UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

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

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

QUALCOMM Incorporated

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		95-3685934 (I.R.S. Employer Identification No.)
5775 Morehouse Dr., San Diego, California (Address of principal executive offices)		92121-1714 (Zip Code)

     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 twelve 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 ninety days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on January 24, 2011, was as follows:

Class		Number of Shares
Common Stock, $0.0001 per share par value		1,643,746,036

 

 

INDEX

						Page
PART I. FINANCIAL INFORMATION
		Item 1.		Condensed Consolidated Financial Statements (Unaudited)
				Condensed Consolidated Balance Sheets			3
				Condensed Consolidated Statements of Operations			4
				Condensed Consolidated Statements of Cash Flows			5
				Notes to Condensed Consolidated Financial Statements			6
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			37
		Item 4.		Controls and Procedures			38
PART II. OTHER INFORMATION
		Item 1.		Legal Proceedings			39
		Item 1A.		Risk Factors			39
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			39
		Item 3.		Defaults Upon Senior Securities			39
		Item 4.		[Removed and Reserved]			39
		Item 5.		Other Information			39
		Item 6.		Exhibits			39
SIGNATURES							41
CERTIFICATIONS
EX-10.91
EX-10.92
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)

		December 26,				September 26,
		2010				2010
ASSETS
Current assets:
Cash and cash equivalents		$	4,711			$	3,547
Marketable securities			5,798				6,732
Accounts receivable, net			657				730
Inventories			574				528
Deferred tax assets			336				321
Other current assets			255				275
Total current assets			12,331				12,133
Marketable securities			8,598				8,123
Deferred tax assets			1,979				1,922
Property, plant and equipment, net			2,361				2,373
Goodwill			1,519				1,488
Other intangible assets, net			2,983				3,022
Other assets			1,520				1,511
Total assets		$	31,291			$	30,572
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	522			$	764
Payroll and other benefits related liabilities			480				467
Unearned revenues			631				623
Loans payable			1,089				1,086
Income taxes payable			10				1,443
Other current liabilities			1,211				1,085
Total current liabilities			3,943				5,468
Unearned revenues			3,821				3,485
Other liabilities			791				761
Total liabilities			8,555				9,714
Commitments and contingencies (Note 8)
Stockholder’s equity:
Preferred stock, $0.0001 par value; issuable in series; 8 shares authorized; none outstanding at December 26, 2010 and September 26, 2010			—				—
Common stock, $0.0001 par value; 6,000 shares authorized; 1,634 and 1,612 shares issued and outstanding at December 26, 2010 and September 26, 2010, respectively			—				—
Paid-in capital			7,818				6,856
Retained earnings			14,161				13,305
Accumulated other comprehensive income			757				697
Total stockholders’ equity			22,736				20,858
Total liabilities and stockholders’ equity		$	31,291			$	30,572

See Accompanying Notes to Condensed Consolidated Financial Statements.

QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

		Three Months Ended
		December 26,				December 27,
		2010				2009
Revenues:
Equipment and services		$	2,213			$	1,663
Licensing and royalty fees			1,135				1,007
Total revenues			3,348				2,670
Operating expenses:
Cost of equipment and services revenues			1,130				816
Research and development			671				596
Selling, general and administrative			437				379
Total operating expenses			2,238				1,791
Operating income			1,110				879
Investment income, net (Note 5)			219				173
Income before income taxes			1,329				1,052
Income tax expense			(159	)			(211	)
Net income		$	1,170			$	841
Basic earnings per common share		$	0.72			$	0.50
Diluted earnings per common share		$	0.71			$	0.50
Shares used in per share calculations:
Basic			1,623				1,672
Diluted			1,648				1,691
Dividends per share announced		$	0.19			$	0.17

See Accompanying Notes to Condensed Consolidated Financial Statements.

QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

		Three Months Ended
		December 26,				December 27,
		2010				2009
Operating Activities:
Net income		$	1,170			$	841
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			201				162
Revenues related to non-monetary exchanges			(31	)			(37	)
Income tax provision (less than) in excess of income tax payments			(1,474	)			32
Non-cash portion of share-based compensation expense			174				151
Incremental tax benefit from stock options exercised			(45	)			(13	)
Net realized gains on marketable securities and other investments			(127	)			(102	)
Net impairment losses on marketable securities and other investments			11				57
Other items, net			(2	)			4
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net			76				87
Inventories			(45	)			101
Other assets			(23	)			(32	)
Trade accounts payable			(234	)			(226	)
Payroll, benefits and other liabilities			21				(124	)
Unearned revenues			376				338
Net cash provided by operating activities			48				1,239
Investing Activities:
Capital expenditures			(102	)			(88	)
Purchases of available-for-sale securities			(2,309	)			(2,098	)
Proceeds from sale of available-for-sale securities			3,024				2,013
Other investments and acquisitions, net of cash acquired			(66	)			(6	)
Other items, net			7				7
Net cash provided (used) by investing activities			554				(172	)
Financing Activities:
Borrowing under loans payable			1,083				—
Repayment of loans payable			(1,083	)			—
Proceeds from issuance of common stock			791				152
Incremental tax benefit from stock options exercised			45				13
Dividends paid			(309	)			(284	)
Change in obligation under securities lending			38				—
Other items, net			(4	)			(1	)
Net cash provided (used) by financing activities			561				(120	)
Effect of exchange rate changes on cash			1				(4	)
Net increase in cash and cash equivalents			1,164				943
Cash and cash equivalents at beginning of year			3,547				2,717
Cash and cash equivalents at end of year		$	4,711			$	3,660

See Accompanying Notes to Condensed Consolidated Financial Statements.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Presentation

     Financial Statement Preparation. The accompanying interim condensed consolidated financial statements have been prepared by QUALCOMM Incorporated (collectively with its subsidiaries, the Company or QUALCOMM), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States. The condensed consolidated balance sheet at September 26, 2010 was derived from the audited financial statements at that date but may not include all disclosures required by accounting principles generally accepted in the United States. The Company operates and reports using a 52-53 week fiscal year ending on the last Sunday in September. The three-month periods ended December 26, 2010 and December 27, 2009 both included 13 weeks.

     In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2010. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

     Earnings Per Common Share. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and shares subject to written put options, and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three months ended December 26, 2010 and December 27, 2009 were 25,507,000 and 19,642,000, respectively.

     Employee stock options to purchase 60,792,000 and 121,849,000 shares of common stock during the three months ended December 26, 2010 and December 27, 2009, respectively, were outstanding but not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. In addition, 467,000 and 419,000 shares of other common stock equivalents outstanding during the three months ended December 26, 2010 and December 27, 2009, respectively, were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Comprehensive Income. Total comprehensive income consisted of the following (in millions):

		Three Months Ended
		December 26,				December 27,
		2010				2009
Net income		$	1,170			$	841
Other comprehensive income:
Foreign currency translation			5				8
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain marketable debt securities, net of income taxes			(4	)			8
Net unrealized gains on other marketable securities and derivative instruments, net of income taxes			131				169
Reclassification of net realized gains on marketable securities and derivative instruments included in net income, net of income taxes			(76	)			(61	)
Reclassification of other-than-temporary losses on marketable securities included in net income, net of income taxes			4				32
Total other comprehensive income			60				156
Total comprehensive income		$	1,230			$	997

     Components of accumulated other comprehensive income consisted of the following (in millions):

		December 26,				September 26,
		2010				2010
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain marketable debt securities, net of income taxes		$	56			$	62
Net unrealized gains on marketable securities, net of income taxes			784				723
Net unrealized losses on derivative instruments, net of income taxes			(8	)			(8	)
Foreign currency translation			(75	)			(80	)
		$	757			$	697

     At December 26, 2010, accumulated other comprehensive income included $23 million of other-than-temporary losses on marketable debt securities related to factors other than credit, net of income taxes.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Share-Based Payments. Total share-based compensation expense was as follows (in millions):

		Three Months Ended
		December 26,				December 27,
		2010				2009
Cost of equipment and services revenues		$	14			$	11
Research and development			86				72
Selling, general and administrative			72				68
Share-based compensation expense before income taxes			172				151
Related income tax benefit			(56	)			(37	)
Share-based compensation expense, net of income taxes		$	116			$	114

     The Company recorded $13 million and $14 million in share-based compensation expense during the three months ended December 26, 2010 and December 27, 2009, respectively, related to share-based awards granted during those periods. In addition, for the three months ended December 26, 2010 and December 27, 2009, $45 million and $13 million, respectively, were reclassified to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities to reflect the incremental tax benefit from stock options exercised in those periods.

     At December 26, 2010, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $952 million and $402 million, respectively, which are expected to be recognized over a weighted-average period of 2.6 and 2.7 years, respectively. Net share-based awards, after forfeitures and cancellations, granted during the three months ended December 26, 2010 and December 27, 2009 represented 0.4% and 1.2%, respectively, of outstanding shares as of the beginning of each fiscal period. Total share-based awards granted during the three months ended December 26, 2010 and December 27, 2009 represented 0.5% and 1.3%, respectively, of outstanding shares as of the end of each fiscal period.

Note 2. Fair Value Measurements

     Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

	•		Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.
	•		Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument.
	•		Level 3 includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’s own assumptions.

     Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

     The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 26, 2010 (in millions):

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Level 1				Level 2				Level 3				Total
Assets
Cash equivalents		$	2,312			$	1,983			$	—			$	4,295
Marketable securities
U.S. Treasury securities and government-related securities			417				412				—				829
Corporate bonds and notes			—				4,885				—				4,885
Mortgage- and asset-backed securities			—				660				5				665
Auction rate securities			—				—				126				126
Non-investment-grade debt securities			—				3,602				12				3,614
Common and preferred stock			1,178				672				—				1,850
Equity mutual and exchange-traded funds			1,081				—				—				1,081
Debt mutual funds			875				471				—				1,346
Total marketable securities			3,551				10,702				143				14,396
Derivative instruments			—				2				—				2
Other investments (1)			153				—				—				153
Total assets measured at fair value		$	6,016			$	12,687			$	143			$	18,846
Liabilities
Derivative instruments		$	—			$	18			$	—			$	18
Other liabilities (1)			153				—				—				153
Total liabilities measured at fair value		$	153			$	18			$	—			$	171

     Marketable Securities. With the exception of auction rate securities, the Company obtains pricing information from quoted market prices, recognized independent pricing vendors or multiple pricing vendors, or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors to determine whether the inputs used in the vendors’ pricing processes are deemed to be observable.

     The fair value of other government-related securities and investment- and non-investment-grade corporate bonds and notes is generally determined using standard observable inputs, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers.

     The fair value of debt mutual funds is determined based on published net asset values. The Company assesses the underlying assets to determine the fund’s valuation and whether fair value is based on observable or unobservable inputs.

     The fair value of mortgage- and asset-backed securities is derived from the use of matrix pricing or cash flow pricing models in which inputs are observable, including contractual terms, maturity, prepayment speeds, credit rating and securitization structure, to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities, principally those that are rated below AAA, require use of significant unobservable inputs to estimate fair value, including significant assumptions about prioritization of the payment schedule, default likelihood, recovery rates and prepayment speed.

     The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction details such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of market participants. Though the vast majority of the securities are pools of student loans guaranteed by the U.S. government, prepayment speeds and illiquidity discounts are considered significant unobservable inputs. Therefore, auction rate securities are included in Level 3.

     Derivative Instruments. Derivative instruments include foreign currency option and forward contracts to manage foreign exchange risk for certain foreign currency transactions and certain balances denominated in a foreign currency. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including foreign currency exchange rates, volatilities and interest rates. Therefore, derivative instruments are included in Level 2.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during the three months ended December 26, 2010 or December 27, 2009. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. The following table includes the activity for marketable securities classified within Level 3 of the valuation hierarchy (in millions):

		Three Months Ended December 26, 2010
		Auction Rate				Other Marketable
		Securities				Securities				Total
Beginning balance of Level 3 marketable securities		$	126			$	18			$	144
Total unrealized gains included in other comprehensive income			2				—				2
Settlements			(2	)			(1	)			(3	)
Ending balance of Level 3 marketable securities		$	126			$	17			$	143

		Three Months Ended December 27, 2009
		Auction Rate				Other Marketable
		Securities				Securities				Total
Beginning balance of Level 3 marketable securities		$	174			$	31			$	205
Total realized and unrealized (losses) gains:
Included in investment loss, net			—				1				1
Included in other comprehensive income			5				—				5
Settlements			(2	)			(3	)			(5	)
Transfers into Level 3			—				1				1
Ending balance of Level 3 marketable securities		$	177			$	30			$	207

     The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs. Transfers into Level 3 during the three months ended December 27, 2009 primarily consisted of debt securities with significant inputs that became unobservable as a result of an increased likelihood of a shortfall in contractual cash flows or a significant downgrade in the credit ratings.

     Nonrecurring Fair Value Measurements. The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the three months ended December 26, 2010 and December 27, 2009, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3. Marketable Securities

     Marketable securities were comprised as follows (in millions):

		Current								Noncurrent
		December 26,				September 26,				December 26,				September 26,
		2010				2010				2010				2010
Available-for-sale:
U.S. Treasury securities and government-related securities		$	825			$	650			$	4			$	4
Corporate bonds and notes			3,394				3,504				1,491				1,495
Mortgage- and asset-backed securities			629				629				36				38
Auction rate securities			—				—				126				126
Non-investment-grade debt securities			20				21				3,594				3,344
Common and preferred stock			55				52				1,795				1,670
Equity mutual and exchange-traded funds			—				—				1,081				979
Debt mutual funds			875				1,476				—				—
Total available-for-sale			5,798				6,332				8,127				7,656
Fair value option:
Debt mutual fund			—				—				471				467
Time deposits			—				400				—				—
Total marketable securities		$	5,798			$	6,732			$	8,598			$	8,123

     In fiscal 2010, the Company made an investment in a debt mutual fund for which the Company elected the fair value option. The investment would have otherwise been recorded using the equity method. The debt mutual fund has no single maturity date. At December 26, 2010, the Company had an effective ownership interest in the debt mutual fund of 19%. Changes in fair value associated with this investment are recognized in net investment income. The Company believes that recording the investment at fair value and reporting the investment as a marketable security is preferable to applying the equity method because the Company is able to redeem its shares at net asset value, which is determined daily. At September 26, 2010, marketable securities included $400 million of time deposits that matured in December 2010.

     At December 26, 2010, the contractual maturities of available-for-sale debt securities were as follows (in millions):

Years to Maturity																No Single
Less Than				One to				Five to				Greater Than				Maturity
One Year				Five Years				Ten Years				Ten Years				Date				Total
$	1,132			$	4,202			$	1,923			$	955			$	2,782			$	10,994

     Securities with no single maturity date included mortgage- and asset-backed securities, auction rate securities, non-investment-grade debt securities and debt mutual funds.

     The Company recorded realized gains and losses on sales of available-for-sale marketable securities as follows (in millions):

		Gross Realized				Gross Realized				Net Realized
For the three months ended		Gains				Losses				Gains
December 26, 2010		$	128			$	(5	)		$	123
December 27, 2009			107				(5	)			102

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Available-for-sale securities were comprised as follows (in millions):

		Cost				Unrealized Gains				Unrealized Losses				Fair Value
December 26, 2010
Equity securities		$	2,419			$	523			$	(11	)		$	2,931
Debt securities			10,538				476				(20	)			10,994
		$	12,957			$	999			$	(31	)		$	13,925
September 26, 2010
Equity securities		$	2,309			$	403			$	(11	)		$	2,701
Debt securities			10,795				512				(20	)			11,287
		$	13,104			$	915			$	(31	)		$	13,988

     The following table shows the gross unrealized losses and fair values of the Company’s investments in individual securities that have been in a continuous unrealized loss position deemed to be temporary for less than 12 months and for more than 12 months, aggregated by investment category (in millions):

		December 26, 2010
		Less than 12 months								More than 12 months
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Corporate bonds and notes		$	888			$	(7	)		$	40			$	—
Auction rate securities			—				—				126				(2	)
Debt mutual funds			518				(2	)			1				—
Mortgage- and asset-backed securities			141				(1	)			2				—
Non-investment-grade debt securities			301				(5	)			56				(3	)
Common and preferred stock			248				(11	)			3				—
		$	2,096			$	(26	)		$	228			$	(5	)

		September 26, 2010
		Less than 12 months								More than 12 months
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Corporate bonds and notes		$	425			$	(1	)		$	23			$	—
Auction rate securities			—				—				126				(4	)
Non-investment-grade debt securities			296				(7	)			90				(8	)
Common and preferred stock			133				(10	)			3				—
Equity mutual and exchange-traded funds			277				(1	)			—				—
		$	1,131			$	(19	)		$	242			$	(12	)

     At December 26, 2010, the Company concluded that the unrealized losses were temporary. Further, for common and preferred stock with unrealized losses, the Company has the ability and the intent to hold such securities until they recover, which is expected to be within a reasonable period of time. For debt securities with unrealized losses, the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, such securities before recovery or maturity.

     The following table shows the activity for the credit loss portion of other-than-temporary impairments on debt securities held by the Company (in millions):

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Three Months Ended
		December 26,				December 27,
		2010				2009
Beginning balance of credit losses		$	109			$	170
Credit losses recognized on securities previously impaired			(11	)			—
Credit losses recognized on securities previously not impaired			—				1
Reductions in credit losses related to securities sold			(7	)			(12	)
Accretion of credit losses due to an increase in cash flows expected to be collected			(2	)			(16	)
Ending balance of credit losses		$	89			$	143

Note 4 — Composition of Certain Financial Statement Items

     Accounts Receivable.

		December 26,				September 26,
		2010				2010
		(In millions)
Trade, net of allowances for doubtful accounts of $2 and $3, respectively		$	614			$	697
Long-term contracts			38				25
Other			5				8
		$	657			$	730

     Inventories.

		December 26,				September 26,
		2010				2010
		(In millions)
Raw materials		$	24			$	15
Work-in-process			291				284
Finished goods			259				229
		$	574			$	528

     Other Current Liabilities.

		December 26,				September 26,
		2010				2010
		(In millions)
Customer-related liabilities, including incentives, rebates and other reserves		$	658			$	574
Current portion of payable to Broadcom for litigation settlement			170				170
Payable for unsettled securities trades			92				80
Other			291				261
		$	1,211			$	1,085

Note 5 — Investment Income, Net

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Three Months Ended
		December 26,				December 27,
		2010				2009
		(In millions)
Interest and dividend income		$	131			$	145
Interest expense			(28	)			(9	)
Net realized gains on marketable securities			127				102
Impairment losses on marketable securities			(8	)			(52	)
Impairment losses on other investments			(3	)			(5	)
Gains (losses) on derivative instruments			1				(4	)
Equity in losses of investees			(1	)			(4	)
		$	219			$	173

Note 6 — Income Taxes

     The Company currently estimates its annual effective income tax rate to be approximately 14% for fiscal 2011, compared to the 20% effective income tax rate in fiscal 2010. During the first quarter of fiscal 2011, the United States government extended the federal research and development tax credit to include qualified research expenditures paid or incurred after December 31, 2009 and before January 1, 2012. The Company recorded a tax benefit of $32 million related to fiscal 2010 in the first quarter of fiscal 2011 for the retroactive extension of this credit. The annual effective tax rate for fiscal 2010 included tax expense of approximately $137 million that arose because certain deferred revenue was taxable in fiscal 2010, but the resulting deferred tax asset will reverse in future years when the Company’s state tax rate will be lower as a result of California tax legislation enacted in 2009.

     The estimated annual effective tax rate for fiscal 2011 of 14% is less than the United States federal statutory rate primarily due to benefits of approximately 24% related to foreign earnings taxed at less than the United States federal rate and benefits of approximately 3% related to the research and development tax credit, partially offset by state taxes of approximately 5% and other items of approximately 1%. The prior fiscal year rate was lower than the United States federal statutory rate primarily due to benefits related to foreign earnings taxed at less than the United States federal rate, partially offset by state taxes and tax expense related to the valuation of deferred tax assets to reflect changes in California law.

Note 7 — Stockholders’ Equity

     Changes in stockholders’ equity for the three months ended December 26, 2010 were as follows (in millions):

Balance at September 26, 2010		$	20,858
Net income			1,170
Other comprehensive income			60
Common stock issued under employee benefit plans			789
Share-based compensation			154
Tax benefit from exercise of stock options			18
Dividends			(314	)
Other			1
Balance at December 26, 2010		$	22,736

     Stock Repurchase Program. The Company did not repurchase any shares during the three months ended December 26, 2010 and December 27, 2009. At December 26, 2010, approximately $1.7 billion remained authorized for repurchase under the Company’s stock repurchase program. The stock repurchase program has no expiration date.

     Dividends. Cash dividends announced in the three months ended December 26, 2010 and December 27, 2009 were $0.19 and $0.17 per share, respectively. During the three months ended December 26, 2010 and December 27, 2009, dividends charged to retained earnings were $314 million and $284 million, respectively. On January 14, 2011, the Company announced a cash dividend of $0.19 per share on the Company’s common stock, payable on March 25, 2011 to stockholders of record as of February 25, 2011, which will be recorded in the second fiscal quarter.

Note 8 — Commitments and Contingencies

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Litigation. Tessera, Inc. v. QUALCOMM Incorporated: On April 17, 2007, Tessera filed a lawsuit in the United States District Court for the Eastern Division of Texas and a complaint with the United States International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 against the Company and other companies, alleging infringement of two patents. The District Court action is stayed pending resolution of the ITC proceeding, including all appeals. On May 20, 2009, the ITC issued a limited exclusion order and a cease and desist order, both of which were terminated when the patents expired on September 24, 2010. During the period of the exclusion order, the Company shifted supply of accused chips for the United States market to a licensed supplier of Tessera, and the Company continued to supply the United States market without interruption. On December 21, 2010, the U.S. Court of Appeals for the Federal Circuit issued a decision affirming the ITC’s orders. The Company is considering further options on appeal. Tessera may continue to seek back damages in the district court, but it may not seek injunctive relief due to the expiration of the patents.

     Korea Fair Trade Commission (KFTC) Complaint: On January 4, 2010, the KFTC issued a written decision, finding that the Company had violated South Korean law by offering certain discounts and rebates for purchases of its CDMA chips and for including in certain agreements language requiring the continued payment of royalties after all licensed patents have expired. The KFTC levied a fine, which the Company paid in the second quarter of fiscal 2010. The Company is appealing that decision in the Korean courts. In fiscal 2006, two South Korean companies (Nextreaming and Thin Multimedia) filed complaints with the KFTC alleging that certain of the Company’s business practices with respect to integration of multimedia functions in its chips violated South Korean antitrust regulations. In December 2010, the KFTC announced that it has closed its investigation of those allegations without further action.

     Japan Fair Trade Commission (JFTC) Complaint: The JFTC received unspecified complaints alleging that the Company’s business practices are, in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a cease and desist order (CDO) concluding that the Company’s Japanese licensees were forced to cross-license patents to the Company on a royalty-free basis and were forced to accept a provision under which they agreed not to assert their essential patents against the Company’s other licensees who made a similar commitment in their license agreements with the Company. The CDO seeks to require the Company to modify its existing license agreements with Japanese companies to eliminate these provisions while preserving the license of the Company’s patents to those companies. The Company disagrees with the conclusions that it forced its Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate Japan’s Anti-Monopoly Act. The Company has invoked its right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted the Company’s motion and issued a stay of the CDO pending the administrative hearing before the JFTC. The JFTC has had five hearing days to date, with an additional hearing day scheduled in February 2011, and additional hearing days yet to be scheduled.

     Icera Complaint to the European Commission: On June 7, 2010, the European Commission (the Commission) notified and provided the Company with a redacted copy of a complaint filed with the Commission by Icera, Inc. alleging that the Company has engaged in anticompetitive activity. The Company has been asked by the Commission to submit a preliminary response to the portions of the Complaint disclosed to it, and the Company submitted its response in July 2010. The Company will cooperate fully with the Commission.

     Panasonic Arbitration: On August 5, 2009, Panasonic filed an arbitration demand alleging that it does not owe royalties, or owes less royalties, on its WCDMA subscriber devices sold on or after December 21, 2008, and that the Company breached the license agreement between the parties as well as certain commitments to standards setting organizations. On January 31, 2010, Panasonic amended the arbitration demand to include claims based on alleged misrepresentations and the Japanese Antimonopoly Act and increased its claim for damages to include royalties it has paid on its WCDMA subscriber devices sold prior to December 21, 2008. The arbitration demand seeks declaratory relief regarding the amount of royalties due and payable by Panasonic, as well as the return of certain royalties it had previously paid. The Company has responded to the arbitration demand, denying the allegations and requesting judgment in its favor on all claims. The arbitration is proceeding in phases. The first phase hearing was completed in July 2010. On October 15, 2010, the arbitrator issued an interim order finding that the Company did not breach the license agreement. The Company is now preparing for the additional phases to address the other claims and allegations. Although the Company believes Panasonic’s claims are without merit, it has deferred the recognition of revenue related to WCDMA subscriber unit royalties reported and paid by Panasonic since the fourth quarter of fiscal 2009.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Formal Order of Private Investigation: On September 8, 2010, the Company was notified by the Securities and Exchange Commission’s Los Angeles Regional office (SEC) of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. The audit committee completed an internal review with the assistance of independent counsel and independent forensic accountants. This internal review into the allegations and related accounting practices did not identify any errors in the Company’s financial statements. The Company continues to cooperate with the SEC’s ongoing investigation.

     Other: The Company has been named, along with many other manufacturers of wireless phones, wireless operators and industry-related organizations, as a defendant in purported class action lawsuits, and individually filed actions pending in federal court in Pennsylvania and Washington D.C. superior court, seeking monetary damages arising out of its sale of cellular phones.

     While there can be no assurance of favorable outcomes, the Company believes the claims made by other parties in the foregoing matters are without merit and will vigorously defend the actions. The Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the Company’s belief that liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The Company is engaged in numerous other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these actions will not have a material adverse effect on its operating results, liquidity or financial position.

     Litigation Settlement, Patent License and Other Related Items. On April 26, 2009, the Company entered into a Settlement and Patent License and Non-Assert Agreement with Broadcom. The Company agreed to pay Broadcom $891 million, of which $459 million was paid through December 26, 2010, and the remainder will be paid ratably through April 2013. The Company recorded a pre-tax charge of $783 million related to this agreement during fiscal 2009. At December 26, 2010, the carrying value of the liability was $416 million, which also approximated the fair value of the contractual liability, net of imputed interest.

     India Spectrum Acquisition and Related Loans Payable. In June 2010, the Company won a 20 MHz slot of Broadband Wireless Access (BWA) spectrum in four telecom circles in India as a result of the completion of the BWA spectrum auction. The Company expects that licenses to operate wireless networks on this spectrum will be assigned to the Company in the first half of calendar 2011 with an initial license period of 20 years. At December 26, 2010 and September 26, 2010, the Company had a $1.1 billion advance payment included in noncurrent other assets related to this spectrum. The Company will amortize the spectrum licenses over the remaining license period commencing upon the commercial launch of wireless services in India, which is expected to occur within five years of the assignment date. The Company’s goal is to attract one or more operator partners into a venture (or ventures) for construction of an LTE network in compliance with the Indian government’s rollout requirement for the BWA spectrum, and then to exit the venture(s). The manner and timing of such exit will be dependent upon a number of factors, such as market conditions and regulatory considerations, among others.

     In June 2010, in connection with the India BWA spectrum purchase, certain of the Company’s subsidiaries in India entered into a loan agreement with multiple lenders that was denominated in Indian rupees. The loan had a fixed interest rate of 6.75% per year with interest payments due monthly and was payable in full in December 2010. On December 13, 2010, the loan was refinanced with new loan agreements that bear interest at an annual rate based on the highest base rate among the bank lenders, which is reset quarterly, plus 0.25% (9.25% at December 26, 2010) with interest payments due monthly. The new loans are due and payable in full in December 2012. However, each lender has the right to demand prepayment of its portion of the outstanding loans on December 15, 2011 subject to sufficient prior written notice. As a result, the loans are classified as a component of current liabilities. The loans can be prepaid without penalty on certain dates and are guaranteed by QUALCOMM Incorporated and one of its subsidiaries. The loan agreements contain standard covenants, which, among other things, limit actions by the subsidiaries that are party to the loan agreements, including the incurrence of loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. At December 26, 2010, the aggregate carrying value of the loans was $1.1 billion, which approximated fair value.

     Indemnifications. In general, the Company does not agree to indemnify its customers and licensees for losses sustained from infringement of third-party intellectual property. However, the Company is contingently liable under certain product sales, services, license and other agreements to indemnify certain customers against certain types of liability and/or damages arising from qualifying claims of patent infringement by products or services sold or provided by the Company. The Company’s obligations under these agreements may be limited in terms of time

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by the Company. These indemnification arrangements are not initially measured and recognized at fair value because they are deemed to be similar to product warranties in that they relate to claims and/or other actions that could impair the ability of the Company’s direct or indirect customers to use the Company’s products or services. Accordingly, the Company records liabilities resulting from the arrangements when they are probable and can be reasonably estimated. Reimbursements under indemnification arrangements have not been material to the Company’s consolidated financial statements. The Company has not recorded any accrual for contingent liabilities at December 26, 2010 associated with these indemnification arrangements, other than negligible amounts for reimbursement of legal costs, based on the Company’s belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be estimated at this time.

     Purchase Obligations. The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Noncancelable obligations under these agreements at December 26, 2010 for the remainder of fiscal 2011 and for each of the subsequent four years from fiscal 2012 through 2015 were approximately $1.4 billion, $153 million, $60 million, $19 million and $48 million, respectively, and $39 million thereafter. Of these amounts, for the remainder of fiscal 2011 and for fiscal 2012, commitments to purchase integrated circuit product inventories comprised $1.1 billion and $12 million, respectively.

     Leases. The future minimum lease payments for all capital leases and operating leases at December 26, 2010 were as follows (in millions):

		Capital				Operating
		Leases				Leases				Total
Remainder of fiscal 2011		$	13			$	65			$	78
2012			16				69				85
2013			16				39				55
2014			17				28				45
2015			17				23				40
Thereafter			438				227				665
Total minimum lease payments		$	517			$	451			$	968
Deduct: Amounts representing interest			293
Present value of minimum lease payments			224
Deduct: Current portion of capital lease obligations			2
Long-term portion of capital lease obligations		$	222

     The Company leases certain of its facilities and equipment under noncancelable operating leases, with terms ranging from less than one year to 35 years and with provisions in certain leases for cost-of-living increases. The Company leases certain property under capital lease agreements, primarily related to cell site leases that have an initial term of five to seven years with renewal options of up to five additional renewal periods. In determining the capital lease classification for the cell site leases upon commencement of each lease, the Company included all renewal options. As a result of the restructuring plan (Note 10), the Company does not intend to renew its existing site capital leases. As of December 26, 2010, the Company expects to write off $186 million of cell site capital lease assets (which are included in buildings and improvements in property, plant and equipment) and $215 million of its capital lease obligations (which are included in other liabilities) at the end of the current contractual lease terms related to lease renewal option periods thereafter. Any early terminations may impact the amounts that are written off.

Note 9 — Segment Information

     The Company is organized on the basis of products and services. The Company aggregates four of its divisions into the Qualcomm Wireless & Internet segment. Reportable segments are as follows:

	•		Qualcomm CDMA Technologies (QCT) — develops and supplies CDMA- and OFDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products;
	•		Qualcomm Technology Licensing (QTL) — grants licenses or otherwise provides rights to use portions of the Company’s intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

			implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards, and collects license fees and royalties in partial consideration for such licenses;
	•		Qualcomm Wireless & Internet (QWI) — comprised of:

	•		Qualcomm Internet Services (QIS) — provides content enablement services for the wireless industry and push-to-talk and other products and services for wireless network operators;
	•		Qualcomm Government Technologies (QGOV) — provides development, hardware and analytical expertise to United States government agencies involving wireless communications technologies;
	•		Qualcomm Enterprise Services (QES) — provides satellite- and terrestrial-based two-way data messaging, position reporting, wireless application services and managed data services to transportation and logistics companies and other enterprise companies; and
	•		Firethorn — builds and manages software applications that enable certain mobile commerce services.

•

Qualcomm Strategic Initiatives (QSI) — consists of the Company’s strategic investment activities, including FLO TV Incorporated (FLO TV), the Company’s wholly-owned wireless multimedia operator subsidiary. The Company has commenced a restructuring plan under which it expects to shut down the FLO TV business and network in March 2011 (Note 10). QSI makes strategic investments that the Company believes will open new markets for CDMA and OFDMA technologies, support the design and introduction of new CDMA and OFDMA products or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies and in wireless spectrum, such as the BWA spectrum won in the auction in India.

     The Company evaluates the performance of its segments based on earnings (loss) before income taxes (EBT). EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in the Company’s management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and charges include certain investment income (loss), certain share-based compensation and certain research and development expenses and marketing expenses that were deemed to be not directly related to the businesses of the segments. The table below presents revenues and EBT for reportable segments (in millions):

																		Reconciling
		QCT				QTL				QWI				QSI				Items				Total
For the three months ended:
December 26, 2010
Revenues		$	2,116			$	1,057			$	172			$	—			$	3			$	3,348
EBT			640				892				—				(159	)			(44	)			1,329
December 27, 2009
Revenues		$	1,608			$	917			$	142			$	2			$	1			$	2,670
EBT			425				772				9				(107	)			(47	)			1,052

     Reconciling items in the previous table were as follows (in millions):

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Three Months Ended
		December 26,				December 27,
		2010				2009
Revenues
Elimination of intersegment revenues		$	(1	)		$	(3	)
Other nonreportable segments			4				4
Reconciling items		$	3			$	1
EBT
Unallocated cost of equipment and services revenues		$	(14	)		$	(11	)
Unallocated research and development expenses			(118	)			(88	)
Unallocated selling, general and administrative expenses			(87	)			(73	)
Unallocated investment income, net			244				179
Other nonreportable segments			(69	)			(53	)
Intersegment eliminations			—				(1	)
Reconciling items		$	(44	)		$	(47	)

     During the three months ended December 26, 2010 and December 27, 2009, unallocated research and development expenses included $86 million and $72 million, respectively, and unallocated selling, general and administrative expenses included $72 million and $68 million, respectively, of share-based compensation expense. Unallocated cost of equipment and services revenues was comprised entirely of share-based compensation expense.

     Revenues from external customers and intersegment revenues were as follows (in millions):

		QCT				QTL				QWI				QSI
For the three months ended:
December 26, 2010
Revenues from external customers		$	2,115			$	1,057			$	172			$	—
Intersegment revenues			1				—				—				—
December 27, 2009
Revenues from external customers		$	1,605			$	917			$	142			$	2
Intersegment revenues			3				—				—				—

     Segment assets are comprised of accounts receivable, finance receivables and inventories for QCT, QTL and QWI. The QSI segment assets include certain marketable securities, notes receivable, spectrum licenses, other investments and all assets of QSI’s consolidated subsidiaries, including FLO TV. QSI segment assets related to the FLO TV business totaled $1.3 billion at both December 26, 2010 and December 27, 2009. Reconciling items for total assets included $379 million and $397 million at December 26, 2010 and December 27, 2009, respectively, of goodwill and other assets related to the Company’s QMT division, a nonreportable segment developing display technology for mobile devices and other applications. Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable securities, property, plant and equipment, deferred tax assets, goodwill and assets of nonreportable segments. Segment assets and reconciling items were as follows (in millions):

		December 26,				September 26,
		2010				2010
QCT		$	1,032			$	1,085
QTL			37				28
QWI			152				129
QSI			2,718				2,745
Reconciling items			27,352				26,585
Total consolidated assets		$	31,291			$	30,572

Note 10 — Restructuring

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     On December 20, 2010, the Company announced that it has agreed to sell substantially all of the Company’s 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission and clearance from the U.S. Department of Justice. The agreement follows the Company’s previously announced plan to restructure and evaluate strategic options related to the FLO TV business and network. Under the restructuring plan, the Company now expects that the FLO TV business and network will be shut down in March 2011, and the Company is in the process of shutting down the MediaFLO Technologies division. Restructuring activities under this plan were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012.

     The Company estimates that it will incur future restructuring and restructuring-related charges associated with this plan in the range of $300 million to $375 million, which consist of asset impairments and accelerated depreciation of $250 million to $275 million and other costs of $50 million to $100 million. Restructuring charges consist of lease exit costs, other contract termination costs and certain severance costs. Restructuring-related charges include all other charges associated with the execution of this plan and are expected to primarily consist of asset impairment and accelerated depreciation. Future cash expenditures associated with this plan are expected to be in the range of $135 million to $185 million. The restructuring charges will be recorded in the QSI segment, and the restructuring-related charges will be recorded primarily in the QSI segment.

     During the three months ended December 26, 2010, the Company recorded restructuring and restructuring-related costs of $68 million as follows (in millions):

		Asset
		Impairment and
		Accelerated
		Depreciation				Other				Total
Restructuring charges
Revenues		$	—			$	2			$	2
Cost of equipment and services revenues			—				11				11
Research and development			—				2				2
Selling, general and administrative			—				2				2
			—				17				17
Restructuring-related charges
Cost of equipment and services revenues		$	33			$	—			$	33
Research and development			7				—				7
Selling, general and administrative			3				8				11
			43				8				51
		$	43			$	25			$	68

     The following is a rollforward of the restructuring accrual since inception of the plan, which is reported as a component of accrued expenses (in millions):

		Balance at												Balance at
		September 26,												December 26,
		2010				Additions				Cash Payments				2010
Contract termination costs		$	—			$	5			$	(2	)		$	3
Other costs			—				12				—				12
		$	—			$	17			$	(2	)		$	15

Note 11 — Subsequent Event

     On January 5, 2011, the Company announced that it had entered into a definitive agreement under which it intends to acquire Atheros Communications, Inc. for $45 per share in cash, which represented an enterprise value of approximately $3.1 billion on that date. The transaction has been approved by the QUALCOMM and Atheros boards of directors and is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Atheros’ stockholders. The transaction is expected to close in the first half of calendar 2011.

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

     This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 26, 2010 contained in our 2010 Annual Report on Form 10-K.

     In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors and elsewhere in this Quarterly Report.

Overview

Recent Developments

     Revenues for the first quarter of fiscal 2011 were $3.3 billion, with net income of $1.2 billion, which were impacted by the following key items:

•

We shipped approximately 118 million Mobile Station Modem (MSM) integrated circuits for CDMA-based wireless devices, an increase of 28% compared to approximately 92 million MSM integrated circuits in the year ago quarter. (1)

•

Total reported device sales were approximately $34.0 billion, an increase of approximately 39% compared to approximately $24.5 billion in the year ago quarter. (2)

     Against this backdrop, the following recent developments occurred during the first quarter of fiscal 2011with respect to key elements of our business or our industry:

•

Worldwide wireless subscriptions grew by approximately 4% to reach approximately 5.4 billion.(3)

•

Worldwide 3G subscriptions (all CDMA-based) grew to approximately 1.2 billion, approximately 23% of total wireless subscriptions, including approximately 510 million CDMA2000 1X/1xEV-DO subscriptions and approximately 700 million WCDMA/HSPA/TD-SCDMA subscriptions. (3)

•

In the handset market, CDMA-based unit shipments grew an estimated 34% over the prior year quarter, compared to an estimated increase of 13% across all technologies. (4)

•

We announced that we have agreed to sell substantially all of our 700 MHz spectrum for $1.9 billion to AT&T, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission and clearance from the U.S. Department of Justice. The agreement follows our previously announced plan to restructure and evaluate strategic options related to our FLO TV business and network.

Our Business and Operating Segments

     We design, manufacture, have manufactured on our behalf and market digital wireless telecommunications products and services based on our CDMA technology and other technologies. We derive revenues principally from sales of integrated circuit products, license fees and royalties for use of our intellectual property, messaging and other services and related hardware sales, software development and licensing and related services, software hosting services and services related to delivery of multimedia content. Operating expenses primarily consist of cost of equipment and services, research and development and selling, general and administrative expenses.

     We conduct business primarily through four reportable segments. These segments are: Qualcomm CDMA Technologies, or QCT; Qualcomm Technology Licensing, or QTL; Qualcomm Wireless & Internet, or QWI; and Qualcomm Strategic Initiatives, or QSI.

     QCT is a leading developer and supplier of CDMA- and OFMDA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. QCT’s integrated circuit products and system software are used in wireless devices, particularly mobile phones, tablets, laptops, data modules, handheld wireless computers, data cards and infrastructure equipment. The integrated circuits for wireless devices include the Mobile Station Modem (MSM), Mobile Data Modem (MDM), Qualcomm Single Chip (QSC), Qualcomm Snapdragon (QSD), Radio Frequency (RF), Power Management (PM) and Bluetooth devices. The baseband integrated circuits (MSM, MDM, QSC and OSD) for wireless devices and system software perform voice and data communication, multimedia and global positioning functions, and our RF, PM and Bluetooth devices perform radio conversion between RF and baseband signals, power management and peripheral connectivity. QCT’s system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. The infrastructure equipment integrated circuits and system software perform the core baseband CDMA modem functionality in the wireless operator’s base station equipment. QCT revenues comprised 63% and 60% of total consolidated revenues in the first quarter of fiscal 2011 and 2010, respectively.

     QCT utilizes a fabless production business model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Integrated circuits are die cut from silicon wafers that have completed the assembly and final test manufacturing processes. We rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. We employ both turnkey and two-stage manufacturing business models to purchase our integrated circuits. Turnkey is when our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. Under the two-stage manufacturing business model, we purchase die from semiconductor manufacturing foundries and contract with separate third-party manufacturers for back-end assembly and test services. We refer to this two-stage manufacturing business model as Integrated Fabless Manufacturing (IFM).

     QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives. QTL receives license fees as well as ongoing royalties based on worldwide sales by licensees of products incorporating or using our intellectual property. License fees are fixed amounts paid in one or more installments. Ongoing royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of licensed products, net of certain permissible deductions (e.g., certain shipping costs, packing costs, VAT, etc.). QTL revenues comprised 32% and 34% of total consolidated revenues in the first quarter of fiscal 2011 and 2010, respectively. The vast majority of such revenues were generated through our licensees’ sales of cdmaOne, CDMA2000 and WCDMA subscriber equipment products.

     QWI, which includes Qualcomm Enterprise Services (QES), Qualcomm Internet Services (QIS), Qualcomm Government Technologies (QGOV) and Firethorn, generates revenues primarily through mobile information products and services and software and software development aimed at support and delivery of wireless applications. QES sells equipment, software and services used by transportation and other companies to connect wirelessly with their assets and workforce. Through December 2010, QES has shipped approximately 1,446,000 terrestrial-based and satellite-based mobile information units. QIS provides content enablement services for the wireless industry, including Brew, the Plaza suite and other services. QIS also provides QChat push-to-talk, QPoint and other products for wireless network operators. QGOV provides development, hardware and analytical expertise involving wireless communications technologies to United States government agencies. Firethorn builds and manages software applications that enable mobile commerce services. QWI revenues comprised 5% of total consolidated revenues for the first quarter of both fiscal 2011 and 2010.

     QSI consists of the Company’s strategic investment activities, including FLO TV Incorporated (FLO TV), our wholly-owned wireless multimedia operator subsidiary. QSI makes strategic investments that we believe will open new markets for CDMA- and OFDMA-based technologies, support the design and introduction of new CDMA and OFDMA products and services for wireless voice and internet data communications or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies and in wireless spectrum, such as the BWA spectrum won in the auction in India. On December 20, 2010, we announced that we have agreed to sell

substantially all of our 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission and clearance from the U.S. Department of Justice. The agreement follows our previously announced plan to restructure and evaluate strategic options related to our FLO TV business and network. Under the restructuring plan, we now expect that our FLO TV business and network will be shut down in March 2011.

     Nonreportable segments include: the Qualcomm MEMS Technologies division, which continues to develop an interferometric modulator (IMOD) display technology based on micro-electro-mechanical-system (MEMS) structure combined with thin film optics; the MediaFLO Technologies division, which we are in the process of shutting down; and other product initiatives.

Restructuring and Restructuring-Related Activities

     We commenced a restructuring plan under which we now expect to shut down the FLO TV business and network in March 2011 and are in the process of shutting down our MediaFLO Technologies division. Restructuring activities were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by fiscal 2012.

     We estimate that we will incur restructuring and restructuring-related charges associated with this plan in the range of $300 million to $375 million, which consist of asset impairment and accelerated depreciation of $250 million to $275 million and other costs of $50 million to $100 million. Restructuring charges consist of lease exit costs, other contract termination costs and certain severance costs. Restructuring-related charges include all other charges associated with the execution of this plan and are expected to primarily consist of asset impairments and accelerated depreciation. Future cash expenditures associated with this plan are expected to be in the range of $135 million to $185 million. The restructuring charges will be recorded in the QSI segment, and the restructuring-related charges will be recorded primarily in the QSI segment.

     During the three months ended December 26, 2010, the Company recorded restructuring and restructuring-related costs of $68 million as follows (in millions):

		Asset
		Impairment and
		Accelerated
		Depreciation				Other				Total
Restructuring charges
Revenues		$	—			$	2			$	2
Cost of equipment and services revenues			—				11				11
Research and development			—				2				2
Selling, general and administrative			—				2				2
		$	—			$	17			$	17
Restructuring-related charges
Cost of equipment and services revenues		$	33			$	—			$	33
Research and development			7				—				7
Selling, general and administrative			3				8				11
		$	43			$	8			$	51
		$	43			$	25			$	68

Looking Forward

     The deployment of 3G networks enables increased voice capacity and higher data rates than prior generation networks, thereby supporting more minutes of use and a wide range of mobile broadband data applications for handsets, 3G connected computing devices and other consumer electronics. Many wireless operators are also planning to complement their existing 3G networks by deploying OFDMA-based technology, often called 4G, in new spectrum to gain additional capacity for data services, such as in the recent launch of a LTE network by Verizon Wireless in the United States. As a result, we expect continued growth in the coming years in consumer demand for 3G and 3G/4G multimode products and services around the world. As we look forward to the next several months, the following items are likely to have an impact on our business:

•

The worldwide transition to 3G CDMA-based networks is expected to continue, including the further expansion of 3G in China and India.

•

We expect consumer demand for advanced 3G-based and 3G/4G multimode devices, including smartphones, data-centric devices and new device categories, such as tablets and eBook readers, to continue at a strong pace. We also expect growth in lower-end 3G devices as 3G expands in emerging regions. We still face significant competition in lower-end devices from GSM-based products, particularly in emerging regions.

•

We expect that CDMA-based device prices will continue to segment into high, mid and low end due to increased development of smartphones and the popularity of smartphone applications on the high end and high volumes and active competition throughout the world at all tiers. This, along with uneven economic growth and stronger average growth in emerging regions, is expected to continue to impact the average selling price of CDMA-based devices.

•

We continue to invest significant resources toward the development of technology to increase the data rates available with 3G and 4G networks, wireless baseband chips, converged computing/communication chips, multimedia products, software and services for the wireless industry.

•

We continue to invest in the evolution of CDMA and a broad range of other technologies, such as LTE, our IMOD display technology and our Snapdragon platform, as part of our vision to enable a wide range of products and technologies.

•

We resolved a licensee dispute which will be reflected in our financial results beginning in the second quarter of fiscal 2011.

•

We commenced a restructuring plan under which we now expect to shut down our FLO TV business and network in March 2011 and are in the process of shutting down our MediaFLO Technologies division. We estimate that we will incur restructuring and restructuring-related charges associated with this plan in the range of $300 million to $375 million, and that approximately $135 million to $185 million will result in future cash outlays. Restructuring activities were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012.

•

On January 5, 2011, we announced that we had entered into a definitive agreement under which we intend to acquire Atheros Communications, Inc. for $45 per share in cash, which represented an enterprise value of approximately $3.1 billion on that date. The transaction is expected to close in the first half of calendar 2011 subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Atheros’ stockholders.

     In addition to the foregoing business and market-based matters, we continue to devote resources to working with and educating participants in the wireless value chain as to the benefits of our business model in promoting a highly competitive and innovative wireless market. However, we expect that certain companies may continue to be dissatisfied with the need to pay reasonable royalties for the use of our technology and not welcome the success of our business model in enabling new, highly cost-effective competitors to their products. We expect that such companies will continue to challenge our business model in various forums throughout the world.

     Further discussion of risks related to our business is presented in the Risk Factors included in this Quarterly Report.

First Quarter of Fiscal 2011 Compared to First Quarter of Fiscal 2010

     Revenues. Total revenues for the first quarter of fiscal 2011 were $3.35 billion, compared to $2.67 billion for the first quarter of fiscal 2010.

     Revenues from sales of equipment and services for the first quarter of fiscal 2011 were $2.21 billion, compared to $1.66 billion for the first quarter of fiscal 2010. The increase in revenues from sales of equipment and services was primarily due to a $513 million increase in QCT equipment and services revenues. Revenues from licensing and royalty fees for the first quarter of fiscal 2011 were $1.14 billion, compared to $1.01 billion for the first quarter of fiscal 2010. The increase in revenues from licensing and royalty fees was primarily due to a $139 million increase in QTL revenues.

     Cost of Equipment and Services. Cost of equipment and services revenues for the first quarter of fiscal 2011 was $1.13 billion, compared to $816 million for the first quarter of fiscal 2010. Cost of equipment and services revenues as a percentage of equipment and services revenues was 51% for the first quarter of fiscal 2011, compared to 49% for the first quarter of fiscal 2010. The decrease in margin percentage in the first quarter of fiscal 2011 compared to fiscal 2010 was primarily attributable to a decrease in QCT gross margin and the effect of an increase in costs related to our FLO TV subsidiary’s restructuring plan. Cost of equipment and services revenues in the first quarter of fiscal 2011 included $14 million in share-based compensation, compared to $11 million in the first quarter of fiscal 2010. Cost of equipment and services revenues as a percentage of equipment and services revenues may

fluctuate in future quarters depending on the mix of products sold and services provided, competitive pricing, new product introduction costs and other factors.

     Research and Development Expenses. For the first quarter of fiscal 2011, research and development expenses were $671 million or 20% of revenues, compared to $596 million or 22% of revenues for the first quarter of fiscal 2010. The dollar increase was primarily attributable to a $55 million increase in costs related to the development of integrated circuit products, next generation CDMA and OFDMA technologies and other initiatives to support the acceleration of advanced wireless products and services, including lower-cost devices, the integration of wireless with consumer electronics and computing, the convergence of multiband, multimode, multinetwork products and technologies, third-party operating systems and services platforms. The percentage decrease was primarily attributable to a higher increase in revenues relative to the increase in costs. Research and development expenses for the first quarter of fiscal 2011 included share-based compensation of $86 million, compared to $72 million in the first quarter of fiscal 2010.

     Selling, General and Administrative Expenses. For the first quarter of fiscal 2011, selling, general and administrative expenses were $437 million or 13% of revenues, compared to $379 million or 14% of revenues for the first quarter of fiscal 2010. The dollar increase was primarily attributable to a $36 million increase in employee-related expenses and a $32 million increase in patent-related costs and other professional fees, partially offset by a $17 million decrease in selling and marketing expenses primarily related to our FLO TV subsidiary. Selling, general and administrative expenses for the first quarter of fiscal 2011 included share-based compensation of $72 million, compared to $68 million in the first quarter of fiscal 2010.

     Net Investment Income (Loss). Net investment income was $219 million for the first quarter of fiscal 2011, compared to $173 million for the first quarter of fiscal 2010. The net increase was comprised as follows (in millions):

		Three Months Ended
		December 26,				December 27,
		2010				2009				Change
Interest and dividend income		$	131			$	145			$	(14	)
Interest expense			(28	)			(9	)			(19	)
Net realized gains on investments:
Corporate and other segments			127				91				36
QSI			—				11				(11	)
Net impairment losses on investments:
Corporate and other segments			(8	)			(51	)			43
QSI			(3	)			(6	)			3
Gains (losses) on derivative instruments			1				(4	)			5
Equity in losses of investees			(1	)			(4	)			3
		$	219			$	173			$	46