000 1xEV-DO and roaming on GSM/GPRS systems. We also announced the CSM6800 integrated circuit and the MSM6800 integrated circuit and system software for the wireless technology standard CDMA2000 1xEV-DO revision A to provide cost-competitive products for both infrastructure and multimedia-enabled devices. Revision A results in greater data rates on the link from the handset to the network and reduced response times, as well as other improvements.

     Leveraging our expertise in CDMA we have developed integrated circuits for manufacturers and operators deploying the WCDMA version of 3G. We began shipping samples to customers of the MSM6200 integrated circuit in June 2002, and to date several customers including Samsung, LG Electronics, Sanyo, Option and Novatel Wireless, have introduced mobile phones and data cards, which are modem devices that insert into laptop computers to facilitate access to the Internet via wireless networks. The MSM6200 integrated circuit and system software is a highly integrated system for WCDMA/GSM/GPRS and includes Bluetooth connectivity and a host of multimedia features. Our next generation WCDMA product, the MSM6250 integrated circuit, is a cost-effective, feature-rich multimedia and position location product that operates on all GSM/GPRS and WCDMA networks worldwide. Through fiscal 2004, we have signed 25 separate WCDMA licensing agreements with device manufacturers that have selected our MSM6200 and/or MSM6250 integrated circuits to support commercial WCDMA network deployments throughout China, Europe, South Korea, Taiwan and the United States.

     In fiscal 2004, we announced the development of two new products to support advanced data services for High Speed Downlink Packet Access (HSDPA), a next generation feature of the WCDMA standard. The two new products are the MSM6275 and the MSM6280 radioOne integrated circuits and system software which are high performance products that deliver HSDPA, as well as roam on GSM/GPRS/EDGE systems. We expect to provide samples of our first high-performance HSDPA integrated circuit, the MSM6275, to customers in the first quarter of fiscal 2005.

     In fiscal 2004, we also announced the Convergence Platform, three chipset products that address all major 3G air interfaces and incorporates popular digital electronics functionalities into wireless devices. The Convergence Platform includes the MSM7200, which supports WCDMA/HSDPA and GSM/GPRS/EDGE; the MSM7500, which supports CDMA2000 1xEV-DO and GSM/GPRS; and the MSM7600, which supports CDMA2000 1xEV-DO, CDMA2000 1xEV-DV, WCDMA/HSPA and GSM/GPRS/EDGE. The Convergence Platform products will enable portable business, high-fidelity entertainment, interactive 3D gaming and other advanced multimedia, connectivity and position location applications which are all easily integrated into communications devices to leverage the convenience of wireless.

QUALCOMM Technology Licensing Segment (QTL)

     QTL grants licenses to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of CDMA (including, without limitation, cdmaOne, CDMA2000 1X/1xEV-DO/1xEV-DV, TD-SCDMA and WCDMA) products. QTL receives revenue from license fees as well as ongoing royalties based on worldwide sales by licensees of products incorporating or using our intellectual property. The license fees are generally nonrefundable and may be paid in one or more installments. Ongoing royalties are nonrefundable and are generally based upon a percentage of the net selling price of licensed products. Revenues generated from royalties are subject to quarterly and annual fluctuations. QTL revenues comprised 27%, 26% and 29% of total consolidated revenues in fiscal 2004, 2003 and 2002, respectively.

QUALCOMM Wireless & Internet Segment (QWI)

     QWI revenues comprised 12%, 13% and 16% of total consolidated revenues in fiscal 2004, 2003 and 2002, respectively. The three divisions aggregated into QWI are:

     QUALCOMM Internet Services (QIS)

     The QIS division provides technology to support and accelerate the growth of the wireless data market. The BREW (Binary Runtime Environment for Wireless) platform is an application execution environment that provides an open platform for wireless devices, which means that BREW can be made to interface with many software applications, including those developed by others. The BREW platform is part of a complete package of products for wireless applications development, device configuration, application distribution, and billing and payment. The BREW platform currently leverages the capabilities available in QCT’s integrated circuits and system software, enabling development of feature-rich applications and content while reducing memory overhead and maximizing

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system performance. The BREW product and services include the BREW SDK (software development kit) for developers, the BREW applications platform (i.e. software programs) and interface tools for device manufacturers, and the BREW Distribution System that enables network operators to deliver applications and content to market while providing settlement of the billing and payment process. The BREW platform also includes BREW extensions, such as virtual machines, browsers and other interpreters that process executable content, such as JAVA midlets, XHTML, HTML, JavaScript and Flash. Commercial BREW-based services enable consumers to customize their handsets by downloading applications over-the-air from an operator’s application download server.

     In November 2001, KTF, a leading wireless phone operator in South Korea, launched the world’s first commercial BREW-enabled applications service. KTF’s BREW-enabled wireless data service runs on a CDMA2000 1X high-speed data network as well as EV-DO. Thirty-six additional operators have since commercially launched BREW services including Verizon Wireless, Alltel, US Cellular, and Midwest Cellular in the US, KDDI in Japan, Telstra in Australia, BellSouth in Colombia, VIVO in Brazil and China Unicom, as well as other operators. Additionally, Reliance, the largest CDMA operator in India, has signed a definitive agreement to launch BREW services in the rapidly growing India wireless market.

     In January 2002, we announced a multi-year licensing agreement with Nextel for QChat, a technology developed to provide a reliable method of instant connection and two-way communication between users via their mobile phones. Using QChat, users may speak with other users virtually instantaneously at the push of a button. It enables one-to-one (private) and one-to-many (group) calls over 3G CDMA networks. The technology also allows over-the-air upgrades of handset software, management of group membership by subscribers and ad-hoc creation of chat groups. It uses standard voice-over Internet protocol technologies. This means sending voice information in digital form over Internet protocol-based data networks (including CDMA) in discrete packets rather than the traditional circuit-switched protocols of the public switched telephone network.

     QUALCOMM Wireless Business Solutions (QWBS)

     We provide satellite and terrestrial-based two-way data messaging and position reporting services to transportation companies, private fleets, construction equipment fleets and other enterprise companies. The satellite-based OmniTRACS mobile communications system was first introduced in the United States in 1988. Through September 2004, we have shipped over 520,000 satellite-based mobile communications systems (OmniTRACS and TruckMAIL) and over 22,000 terrestrial-based mobile communications systems (OmniExpress, T2 Untethered TrailerTRACS, GlobalTRACS and LINQ), which currently operate in over 39 countries. Message transmission and position tracking for the OmniTRACS and TruckMAIL systems are provided by use of leased Ku-band and C-band transponders on commercially available geostationary earth orbit satellites. The OmniExpress, T2 Untethered TrailerTRACS, GlobalTRACS and LINQ systems use wireless digital terrestrial networks for messaging transmission, and the GPS constellation for position tracking. These mobile communications systems help transportation companies, private fleets and construction equipment fleets improve the utilization of assets and increase efficiency and safety by improving communications between drivers, machines and dispatchers. System features include status updates, load and pick-up reports, position reports at regular intervals, and vehicle and driving performance information.

     In the United States and Mexico, we manufacture and sell OmniTRACS, TruckMAIL, OmniExpress, T2 Untethered TrailerTRACS and GlobalTRACS mobile communications equipment, sell related software packages and provide ongoing messaging and maintenance services. We have sold OmniTRACS, TruckMAIL and OmniExpress systems for use by private trucking fleets, service vans, marine vessels, trains, federal emergency vehicles, and for oil and gas pipeline control and monitoring sites. Our GlobalTRACS system is sold to the construction equipment industry, providing wireless access to equipment operating data and location, regardless of equipment type or manufacturer. Message transmissions for operations in the United States are formatted and processed at our Network Management Center in San Diego, California, with a fully-redundant backup Network Management Center located in Las Vegas, Nevada. We estimate the Network Management Center currently processes over seven million messages and position reports per day.

     In fiscal 2004, we began shipping T2 Untethered TrailerTRACS for private fleets and for-hire carriers. The T2 Untethered TrailerTRACS product is an advanced, stand-alone wireless system that provides rapid-status visibility into trailer locations and operational events and vehicle position reporting for improved fleet utilization and security. Features include sophisticated on-board hardware, advanced power management, complete network services, cargo and door sensors and data integration capabilities using state-of-the-art, multimode communications. We recently announced the availability of a Vehicle Immobilization Device and a Security Integration Package for the

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OmniTRACS satellite mobile communication system. The new security features offer enhanced protection to high-value and hazardous materials cargo and personnel.

     In addition to the United States, the OmniTRACS system is currently operating throughout Europe and in the Middle East, Argentina, Brazil, Canada, Mexico, China, Japan and South Korea. Outside of the United States, Mexico and Europe, we work with distributors or through joint ventures to provide the OmniTRACS service and products in foreign markets. We generate revenues from the OmniTRACS system through license fees, sales of network products and terminals, messaging and service fees. Service providers that operate network management centers for a region under our granted licenses provide OmniTRACS messaging services.

     QUALCOMM Government Technologies (QGOV)

     The QGOV division (formerly known as QUALCOMM Digital Media, or QDM) provides development, hardware and analytical expertise to United States government (USG) agencies involving wireless communications technologies. We have developed, produced and shipped second generation CDMA secure wireless terrestrial phones for the USG that operate in enhanced security modes (referred to as Type 1) and incorporate end-to-end encryption. Additionally, OmniTRACS products and services are being marketed for USG worldwide applications and were sold to the USG during fiscal 2004. Based on the percentage of QGOV revenues to our total consolidated revenues, the USG is not a major customer.

     The QGOV division included the former Digital Cinema business prior to June 2004. In June 2004, we were notified that a competing digital cinema compression technology was selected by the motion picture studio consortium tasked with technology selection for digital cinema applications. As such, we are no longer pursuing the Digital Cinema business.

QUALCOMM Strategic Initiatives Segment (QSI)

     We make strategic investments to promote the worldwide adoption of CDMA products and services for wireless voice and Internet data communications, including CDMA operators, licensed device manufacturers and companies that support the design and introduction of new CDMA-based products or possess unique capabilities or technology. We make strategic investments in early stage companies and, from time to time, venture funds to support the adoption of CDMA and the use of the wireless Internet. In November 2001, we acquired controlling interests in two CDMA operators in Brazil (Vésper Operating Companies). We sold these two operators in fiscal 2004. We have a significant investment in Inquam Limited (Inquam). Inquam owns, develops and manages wireless communications systems, either directly or indirectly, with the primary intent of deploying CDMA-based technology.

Other Businesses

     MediaFLO

     We are developing the MediaFLO Content Distribution System (MDS) and FLO technology for delivery of low cost multimedia content to multiple subscribers. The MDS will provide network operators the ability to enhance their multimedia service offering capabilities via efficient scheduling of content delivery. Network operators can utilize the MDS with their current unicast networks and with multicast networks, which are soon to be available, operating on CDMA2000 1xEV-DO or WCDMA. The MDS is not air-interface specific and thus can be utilized by CDMA2000, WCDMA and FLO technology operators alike. FLO is a multicast technology specifically designed for markets where dedicated spectrum is available and where regulations permit high-power transmission, thereby reducing the number of towers required to provide market coverage. FLO technology is complementary to existing cellular networks because interactive services are supported within the mobile device using the CDMA2000 1X, 1xEV-DO or WCDMA cellular link and is intended as an enhancement of other multimedia multicasting technologies.

     On November 1, 2004, we announced plans for our MediaFLO USA subsidiary, which is expected to begin commercial operations in 2006. MediaFLO USA will offer a nationwide FLO technology based network as a shared resource for wireless operators in the United States and their customers. The wireless multimedia U.S. operator plans to use our nationwide 700 MHz spectrum and will be responsible for procuring and distributing the common content made available to all of its wireless operator customers. Distribution, marketing, billing and customer relationships are expected to remain with the wireless operator partners. Effective as of the beginning of fiscal 2005, we expect to present the operating results of MediaFLO USA in the QSI segment. We ultimately intend to spin off our ownership interest in MediaFLO USA to our stockholders.

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     QUALCOMM Wireless Systems (QWS)

     We provide services and sell products under new commercial agreements to Globalstar LLC (New Globalstar) and its service providers and other customers. New Globalstar operates a worldwide, low-Earth-orbit satellite-based telecommunications system. We received membership interests in New Globalstar in fiscal 2004 as a result of its emergence from bankruptcy related to our claims as a creditor. At September 30, 2004, we held an approximate 3.8% interest in New Globalstar. On October 5, 2004, we received an additional ownership interest in New Globalstar as partial consideration for the sale of mobile phones. As a result, we currently hold an approximate 6.7% interest in New Globalstar.

     QUALCOMM Consumer Products (QCP)

     In February 2000, we sold our terrestrial-based CDMA wireless consumer phone business to Kyocera Wireless (Kyocera). As part of the agreement with Kyocera, we formed a subsidiary to provide services to Kyocera on a cost-plus basis to support Kyocera’s phone business. This arrangement expired in February 2003, and Kyocera offered employment to substantially all employees of the subsidiary. During fiscal 2003 and 2002, revenues from this arrangement were $39 million and $105 million, respectively, and earnings before taxes were not significant.

Research and Development

     The wireless telecommunications industry is characterized by rapid technological change, requiring a continuous effort to enhance existing products and develop new products and technologies. Our research and development team has a strong and proven track record of innovation in wireless communications technologies. Our research and development expenditures in fiscal 2004, 2003 and 2002 totaled approximately $720 million, $523 million and $452 million, respectively. Research and development expenditures in fiscal 2004, 2003 and 2002 were primarily related to integrated circuit product and other initiatives to support multimedia applications, high-speed wireless Internet access and multimode, multiband, multinetwork products, including CDMA2000 1X/1xEV-DO, WCDMA and HSDPA.

     In fiscal 2004, we opened three new research and development centers in North Carolina, Texas, Germany and India. The centers support our global CDMA development activities and ongoing efforts to advance CDMA technologies. We intend to use our substantial engineering resources and expertise to develop new technologies, applications and services and make them available to licensees to help grow the wireless telecommunications market and generate new or expanded licensing opportunities. In addition to internally sponsored research and development, we perform contract research and development for various government agencies and commercial contractors.

Sales and Marketing

     QCT markets and sells products in the United States through a sales force based in San Diego, California, and internationally through a direct sales force based in South Korea, Japan, China, Taiwan, Germany and the United Kingdom. QCT’s sales and marketing strategy is to achieve design wins with technology leaders in our targeted markets by, among other things, providing high performance products combined with superior field application and engineering support.

     The QIS division of QWI develops and sells business-to-business products and services to companies worldwide. The sales and marketing team is headquartered in San Diego with offices worldwide. The QIS sales and marketing strategy is to enter into contracts with companies in target markets by providing comprehensive technology and services to help them provide next-generation wireless data services that combine wireless Internet, data and voice capabilities.

     The QWBS division of QWI markets and sells products through a sales force, partnerships, and distributors based in the United States, Europe, the Middle East, Argentina, Brazil, Canada, China, Japan, South Korea and Mexico. QWBS’s sales and marketing strategy is to enter into contracts with companies in our target markets by providing high-value wireless fleet management products and services to the transportation and logistics and construction equipment industries.

     Marketing activities include participation in technical conferences, business cases, competitive analyses and other marketing collateral, publication of customer deployments, new product information and educational articles in industry journals, maintenance of our World Wide Web site and direct marketing to prospective customers and prospective licensees. We also developed and maintain a World Wide Web site (www.3Gtoday.com) dedicated to highlighting commercial 3G wireless services and products around the world.

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     Our CDMA Development Center in China is a 36,000 square foot facility in Beijing in what is popularly known as ‘China’s Silicon Valley.’ The center provides training, support and equipment testing services primarily to manufacturers and mobile operators in China, as well as supporting research and development of 3G wireless standards based on CDMA. The center houses the QUALCOMM CDMA University which offers classroom and hands-on training programs on CDMA2000 and WCDMA. The center also offers a highly-integrated test program designed to enable time and cost savings when bringing products to market. The center and its staff are focused on providing China with the resources to enable the most timely development of its mobile communications industry using our technologies and applications, such as cdmaOne, CDMA2000 1X/1xEV-DO, GSM1x and gpsOne. The center also supports the transfer of certain hardware and software technologies for product development and manufacturing to licensed manufacturers, as well as network design and optimization methods to operators and government bodies in China.

Competition

     Competition in the wireless telecommunications industry in the United States and throughout the world continues to increase at a rapid pace, as businesses and foreign governments realize the market potential of telecommunications services. We have facilitated competition in the CDMA market by licensing a large number of manufacturers. Although we have attained a major position in the industry, many of our current and potential competitors may have advantages over us, including:

•		longer operating histories and presence in key markets;
•		greater name recognition;
•		access to larger customer bases; and
•		greater sales and marketing, manufacturing, distribution, technical and other resources than we have.

     These competitors may have more established relationships and greater technical, marketing, sales and distribution capabilities and greater access to channels in markets not currently deploying wireless communications technology. These competitors also have established or may establish financial or strategic relationships among themselves or with our existing or potential customers, resellers or other third parties. These relationships may affect customers’ decisions to purchase products or license technology from us. Accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market share to our detriment. In addition, many of these companies are licensees of our technology and have established market positions, trade names, trademarks, patents, copyrights, intellectual property rights and substantial technological capabilities. We may face competition throughout the world with new technologies and services introduced in the future as additional competitors enter the market place for products based on 3G standards. Although we intend to continuously develop improvements to existing technologies, as well as potentially new technologies, there may be a continuing competitive threat from companies introducing alternative versions of wireless technologies. We also expect that the price we charge for our products and services may continue to decline as competition intensifies.

     QCT Segment. The markets in which our QCT segment operates are intensely competitive. QCT competes worldwide with a number of United States and international semiconductor designers and manufacturers. As a result of the trend toward global expansion by foreign and domestic competitors and technological and public policy changes, we anticipate that additional competitors will enter this market. We believe that the principal competitive factors for CDMA integrated circuit providers to our addressed markets are product performance, level of integration, quality, compliance with industry standards, price, time to market, system cost, design and engineering capabilities, new product innovation and customer support. The specific bases on which we compete against alternative CDMA integrated circuit providers vary by product platform. We also compete against alternative wireless communications technologies including, but not limited to, GSM/GPRS/EDGE, TDMA and analog.

     QCT’s current competitors include major semiconductor companies such as Texas Instruments, STMicroelectronics, Freescale, VIA Telecom, NEC, Infineon and Philips, as well as major telecommunication equipment companies such as Motorola, Nokia, Ericsson, Samsung and Matsushita, who design their own integrated circuits and software for certain products. QCT also faces competition from some start-up ventures.

     Our competitors may devote a significantly greater amount of their financial, technical, marketing and other resources to aggressively market competitive telecommunications systems or to develop and adopt competitive digital cellular technologies, and those efforts may materially and adversely affect QCT. Moreover, competitors may

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offer more attractive product pricing or financing terms than we do as a means of gaining access to the wireless telecommunications markets.

     We have entered into licensing agreements with certain companies, including Philips, Motorola, Lucent, Texas Instruments, VIA Telecom, PrairieComm, NEC, EoNex Technologies and Infineon. These licenses permit the licensees to manufacture CDMA-based integrated circuits using certain of our intellectual property for sale to CDMA-based phone manufacturers. In exchange for granting the licenses, we are entitled to receive license fees, royalties (payable as a percentage of the selling price of the integrated circuits) and/or royalty-free cross-licenses, which allow us to use these companies’ CDMA and, in some cases, non-CDMA intellectual property for specified purposes. In every case, the phone manufacturers’ sales of CDMA-based phones are subject to the payment of royalties to us on the products into which the integrated circuits are incorporated in accordance with the manufacturers’ separate licensing arrangements with us. We license our CDMA intellectual property to the competitors of our QCT segment to support the deployment of CDMA-based systems and technologies worldwide in order to grow our royalty revenues from customers licensed to sell CDMA phones and equipment. We believe that, if the use of CDMA expands sufficiently, QCT’s business will also grow, even if we lose market share. Also, our QTL segment will receive royalties from sales of CDMA integrated circuits by certain competitors of QCT. To date, most cdmaOne and CDMA2000 phone manufacturer licensees have elected to purchase their CDMA-based integrated circuits from us.

     QTL Segment. As part of our strategy to generate new and ongoing licensing revenues, significant resources are allocated to develop leading edge technology for the telecommunications industry. We face competition in the development of intellectual property for future generations of digital wireless communications technology and services.

     On a worldwide basis, we currently compete primarily with two digital wireless telecommunications technologies, TDMA and GSM/GPRS. TDMA has been deployed primarily in the United States and Latin America. Variations of TDMA have also been deployed in other countries, such as PDC (Personal Digital Cellular) in Japan and PAS (Personal Access System) in China. GSM has been extensively utilized in Europe, much of Asia other than Japan and Korea, and certain other markets. To date, GSM has been more widely adopted than CDMA, however, CDMA technologies have been adopted for all third generation wireless systems. WCDMA, a technology designed as an alternative to CDMA2000, is an approved 3G standard and has been adopted by several European, Japanese and United States operators. We expect that, although a considerable number of limited systems have been placed in service (e.g., the largest commercial WCDMA system is that of NTT DoCoMo in Japan with over six million subscribers as of September 30, 2004), widespread WCDMA networks will not begin commercial operation until late 2004 or later. In addition, many GSM operators have deployed or are expected to deploy GPRS, a packet data technology, as a 2.5G bridge technology, and some GSM operators plan to deploy EDGE, while waiting for third generation WCDMA to become available and/or more cost effective for their system. A limited number of operators have started testing OFDMA (Orthogonal Frequency Division Multiplexing Access) technology, a multi-carrier transmission technique not based on CDMA technology, that divides the available spectrum into many carriers, with each carrier being modulated at a low data rate relative to the combined rate for all carriers.

     QWI Segment. Existing competitors of our QWBS division offering alternatives to our OmniTRACS, TruckMAIL, OmniExpress, T2 Untethered TrailerTRACS, GlobalTRACS, QConnect, EutelTRACS, OmniOne and LINQ system products are aggressively pricing their products and services and could continue to do so in the future. In addition, these competitors are offering new value-added products and services similar in many cases to our existing or developing technologies. Emergence of new competitors, particularly those offering low cost terrestrial-based products and current as well as future satellite-based systems, may impact margins and intensify competition in new markets. Similarly, some original equipment manufacturers of trucks and truck components are beginning to

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offer built-in, on-board communications and position location reporting systems that may impact our margins and intensify competition in our current and new markets.

     Competitors to our BREW platform are continuing to develop their products with a focus on client, provisioning, and billing products and services. These competitors are attempting to offer value added products and services similar, in many cases, to our existing or developing BREW technologies. In some cases, competitors are continuing to explicitly attempt to displace only certain components or areas of the greater BREW offering, such as only the runtime client/device environment portion of BREW. In addition, certain competitors in the computing industry and device manufacturing space are now beginning to more aggressively attempt to replicate the entire BREW system offering that includes both runtime device environments and billing/distribution systems. Similarly, some operators are creating internally developed solutions by piecing together several components or are being pressured by governments to adopt alternatives to our products and services. Emergence of these and other new competitors may adversely impact our margins and market share.

Patents, Trademarks and Trade Secrets

     We rely on a combination of patents, copyrights, trade secrets, trademarks and proprietary information to maintain and enhance our competitive position. We have been granted more than 1,300 United States patents and have over 2,000 patent applications pending in the United States. The vast majority of such patents and patent applications relate to our CDMA digital wireless communications technology. We also have and will continue to actively file for patent protection outside the United States and have received numerous CDMA patents with broad coverage throughout most of the world, including China, Japan, South Korea, Europe, Brazil, India and elsewhere.

     The standards bodies and the ITU have been informed that we hold essential intellectual property rights for the 3G standards that are based on CDMA. We have committed to the ITU to license our essential patents for these CDMA standards on a fair and reasonable basis free from unfair discrimination.

     Under our CDMA license agreements, licensees are generally required to pay us a non-refundable license fee as well as ongoing royalties based on a percentage of the net selling price of CDMA subscriber, infrastructure, test and integrated circuits products. License fees are paid in one or more installments, while royalties generally continue throughout the life of the licensed patents. Our CDMA license agreements generally provide us rights to use certain of our licensees’ technology and intellectual property rights to manufacture and sell certain CDMA products (e.g. CDMA application specific integrated circuits or ASICs, subscriber units and/or infrastructure equipment). In most cases, our use of our licensees’ technology and intellectual property is royalty free. However, under some of the licenses, if we incorporate certain of the licensed technology or intellectual property into certain of our products, we are obligated to pay royalties on the sale of such products. Under their existing agreements with us, two entities are entitled to share in a percentage of the royalty revenues that we receive from third parties for their sale of certain CDMA products. Our sharing obligations under one of these arrangements expire in fiscal 2005 and the other in fiscal 2006.

     As part of our strategy to generate licensing revenues and support worldwide adoption of our CDMA technology, we license to other companies the rights to design, manufacture and sell products utilizing certain portions of our CDMA intellectual property. The following table lists the majority of our current CDMA licensees:

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Subscriber
AL Communications Co., Ltd.
Alps Electric Co., Ltd.
Amoi Mobile Co., Ltd.
Appeal Telecom Co., Ltd.
Axesstel, Inc.
Axio Wireless, Inc.
Beijing Telecommunications Equipment Factory
Bellwave, Inc.
Benq Corporation
Casio Computer Co., Ltd.
CEC Telecom Co., Ltd.
Compal Electronics, Inc.
Curitel Communications, Inc.
Cyberlane Inc.
Dalian Daxian Group Co., Ltd.
Dalian Huanyu Mobile Technological Co., Ltd.
Datang Telecom Technology Co., Ltd.
Denso Corporation
eAnywhere Tech, Inc.
Eastern Communications Co., Ltd.
ERON Technologies Corporation
ETRONICS Corporation
Flextronics International Ltd.
Fujitsu Limited
Garmin Corporation
Giga Telecom, Inc.
Glenayre Electronics, Inc.
Growell Telecom Co., Ltd.
Guangzhou Southern Hi-Tech Co., Ltd.
Haier Group Company
High Tech Computer Corporation
Hisense Group Co., Ltd.
Hitachi Kokusai Electric Inc.
Hitachi, Ltd.
Hon Hai Precision Industry Co., Ltd.
Huawei Technologies Co., Ltd.
Hyundai Syscomm, Inc.
Inventec Appliances Corp.
Kenwood Corporation
Koninklijke Philips Electronics N.V.
Konka Group Co., Ltd.
KTF Technologies Inc.
Kyocera Corporation
Langchao Group Co., Ltd.
Legend Mobile Communications Technology Ltd.
LG Electronics, Inc.
Lucent Technologies Inc.
Matsushita Electronic Components Co., Ltd.
Maxon Telecom Co., Ltd.
Mitsubishi Electric Corporation
Mobile System Technologies, Inc.
Motorola, Inc.
NEC Corporation
NG Industrial Ltda.
Ningbo Bird Co., Ltd.
NOKIA Corporation
Novatel Wireless Inc.
Option NV S.A.
palmOne, Inc.
Panasonic Mobile Communications Co., Ltd.
Pantech Co., Ltd.
Research In Motion Limited
Samsung Electronics Co.
Sanyo Electric Co., Ltd.
Seiko Instruments Inc.
Sejin Electron Inc.
Sendum Wireless Corporation
Shanghai Huntel Technologies Co., Ltd.
SHARP Corporation
Siemens Aktiengesellschaft
Sierra Wireless, Inc.
SK Telecom Co., Ltd.
Sony Corporation
Synertek, Inc.
    -Sewon Telecom Ltd.
     - -Telson Electronics Co., Ltd.
     - -Wide Telecom Co., Ltd.
TCL Corporation
Techfaith Wireless Communication Technology Limited
Telefonaktiebolaget LM Ericsson
Teleion Wireless, Inc.
Telular Corporation
Tellus Technology Inc.
Toshiba Corporation
Uniden Corporation
United Computer and Telecommunication, Inc.
UTStarcom, Inc.
Vitelcom Mobile Technology S.A.
VK Corporation
Wavecom S.A.
Westech Korea, Inc.
Wherify Wireless, Inc.
ZTE Corporation

Infrastructure
Airvana, Inc.
AirWalk Communications, Inc.
Alcatel SA
Alps Electric Co., Ltd.
Axio Wireless, Inc.
Beijing Telecommunications Equipment Factory
Cisco Systems, Inc.
Contela, Inc.
Dalian Huanyu Mobile Technological Co., Ltd.
Datang Telecom Technology Co., Ltd.
Eastern Communications Co., Ltd.
Fujitsu Limited
Great Dragon Information Technology Corporation Ltd.
Guangzhou Jinpeng Group Co., Ltd.
Hitachi Kokusai Electric Inc.
Hitachi, Ltd.
Huawei Technologies Co., Ltd.
Hyundai Syscomm, Inc.
interWAVE Advanced Communications, Inc.
Kisan Telecom Co., Ltd.
LG Electronics, Inc.
Lucent Technologies Inc.
Mitsubishi Electric Corporation
Motorola, Inc.
NEC Corporation
NOKIA Corporation
Nortel Networks Limited
Panasonic Mobile Communications Co., Ltd.
Samsung Electronics Co.
Siemens Aktiengesellschaft
Telefonaktiebolaget LM Ericsson
UTStarcom, Inc.
ZTE Corporation
Samsung Electronics Co.
Siemens Aktiengesellschaft
Telefonaktiebolaget LM Ericsson
UTStarcom, Inc.
ZTE Corporation

ASICs
Agere Systems Inc.
EoNex Technologies, Inc.
Infineon Technologies AG
Koninklijke Philips Electronics N.V.
Lucent Technologies Inc.
Motorola, Inc.
NEC Corporation
PrairieComm Incorporated
Texas Instrume