QUALCOMM INC/DE (QCOM)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.

The following section generally discusses fiscal 2024 and 2023 items and year-to-year comparisons between fiscal 2024 and 2023. Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and 2022 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 24, 2023.

Our Business and Operating Segments

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

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

Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.

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

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Fiscal 2024 Overview

Revenues were $39.0 billion, an increase of 9% compared to revenues of $35.8 billion in fiscal 2023, with net income of $10.1 billion, an increase of 40% compared to net income of $7.2 billion in fiscal 2023. Our fiscal 2024 results included:

•QCT revenues increased by 9% in fiscal 2024 compared to the prior year, primarily due to higher handsets and automotive revenues, partially offset by lower IoT revenues.

•QTL revenues increased by 5% in fiscal 2024 compared to the prior year, primarily due to an increase in estimated sales of 3G/4G/5G-based multimode products.

•We recorded other expenses of $179 million in fiscal 2024 compared to $862 million in fiscal 2023, both of which primarily consisted of restructuring and restructuring-related charges.

•Investment and other income, net increased by $613 million in fiscal 2024 compared to the prior year, primarily due to higher interest rates earned on higher balances of interest-bearing securities.

Results of Operations

2024 vs. 2023

The increase in revenues in fiscal 2024 was primarily due to:

+    $2.7 billion in higher equipment and services revenue from our QCT segment

+    $266 million in higher licensing revenues from our QTL segment

2024 vs. 2023

Gross margin percentage remained flat in fiscal 2024.

2024 vs. 2023

The increase in research and development expenses in fiscal 2024 was due to:

+    $113 million increase in share-based compensation expense

+    $66 million increase in expenses driven by revaluation of our deferred compensation obligation (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)

-    $104 million decrease driven by lower costs related to the development of wireless and integrated circuit technologies (including 5G and application processor technologies). This was primarily driven by a decrease in employee-related costs as a result of certain restructuring actions taken to fund continued investments in key growth and diversification opportunities, partially offset by higher employee cash incentive program costs.

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2024 vs. 2023

The increase in selling, general and administrative expenses in fiscal 2024 was primarily due to:

+    $99 million increase in sales and marketing expenses

+    $42 million increase in expenses driven by revaluation of our deferred compensation obligation

+    $39 million increase in share-based compensation expense

2024 vs. 2023

Other expenses in fiscal 2024 consisted primarily of $107 million in restructuring and restructuring-related charges (substantially all of which related to severance costs) and a $75 million charge related to the settlement of the securities class action lawsuit.

Other expenses in fiscal 2023 consisted of $712 million in total restructuring and restructuring-related charges (substantially all of which related to severance costs, resulting from certain cost reduction actions committed to in fiscal 2023 and a $150 million intangible asset impairment charge related to in-process research and development.

2024 vs. 2023

The increase in interest and dividend income in fiscal 2024 was primarily due to higher interest rates earned on higher balances of interest-bearing securities. Net gains on other investments in fiscal 2024 was primarily driven by certain of our QSI non-marketable equity investments.

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Income Tax Expense (in millions, except percentages)

The following table summarizes the primary factors that caused our annual tax provision from continuing operations to differ from the expected income tax provision at the U.S. federal statutory rate. Substantially all of our income is taxed in the U.S., of which a significant portion qualifies for preferential treatment as FDII at a 13% effective tax rate. Additional information regarding our annual effective tax rate (including discussion related to the impact of the requirement to capitalize research and development expenditures for federal income tax purposes, and the benefit related to the transfer of intellectual property between foreign subsidiaries) is provided in this Annual Report in “Notes to Consolidated Financial Statements, Notes 3. Income Taxes.”

The OECD has announced a framework to implement a global minimum tax of 15% (referred to as Pillar Two). Certain countries have implemented or are in the process of implementing the Pillar Two legislation, which will apply to us beginning in fiscal year 2025. While we do not currently expect this to materially impact our consolidated financial statements, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance.

Discontinued Operations (in millions)

2024 vs. 2023

Discontinued operations in fiscal 2024 and 2023 primarily related to the Non-Arriver businesses. Fiscal 2023 also included a gain on the sale of the Active Safety business and certain write-down charges related to the Restraint Control Systems business, the individual and aggregate amounts of which were not material. Information regarding the Non-Arriver businesses is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items.”

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Segment Results

The following should be read in conjunction with the fiscal 2024 and 2023 results of operations for each reportable segment included in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”

QCT Segment (in millions, except percentages)

(1) Descriptions of our three QCT revenue streams can be found in this Annual Report in “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items.”

(2) Earnings (loss) before income taxes.

Substantially all of QCT’s revenues consist of equipment and services revenues, which were $32.6 billion and $29.9 billion in fiscal 2024 and 2023, respectively. QCT handsets, automotive and IoT revenues mostly relate to sales of our Snapdragon platforms (which include processors and modems), stand-alone Mobile Data Modems, radio frequency transceiver, power management and wireless connectivity integrated chipsets as well as sales of 4G, 5G sub 6 and 5G millimeter wave RFFE products.

2024 vs. 2023

The increase in QCT revenues in fiscal 2024 was primarily due to:

+    higher handsets revenues, due to $2.8 billion in higher chipset shipments driven by certain major OEMs (primarily driven by the normalization of customer inventory levels, which were elevated in the prior year), partially offset by $533 million in lower revenues per chipset primarily driven by unfavorable mix

+    higher automotive revenues, primarily driven by an increase in demand from new vehicle launches with our Snapdragon digital cockpit and connectivity products

-    lower IoT revenues, due to $834 million in lower revenues per unit primarily driven by unfavorable mix, partially offset by a $317 million increase in demand (primarily in consumer products, partially offset by edge networking products as customers continued drawing down on their elevated inventory levels)

QCT EBT as a percentage of revenues increased in fiscal 2024 primarily due to higher revenues.

Gross margin percentage remained flat in fiscal 2024.

QTL Segment (in millions, except percentages)

2024 vs. 2023

The increase in QTL licensing revenues in fiscal 2024 was primarily due to:

+    $402 million increase in estimated sales of 3G/4G/5G-based multimode products

-    $90 million decrease in estimated revenues per unit

-    $68 million decrease in revenues from the ending of the recognition of certain upfront license fee consideration in the first quarter of fiscal 2023 from our long-term license agreement with Nokia

QTL EBT as a percentage of revenues increased in fiscal 2024 primarily due to:

+    lower cost of sales driven by a decrease in amortization expense related to acquired patents

+    higher revenues

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QSI Segment (in millions)

2024 vs. 2023

QSI EBT increased in fiscal 2024 primarily due to net gains on certain of our non-marketable equity investments.

Looking Forward

We believe that 5G combined with high-performance, low-power computing and on-device artificial intelligence will continue to drive adoption of certain technologies that are already commonly used in smartphones by industries and applications beyond mobile handsets, such as automotive and IoT. We believe it is important that we remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and a leading developer and supplier of 5G integrated circuit products in order to sustain and grow our business long-term.

As we look forward to the next several quarters:

•We expect transitions to new generations of leading process technology nodes to continue to drive product cost increases from certain of our key semiconductor wafer suppliers.

•We expect continued intense competition, including from vertical integration by certain of our customers (e.g., Apple).

•Current U.S./China trade relations and/or national security protection policies may negatively impact our business, growth prospects and results of operations. See “Risk Factors” in this Annual Report, including the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”

In fiscal 2024, we extended, renewed or entered into license agreements with several key OEMs. We are currently pursuing negotiations with other key OEMs whose agreements expire in early fiscal 2025 (including Huawei). In addition, in fiscal 2024, we entered into a license agreement with Shenzhen Transsion Holdings Limited (a growing, China-headquartered OEM that sells primarily in developing regions) for its 5G products. While we continue to engage in negotiations toward a comprehensive resolution, we have initiated litigation against Transsion in multiple jurisdictions to enforce our intellectual property rights against certain of its unlicensed products. See “Risk Factors” in this Annual Report, including the Risk Factors titled “The continued and future success of our licensing programs requires us to continue to evolve our patent portfolio and to renew or renegotiate license agreements that are expiring” and “The enforcement and protection of our intellectual property may be expensive, could fail to prevent misappropriation or unauthorized use of our intellectual property, could result in the loss of our ability to enforce one or more patents, and could be adversely affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property and by ineffective enforcement of laws in such jurisdictions.”

We are also involved in other legal proceedings, including those described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” Litigation is inherently uncertain, and, while we intend to continue to vigorously defend ourselves in such matters, the unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows.

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

Further discussion of risks related to our business is provided in “Part I, Item 1A. Risk Factors” included in this Annual Report.

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Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and cash provided by our debt programs, which we believe will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans.

The following table presents selected financial information related to our liquidity as of and for the years ended September 29, 2024 and September 24, 2023 (in millions):

(1) Excludes $77 million of cash and cash equivalents classified as held for sale at September 24, 2023.

(2) Includes our issued debt reported as long-term and short-term.

Cash, cash equivalents and marketable securities. The net increase in cash, cash equivalents and marketable securities in fiscal 2024 was primarily due to net cash provided by operating activities and $383 million in proceeds from the issuance of common stock (primarily under our Employee Stock Purchase Plan), partially offset by $4.1 billion in payments to repurchase shares of our common stock, $3.7 billion in cash dividends paid, $1.0 billion in capital expenditures, $932 million in payments of tax withholdings related to the vesting of share-based awards and $914 million in repayments of notes that matured in May 2024.

During fiscal 2024, income taxes paid were in excess of our provision, negatively impacting net cash provided by operating activities. This was primarily driven by the adverse impact of the requirement to capitalize and amortize research and development expenditures for federal income tax purposes, our payment of $1.0 billion related to certain previously postponed U.S. federal income tax payments from fiscal 2023 and an installment payment for a one-time U.S. repatriation tax accrued in fiscal 2018 of $414 million.

Net changes in our operating assets and liabilities positively impacted our operating cash flows in fiscal 2024 primarily from an increase in accrued customer incentives, which included the impact of timing of related payments, and an increase in accounts payable due to timing and amount of inventory purchases, partially offset by an increase in accounts receivable due to higher revenues.

Debt. At September 29, 2024, we had $15.0 billion of principal fixed-rate notes outstanding, $1.4 billion of which matures in May 2025. The remaining debt has maturity dates in 2027 through 2053.

We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 29, 2024, we had no amounts of commercial paper outstanding. On August 8, 2024, we entered into a Revolving Credit Facility, replacing our prior Amended and Restated Revolving Credit Facility. The Revolving Credit Facility provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.0 billion, which expires on August 8, 2029. At September 29, 2024, no amounts were outstanding under the Revolving Credit Facility.

We expect to issue new debt in the future. The amount and timing of any such new debt will depend on a number of factors, including but not limited to maturities of our existing debt, acquisitions and strategic investments, favorable and/or acceptable interest rates and changes in corporate income tax law. Additional information regarding our outstanding debt at September 29, 2024 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 6. Debt.”

Income Taxes. At September 29, 2024, our remaining future payments were $1.0 billion for a one-time U.S. repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next two years. At September 29, 2024, other current liabilities included $530 million for the next installment due in January 2025. Beginning in fiscal 2023, for federal income tax purposes, we are required to capitalize and amortize domestic research and development expenditures over five years and foreign research and development expenditures over fifteen years (such expenditures were previously deducted as incurred). As a result, our cash flows from operations are adversely affected due to significantly higher cash tax payments. However, the adverse cash flow impact will diminish in future years as capitalized research and

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development expenditures continue to amortize. Additional information regarding our income taxes is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”

Capital Return Program. The following table summarizes stock repurchases and dividends paid during fiscal 2024 and 2023 (in millions, except per-share amounts):

On October 12, 2021, we announced a $10.0 billion stock repurchase program. At September 29, 2024, $1.0 billion remained authorized for repurchase under this stock repurchase program. On November 6, 2024, we announced a new $15.0 billion stock repurchase authorization, which is in addition to the aforementioned program. The stock repurchase programs have no expiration date. The timing of stock repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases may be made in the open market, through 10b5-1 programs, through accelerated share repurchase programs, in privately negotiated transactions or through the use of derivative instruments. Our stock repurchase programs are subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, and we may accelerate, suspend, delay or discontinue repurchases at any time.

On October 16, 2024, we announced a cash dividend of $0.85 per share on our common stock, payable on December 19, 2024 to stockholders of record as of the close of business on December 5, 2024. We currently intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that cash dividends are in the best interests of our stockholders, among other factors.

Additional Capital Requirements. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•Our purchase obligations at September 29, 2024, which primarily relate to purchase commitments with certain suppliers of our integrated circuit products, including those under multi-year capacity commitments, totaled $12.8 billion, of which, $9.6 billion is expected to be paid in the next 12 months.

•Our research and development expenditures were $8.9 billion in fiscal 2024 and $8.8 billion in fiscal 2023.

•Cash outflows for capital expenditures were $1.0 billion in fiscal 2024 and $1.5 billion in fiscal 2023. We expect capital expenditures to increase from fiscal 2024 in the near term to support our production and testing needs related to our growth and diversification initiatives.

•Amounts related to future lease payments for operating lease obligations at September 29, 2024 totaled $1.1 billion, with $136 million expected to be paid within the next 12 months.

•We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly.

Further, regulatory authorities in certain jurisdictions have investigated our business practices and instituted proceedings against us in the past, and they or other regulatory authorities may do so in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, financial condition and cash flows. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies” and “Part I, Item 1A. Risk Factors” in this Annual Report.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are inherently subject to a degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results could differ materially from our estimates and assumptions, and could be material to our consolidated financial statements.

In addition to our critical accounting estimates and policies below, refer to “Note 1. Significant Accounting Policies” and “Note 2. Composition of Certain Financial Statement Items” included in this Annual Report in “Notes to Consolidated Financial Statements” for further information. If the impact of changes in our critical accounting estimates are material or considered necessary to understand our results of operations for the periods presented, then such information is disclosed within this Annual Report in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Revenue Recognition. We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products. We estimate and recognize sales-based royalties on such licensed products in the period in which the licensees’ sales occur, which is based largely on preliminary royalty estimates provided by our licensees. For fiscal 2024 and 2023, actual amounts for sales-based royalties have been materially consistent with such estimates, and no significant reversals of revenues have been required as a result of adjustments to prior period royalty estimates.

Impairment of Non-marketable Equity Investments. We monitor our investments for events or circumstances that could indicate impairment, including those that result from observable price adjustments. Key considerations in this assessment include the investee’s financial and liquidity position and business forecasts (including their ability to respond to any significant deterioration), industry performance, development and/or market acceptance of the investee’s products or technologies, as well as considering any appreciation in fair value that has not been recognized in the carrying values of such investments and other relevant events and factors. In fiscal 2024 and 2023, there were no significant impairment losses or adjustments to our previous judgments and estimates recorded.

Inventories. We measure inventory at the lower of cost or net realizable value considering judgments and estimates related to future customer demand and other market conditions, such as the impact of the macroeconomic environment in fiscal 2023, which negatively impacted consumer demand for smartphones and other devices that incorporate our products and technologies. Although we believe these estimates are reasonable, any significant changes in customer demand that are less favorable than our previous estimates may require additional inventory write-downs and would be reflected in cost of sales resulting in a negative impact to our gross margin in that period. For fiscal 2024 and 2023, the net effect from changes in this estimate and related reserves was less than 2% of cost of revenues during each period.

Impairment of Goodwill, Other Indefinite-Lived Assets and Long-Lived Assets. We monitor our goodwill, other indefinite-lived assets and long-lived assets for the existence of impairment indicators and apply judgments in the valuation methods and underlying assumptions utilized in such assessments. During fiscal 2024, there were no material impairment charges for long-lived or indefinite-lived assets. During fiscal 2023, we recorded total impairment charges of approximately $400 million related to certain long-lived and other indefinite-lived assets. Such impairments (and the related remaining asset values) were not individually material. Additionally, the estimated fair values of our QCT and QTL reporting units, based on our qualitative assessment, were substantially in excess of their respective carrying values at September 29, 2024.

Legal and Regulatory Proceedings. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. We face difficulties in evaluating or estimating likely outcomes and/or the amount of possible loss in certain legal and regulatory proceedings.

Income Taxes. We make significant judgments and estimates in determining our provision for income taxes, including our assessment of our income tax positions given the uncertainties involved in the interpretation and application of complex tax laws and regulations in various taxing jurisdictions.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and the impact of those pronouncements, if any, on our consolidated financial statements is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. Significant Accounting Policies.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.

The following section generally discusses fiscal 2023 and 2022 items and year-to-year comparisons between fiscal 2023 and 2022. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and 2021 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 25, 2022.

Our Business and Operating Segments

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

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

Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering and research and development functions, are operated by Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.

Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.

Seasonality. Many of our products and much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. Our revenues have historically fluctuated based on consumer demand for devices, as well as on the timing of customer/licensee device launches and/or innovation cycles (such as the transition to the next generation of wireless technologies). This has resulted in fluctuations in QCT revenues in advance

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of and during device launches incorporating our products and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future. Further, the trends for QTL have been, and may in the future be, impacted by disputes and/or resolutions with licensees and/or governmental investigations or proceedings.

Fiscal 2023 Overview

Revenues were $35.8 billion, a decrease of 19% compared to revenues of $44.2 billion in fiscal 2022, with net income of $7.2 billion, a decrease of 44% compared to net income of $12.9 billion in fiscal 2022. Key items from fiscal 2023 included:

•Revenues were negatively impacted by the weakness in the macroeconomic environment (which negatively impacted consumer demand for smartphones and other devices that incorporate our products and technologies) and our customers drawing down on their inventory (which were at elevated levels).

•QCT revenues decreased by 19% in fiscal 2023 compared to the prior year, primarily due to lower handset and IoT revenues.

•QTL revenues decreased by 17% in fiscal 2023 compared to the prior year.

•We recorded other expenses of $862 million in fiscal 2023, primarily related to restructuring and restructuring-related charges, compared to a $1.1 billion benefit recorded to other income in fiscal 2022 resulting from the 2018 European Commission (EC) fine reversal.

•Our effective income tax rate was 1% in fiscal 2023 compared to 13% in the prior year, reflecting certain additional foreign-derived intangible income (FDII) deductions in fiscal 2023.

Results of Operations

2023 vs. 2022

The decrease in revenues in fiscal 2023 was primarily due to:

-    $7.2 billion in lower equipment and services revenue from our QCT segment

-    $1.1 billion in lower licensing revenues from our QTL segment

2023 vs. 2022

Gross margin percentage decreased in fiscal 2023 primarily due to a decrease in QCT gross margin.

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2023 vs. 2022

The increase in research and development expenses in fiscal 2023 was due to:

+    $375 million increase in share-based compensation expense

+    $125 million increase in expenses driven by revaluation of our deferred compensation obligation on higher relative stock market performance

+    $124 million increase driven by higher costs related to the development of wireless and integrated circuit technologies (including 5G and application processor technologies), primarily driven by an increase in employee-related expenses (which included lower employee cash incentive program costs)

2023 vs. 2022

The decrease in selling, general and administrative expenses in fiscal 2023 was primarily due to:

-    $109 million decrease in employee-related expenses (which included lower employee cash incentive program costs)

-    $95 million decrease in acquisition-related expenses, primarily related to the Veoneer transaction which closed in the third quarter of fiscal 2022

+    $99 million increase in expenses driven by revaluation of our deferred compensation obligation on higher relative stock market performance

2023 vs. 2022

Other expense in fiscal 2023 consisted of $712 million in restructuring and restructuring-related charges (substantially all of which related to severance costs) resulting from certain cost reduction actions initiated in fiscal 2023, and a $150 million intangible asset impairment charge related to in-process research and development. Additional information regarding our restructuring charges is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items - Other Income, Costs and Expenses.”

Other income in fiscal 2022 consisted of a $1.1 billion benefit resulting from the 2018 EC fine reversal.

Interest expense in fiscal 2022 included a $62 million reversal of accrued interest previously recorded related to the annulled 2018 EC fine.

Net losses on marketable securities in fiscal 2022 was primarily driven by the change in fair value of certain of our QSI marketable equity investments in early or growth stage companies.

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Income Tax Expense (in millions, except percentages)

The following table summarizes the primary factors that caused our annual tax provision from continuing operations to differ from the expected income tax provision at the U.S. federal statutory rate. Substantially all of our income is taxed in the U.S., of which a significant portion qualifies for preferential treatment as FDII at a 13% effective tax rate. Additional information regarding our annual effective tax rate (including discussion related to the impact of the new requirement to capitalize research and development expenditures for federal income tax purposes) is provided in this Annual Report in “Notes to Consolidated Financial Statements, Notes 3. Income Taxes.”

Discontinued Operations (in millions)

Discontinued operations in fiscal 2023 and 2022 primarily related to net losses from the Non-Arriver businesses. Fiscal 2023 also included a gain on the sale of the Active Safety business and certain write-down charges related to the Restraint Control Systems business based on the expected sales price, the individual and aggregate amounts of which were not material. Information regarding the Non-Arriver businesses is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 9. Acquisitions and Divestitures.”

Segment Results

The following should be read in conjunction with the fiscal 2023 and 2022 results of operations for each reportable segment included in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”

QCT Segment (in millions, except percentages)

(1) Beginning in the first quarter of fiscal 2023, QCT RFFE (radio frequency front-end) revenues, which were previously presented as a separate revenue stream, are now included within our Handsets, Automotive and internet of things (IoT) revenue streams as applicable. Prior period information has been recast to reflect this change. Descriptions of our three QCT revenue streams can be found in this Annual Report in “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items.”

(2) Earnings before income taxes.

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Substantially all of QCT’s revenues consist of equipment and services revenues, which were $29.9 billion and $37.0 billion in fiscal 2023 and 2022, respectively. QCT handsets, automotive and IoT revenues mostly relate to sales of our Snapdragon platforms (which include processors and modems), stand-alone Mobile Data Modems, radio frequency transceiver, power management and wireless connectivity integrated chipsets as well as sales of 4G, 5G sub 6 and 5G millimeter wave RFFE products.

2023 vs. 2022

The decrease in QCT revenues in fiscal 2023 was primarily due to:

-    lower handset revenues, primarily driven by $7.9 billion in lower chipset shipments to certain major OEMs (primarily driven by the negative effects of the macroeconomic environment weakness and customers drawing down on their elevated inventory levels), partially offset by $1.7 billion in higher revenues per chipset primarily driven by favorable mix and increases in average selling prices

-    lower IoT revenues, primarily driven by a decrease in demand across consumer, edge networking, and industrial products (primarily driven by the negative effects of the macroeconomic environment weakness and elevated customer inventory levels)

+    higher automotive revenues, primarily driven by an increase in demand for digital cockpit products

QCT EBT as a percentage of revenues decreased in fiscal 2023 due to:

-    lower revenues

-    lower gross margin percentage, primarily driven by increased product costs

QTL Segment (in millions, except percentages)

2023 vs. 2022

The decrease in QTL licensing revenues in fiscal 2023 was primarily due to:

-    $730 million decrease in estimated sales of 3G/4G/5G-based multimode products, primarily driven by the macroeconomic environment weakness

-    $205 million decrease in revenues from the ending of the recognition of certain upfront license fee consideration in the first quarter of fiscal 2023 from our long-term license agreement with Nokia

QTL EBT as a percentage of revenues decreased in fiscal 2023 primarily due to lower revenues.

QSI Segment (in millions)

2023 vs. 2022

The decrease in QSI loss before income taxes in fiscal 2023 was primarily due to a $350 million decrease in net losses on investments, which was primarily driven by the change in fair value of certain of our marketable equity investments in early or growth stage companies, partially offset by a $61 million increase in impairment losses on certain investments.

Looking Forward

In the coming years, we expect consumer demand for 3G/4G/5G multimode and 5G products and services to continue to ramp around the world as we continue to transition from 3G/4G multimode and 4G products and services. We believe that 5G combined with high-performance, low-power processing and on-device intelligence will continue to drive adoption of certain technologies that are already commonly used in smartphones by industries and applications beyond mobile handsets, such as automotive and IoT. We believe it is important that we remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and a leading developer and supplier of 5G integrated circuit products in order to sustain and grow our business long term.

As we look forward to the next several quarters:

•We expect certain customers will continue to draw down on their inventory (which remains at elevated levels), which will continue to have a negative impact on our revenues, results of operations and cash flows. This dynamic, along with weaker consumer demand for smartphones and other devices that incorporate our products and technologies in fiscal 2023 relative to the prior year, have also contributed to our elevated inventory levels and contribute to the inherent uncertainties in estimating future customer demand, which may increase excess or obsolete

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inventory or reserve charges if we overestimate such demand, negatively impacting our results of operations and cash flows.

•We expect to continue to see product cost increases from certain of our key semiconductor wafer suppliers.

•We expect commercial 5G network deployments and device launches will continue.

•We expect continued intense competition, including from vertical integration by certain of our customers (for example, Samsung and Huawei).

•Given the continued uncertainty in the macroeconomic and demand environment, we have initiated certain restructuring actions in the fourth quarter of fiscal 2023 to enable investments in key growth and diversification opportunities. We anticipate these actions to be substantially completed in the first half of fiscal 2024.

•Current U.S./China trade relations and/or national security protection policies may negatively impact our business, growth prospects and results of operations. See “Risk Factors” in this Annual Report, including the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”

Further, while future developments are highly uncertain, we currently do not expect a significant impact on our results of operations in the future due to the Israel-Hamas war. See “Risk Factors” in this Annual Report, specifically the Risk Factor titled “Geopolitical conflicts, natural disasters, pandemics and other health crises, and other factors outside of our control, could significantly disrupt our business.”

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

Further discussion of risks related to our business is provided in “Part I, Item 1A. Risk Factors” included in this Annual Report.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and cash provided by our debt programs, which we believe will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans.

The following table presents selected financial information related to our liquidity as of and for the years ended September 24, 2023 and September 25, 2022 (in millions):

(1) Excludes $77 million and $326 million of cash and cash equivalents classified as held for sale (included in other current assets) at September 24, 2023 and September 25, 2022, respectively.

Cash, cash equivalents and marketable securities. The net increase in cash, cash equivalents and marketable securities was primarily due to net cash provided by operating activities, the issuance of $1.9 billion of unsecured fixed-rate notes, $1.5 billion in net cash proceeds from the sale of the Active Safety business and $434 million in proceeds from the issuance of common stock (primarily under our Employee Stock Purchase Plan), partially offset by $3.5 billion in cash dividends paid, $3.0 billion in payments to repurchase shares of our common stock, $1.5 billion in capital expenditures, $1.4 billion repayments of notes that matured in January 2023, $521 million in payments of tax withholdings related to the vesting of share-based awards and $498 million in net repayments of commercial paper.

Net changes in our operating assets and liabilities positively impacted our operating cash flows primarily from a decrease in accounts receivable as a result of lower revenues and a decrease in other assets primarily driven by utilization of prior

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advanced supply agreement payments (which payments were primarily made during 2022 and 2021) and certain settlement payments received associated with our forward starting interest rate swaps, partially offset by lower operating liabilities resulting from lower purchases due to lower customer demand.

Debt. In the first quarter of fiscal 2023, we issued unsecured fixed-rate notes, consisting of $700 million of fixed-rate 5.40% notes and $1.2 billion of fixed-rate 6.00% notes (collectively, November 2022 Notes) that mature on May 20, 2033 and May 20, 2053, respectively. The net proceeds from the November 2022 Notes were used to repay $946 million of fixed-rate notes and $500 million of floating-rate notes that matured in January 2023 and the excess was used for general corporate purposes. At September 24, 2023, we had $15.9 billion of principal fixed-rate notes outstanding, $914 million of which matures in May 2024. The remaining debt has maturity dates in 2025 through 2053.

We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 24, 2023, we had no amounts of commercial paper outstanding. We also have a Revolving Credit Facility, which provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.3 billion, which expires on December 8, 2025. At September 24, 2023, no amounts were outstanding under the Revolving Credit Facility.

We expect to issue new debt in the future. The amount and timing of any such new debt will depend on a number of factors, including but not limited to maturities of our existing debt, acquisitions and strategic investments, favorable and/or acceptable interest rates and changes in corporate income tax law. Additional information regarding our outstanding debt at September 24, 2023 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 6. Debt.”

Income Taxes. At September 24, 2023, we estimated remaining future payments of $1.5 billion for a one-time U.S. repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next three years. At September 24, 2023, other current liabilities included $391 million for the next installment due in January 2024 as well as $1.0 billion related to certain postponed U.S. federal income tax-payments from fiscal 2023, which were paid in October 2023. Beginning in fiscal 2023, for federal income tax purposes, we are required to capitalize and amortize domestic research and development expenditures over five years and foreign research and development expenditures over fifteen years (such expenditures were previously deducted as incurred). Our cash flows from operations will be adversely affected due to significantly higher cash tax payments. Additional information regarding our income taxes is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”

Capital Return Program. The following table summarizes stock repurchases, before commissions, and dividends paid during fiscal 2023 and 2022 (in millions, except per-share amounts):

On October 12, 2021, we announced a $10.0 billion stock repurchase program. The stock repurchase program has no expiration date. At September 24, 2023, $5.1 billion remained authorized for repurchase under our stock repurchase program. Our stock repurchase programs are subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, and we may accelerate, suspend, delay or discontinue repurchases at any time.

On October 13, 2023, we announced a cash dividend of $0.80 per share on our common stock, payable on December 14, 2023 to stockholders of record as of the close of business on November 30, 2023. We currently intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that cash dividends are in the best interests of our stockholders, among other factors.

Additional Capital Requirements. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•Our purchase obligations at September 24, 2023, which primarily relate to purchase commitments with certain suppliers of our integrated circuit products, including those under multi-year capacity commitments, totaled $12.2 billion, of which, $6.8 billion is expected to be paid in the next 12 months.

•Our research and development expenditures were $8.8 billion in fiscal 2023 and $8.2 billion in fiscal 2022.

•Cash outflows for capital expenditures were $1.5 billion in fiscal 2023 and $2.3 billion in fiscal 2022. We reduced our capital expenditures in fiscal 2023 in response to the weakness in the macroeconomic environment (which negatively impacted consumer demand for smartphones and other devices that incorporate our products and technologies).

•Amounts related to future lease payments for operating lease obligations at September 24, 2023 totaled $872 million, with $116 million expected to be paid within the next 12 months.

•In the fourth quarter of fiscal 2023, we accrued $385 million of severance costs, substantially all of which is expected to be paid in the first half of fiscal 2024.

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•We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly.

Further, regulatory authorities in certain jurisdictions have investigated our business practices and instituted proceedings against us and they or other regulatory authorities may do so in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, financial condition and cash flows. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies” and “Part I, Item 1A. Risk Factors” in this Annual Report.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are inherently subject to a degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results could differ materially from our estimates and assumptions, and could be material to our consolidated financial statements.

In addition to our critical accounting estimates and policies below, refer to “Note 1. Significant Accounting Policies” and “Note 2. Composition of Certain Financial Statement Items” included in this Annual Report in “Notes to Consolidated Financial Statements” for further information. If the impact of changes in our critical accounting estimates are material or considered necessary to understand our results of operations for the periods presented, then such information is disclosed within this Annual Report in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Revenue Recognition. We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products. We estimate and recognize sales-based royalties on such licensed products in the period in which the licensees’ sales occur, which is based largely on preliminary royalty estimates provided by our licensees. For fiscal 2023 and 2022, actual amounts for sales-based royalties have been materially consistent with such estimates, and no significant reversals of revenues have been required as a result of adjustments to prior period royalty estimates.

Impairment of Non-marketable Equity Investments. We monitor our investments for events or circumstances that could indicate impairment, including those that result from observable price adjustments. Key considerations in this assessment include the investee’s financial and liquidity position and business forecasts (including their ability to respond to any significant deterioration), industry performance, development and/or market acceptance of the investee’s products or technologies, as well as considering any appreciation in fair value that has not been recognized in the carrying values of such investments and other relevant events and factors (such as the effects of the macroeconomic environment in fiscal 2023 and 2022). In fiscal 2023 and 2022, there were no significant impairment losses or adjustments to our previous judgments and estimates recorded.

Inventories. We measure inventory at the lower of cost or net realizable value considering judgments and estimates related to future customer demand and other market conditions, such as the impact of certain capacity constraints experienced across the semiconductor industry through the third quarter of fiscal 2022, as well as the impact of the macroeconomic environment in fiscal 2022 and 2023, which negatively impacted consumer demand for smartphones and other devices that incorporate our products and technologies. Although we believe these estimates are reasonable, any significant changes in customer demand that are less favorable than our previous estimates may require additional inventory write-downs and would be reflected in cost of sales resulting in a negative impact to our gross margin in that period. For fiscal 2023 and 2022, the net effect from changes in this estimate and related reserves was less than 2% of cost of revenues during each period.

Impairment of Goodwill, Other Indefinite-Lived Assets and Long-Lived Assets. We monitor our goodwill, other indefinite-lived assets and long-lived assets for the existence of impairment indicators and apply judgments in the valuation methods and underlying assumptions utilized in such assessments. During fiscal 2023, we recorded total impairment charges of approximately $400 million related to certain long-lived and other indefinite-lived assets. Such impairments (and the related remaining asset values) were not individually material. During fiscal 2022, there were no material impairment charges for long-lived or indefinite-lived assets. Additionally, the estimated fair values of our QCT and QTL reporting units, based on our qualitative assessment, were substantially in excess of their respective carrying values at September 24, 2023.

Legal and Regulatory Proceedings. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. We face difficulties in evaluating or estimating likely outcomes or the amount of possible loss in certain legal and regulatory proceedings.

Income Taxes. We make significant judgments and estimates in determining our provision for income taxes, including our assessment of our income tax positions given the uncertainties involved in the interpretation and application of complex tax laws and regulations in various taxing jurisdictions.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those referred to herein due to a number of factors, including but not limited to those described in “Part I, Item 1A. Risk Factors” and elsewhere in this Annual Report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.

The following section generally discusses fiscal 2022 and 2021 items and year-to-year comparisons between fiscal 2022 and 2021. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and 2020 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 26, 2021.

Our Business and Operating Segments

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

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

Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering and research and development functions, are operated by Qualcomm Technologies, Inc. (QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.

Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.

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

Fiscal 2022 Overview and Other Recent Events

Revenues were $44.2 billion, an increase of 32% compared to revenues of $33.6 billion in fiscal 2021, with net income of $12.9 billion, an increase of 43% compared to net income of $9.0 billion in fiscal 2021. Highlights from fiscal 2022 and other recent events included:

•QCT revenues increased by 39% in fiscal 2022 compared to the prior year, primarily due to an increase in average selling prices and favorable mix toward higher-tier 5G products along with higher integrated circuit shipments in handsets, as well as higher IoT revenues.

•On June 15, 2022, the General Court of the European Union issued a ruling annulling in its entirety the European Commission’s (EC) 2018 decision, which previously imposed a fine of 997 million euros for which we had provided financial guarantees to satisfy the obligation in lieu of cash payment. As a result, in the third quarter of fiscal 2022, we recorded a $1.1 billion benefit in other income and a $62 million reduction in interest expense resulting from the reversal of the accrued fine and the associated interest previously recorded. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.”

•On October 4, 2021, we and SSW Partners entered into a definitive agreement to acquire Veoneer, Inc. (Veoneer). The transaction closed on April 1, 2022. We funded substantially all of the total cash consideration paid in the transaction, which was approximately $4.7 billion. The operating results of the Non-Arriver businesses are reported as discontinued operations on a one quarter lag. Additional information related to this acquisition is included in this Annual Report in “Notes to Consolidated Financial Statements, Note 9. Acquisitions.”

Results of Operations

2022 vs. 2021

The increase in revenues in fiscal 2022 was primarily due to $10.4 billion in higher equipment and services revenues and $216 million in higher licensing revenues from our QCT segment.

2022 vs. 2021

Gross margin percentage remained flat in fiscal 2022 primarily due to:

+    increase in QCT gross margin

-    decrease in higher margin QTL licensing revenues in proportion to QCT revenues

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2022 vs. 2021

The increase in research and development expenses in fiscal 2022 was due to:

+    $856 million increase driven by higher costs related to the development of wireless and integrated circuit technologies (including 5G and application processor technologies), primarily driven by an increase in employee-related expenses

+    $303 million increase in share-based compensation expense

-    $141 million decrease in expenses driven by revaluation of our deferred compensation obligation on lower relative stock market performance (which resulted in a corresponding increase in net losses on deferred compensation plan assets within investment and other (expense) income, net due to the revaluation of the related assets)

2022 vs. 2021

The increase in selling, general and administrative expenses in fiscal 2022 was primarily due to:

+    $110 million increase in acquisition-related expenses, primarily related to the Veoneer transaction

+    $94 million increase in employee-related expenses

+    $74 million increase in share-based compensation expense

+    $33 million increase in litigation costs

+    $32 million increase in sales and marketing expenses

-    $127 million decrease in expenses driven by revaluation of our deferred compensation obligation on lower relative stock market performance

2022

Other income in fiscal 2022 consisted of a $1.1 billion benefit resulting from the 2018 EC fine reversal.

The decrease in interest expense in fiscal 2022 was primarily driven by a $62 million reversal of accrued interest recorded in the third quarter of fiscal 2022 related to the annulled 2018 EC fine.

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Net losses on marketable securities in fiscal 2022 was primarily driven by the change in fair value of certain of our QSI marketable equity investments in early or growth stage companies. Net gains on marketable securities in fiscal 2021 was primarily driven by the initial public offerings of certain QSI equity investments. Net gains on other investments in fiscal 2021 was primarily driven by realized gains resulting from the sale of certain of our QSI non-marketable investments.

Income Tax Expense (in millions, except percentages)

The following table summarizes the primary factors that caused our annual tax provision from continuing operations to differ from the expected income tax provision at the U.S. federal statutory rate. Substantially all of our income is taxed in the U.S., of which a significant portion qualifies for preferential treatment as FDII (foreign-derived intangible income) at a 13% effective tax rate.

Unrecognized tax benefits were $2.2 billion and $2.1 billion at September 25, 2022 and September 26, 2021, respectively. The increase in unrecognized tax benefits in fiscal 2022 was primarily due to expected refunds of Korean withholding taxes previously paid as licensees in Korea continue to withhold taxes on payments due under their licensing agreements at a rate higher than we believe is owed (which had an insignificant impact to our income tax provision). If successful, the refund will result in a corresponding reduction in U.S. foreign tax credits. We are subject to income taxes in the U.S. and numerous foreign jurisdictions and are currently under examination by various tax authorities worldwide, primarily related to transfer pricing. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts giving rise to a revision become known. At September 25, 2022, we believe our reserves are adequate based on facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our income tax provision and the related accruals.

Beginning in fiscal 2023, for federal income tax purposes, we are required to capitalize and amortize domestic research and development expenditures over five years and foreign research and development expenditures over fifteen years. Prior to such date, such expenditures are deducted as incurred. If this requirement is not delayed or repealed, our cash flow generated from operations will be adversely affected due to significantly higher cash tax payments. However, since the resulting deferred tax asset will be established at the statutory rate of 21% (rather than the effective rate of 13% to 16% after considering the FDII deduction), capitalization will favorably affect our provision for income taxes and results of operations. The adverse cash flow impact and favorable tax provision impact will diminish in future years as capitalized research and development expenditures amortize.

In August 2022, the Inflation Reduction Act (IRA) was enacted in the United States, which included, among other items, a 15% book minimum tax on adjusted financial statement earnings beginning in fiscal 2024. We do not expect this provision to have a material impact on our provision for income taxes, results of operations or cash flows. If the requirement to capitalize and amortize research and development expenditures beginning in fiscal 2023 is delayed or repealed, our cash flows may be impacted in future years under the IRA.

Discontinued Operations (in millions)

Discontinued operations in fiscal 2022 related to net losses from the Non-Arriver businesses. Information regarding the Non-Arriver businesses is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 9. Acquisitions.”

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Segment Results

The following should be read in conjunction with the fiscal 2022 and 2021 results of operations for each reportable segment included in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”

QCT Segment (in millions, except percentages)

(1) Includes revenues from products sold for use in mobile handsets, excluding RFFE (radio frequency front-end) components.

(2) Includes all revenues from sales of 4G, 5G sub-6 and 5G millimeter wave RFFE products (a substantial portion of which are sold for use in mobile handsets) and excludes radio frequency transceiver components.

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

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

(5) Earnings (loss) before income taxes.

Substantially all of QCT’s revenues consist of equipment and services revenues, which were $37.0 billion and $26.6 billion in fiscal 2022 and 2021, respectively. QCT handsets, automotive and IoT revenues mostly relate to sales of our Snapdragon platforms (which include processors and modems), stand-alone Mobile Data Modems, radio frequency transceiver, power management and wireless connectivity integrated chipsets.

2022 vs. 2021

The increase in QCT revenues in fiscal 2022 was primarily due to:

+    higher handset revenues, primarily driven by $6.6 billion in higher revenues per integrated circuit from increases in average selling prices and favorable mix toward higher-tier 5G products and $1.3 billion in higher integrated circuit shipments to major OEMs

+    higher RFFE revenues, driven by an increase in demand for 4G/5G products from major OEMs

+    higher automotive revenues, primarily driven by an increase in demand for digital cockpit products

+    higher IoT revenues across consumer, edge networking and industrial products, driven by a $951 million increase in demand, with the remaining increase of $941 million primarily due to favorable mix and higher average selling prices

QCT EBT as a percentage of revenues increased in fiscal 2022 due to:

+    higher revenues

+    higher gross margin percentage, primarily driven by higher average selling price and favorable mix towards higher-tier 5G products, partially offset by higher product costs

-    higher operating expenses, primarily driven by higher research and development expenses

QTL Segment (in millions, except percentages)

2022 vs. 2021

The increase in QTL licensing revenues in fiscal 2022 was primarily due to:

+    $308 million increase in estimated revenues per unit, which was primarily driven by favorable mix, including 5G

-    $299 million decrease in estimated sales of 3G/4G/5G-based multimode products

QTL EBT as a percentage of revenues remained flat in fiscal 2022.

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QSI Segment (in millions)

2022 vs. 2021

The decrease in QSI EBT in fiscal 2022 was primarily due to a $1.1 billion decrease resulting from net losses on investments in fiscal 2022 compared to net gains on investments in fiscal 2021, which were primarily driven by the change in fair value of certain of our marketable equity investments in early or growth stage companies and lower realized gains resulting from the sale of certain of our non-marketable investments.

Looking Forward

In the coming years, we expect consumer demand for 3G/4G/5G multimode and 5G products and services to continue to ramp around the world as we continue to transition from 3G/4G multimode and 4G products and services. We believe that 5G combined with high-performance, low-power processing and on-device intelligence will continue to drive adoption of certain technologies that are already commonly used in smartphones by industries and applications beyond mobile handsets, such as automotive and IoT. We believe it is important that we remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and a leading developer and supplier of 5G integrated circuit products in order to sustain and grow our business long term.

As we look forward to the next several quarters:

•We expect continued weakness in the macroeconomic environment (which will continue to negatively impact consumer demand for smartphones and other devices that incorporate our products and technologies) and our customers to draw down on their inventory (which is at elevated levels given the rapid deceleration in consumer demand and the easing of supply constraints, and which may take the next couple quarters to resolve), and that both of these dynamics will have a negative impact on our revenues, results of operations and cash flows compared to the prior year.

•While capacity constraints have largely abated, we expect to continue to see price increases from certain of our key semiconductor wafer suppliers.

•We expect commercial 5G network deployments and device launches will continue.

•We expect continued intense competition, particularly in China.

•Current U.S./China trade relations and/or national security protection policies may negatively impact our business, growth prospects and results of operations. See “Risk Factors” in this Annual Report, including the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”

The degree to which the COVID-19 pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain. See “Risk Factors” in this Annual Report, specifically the Risk Factor titled “The COVID-19 pandemic, or a similar health crisis, may impact our business or results of operations in the future.”

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

Further discussion of risks related to our business is provided in “Part I, Item 1A. Risk Factors” included in this Annual Report.

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Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and cash provided by our debt programs. The following table presents selected financial information related to our liquidity as of and for the years ended September 25, 2022 and September 26, 2021 (in millions):

(1) Excludes $326 million of cash and cash equivalents classified as held for sale (included in other current assets) at September 25, 2022.

Cash, cash equivalents and marketable securities. The net decrease in cash, cash equivalents and marketable securities was primarily due to $4.9 billion in cash paid for acquisitions and other investments, net of cash acquired (primarily related to Veoneer), $3.2 billion in cash dividends paid, $3.1 billion in payments to repurchase shares of our common stock, $2.3 billion in capital expenditures and $766 million in payments of tax withholdings related to vesting of share-based awards. This was partially offset by net cash provided by operating activities, which was negatively impacted by advanced payments of $2.3 billion made to suppliers of our integrated circuit products under multi-year capacity commitments (which were included within other current assets and other assets), as well as $4.5 billion of net changes in other operating assets and liabilities (excluding the reversal of the 2018 EC fine), primarily consisting of increased working capital requirements, including higher inventory and related operating liabilities and an increase in accounts receivable as a result of higher revenues combined with the timing of integrated circuit shipments during the period (net of an increase in amounts accrued for customer incentive arrangements recorded as a reduction to accounts receivable). We may continue to see elevated working capital requirements in the near term.

Debt. In May 2022, we issued an aggregate principal amount of $1.5 billion of unsecured fixed-rate notes with varying maturities. The net proceeds, together with cash on hand, were used to repay $1.5 billion of fixed-rate notes that matured in May 2022. At September 25, 2022, we had $15.4 billion of principal floating- and fixed-rate notes outstanding, $1.4 billion of which matures in January 2023. The remaining debt has maturity dates in 2024 through 2052.

We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 25, 2022, we had $499 million of commercial paper outstanding.

We also have a Revolving Credit Facility, which provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5 billion, which expires on December 8, 2025. At September 25, 2022, no amounts were outstanding under the Revolving Credit Facility.

We expect to issue new debt in the future. The amount and timing of any such new debt will depend on a number of factors, including but not limited to maturities of our existing debt, acquisitions and strategic investments, favorable and/or acceptable interest rates and changes in corporate income tax law. Additional information regarding our outstanding debt at September 25, 2022 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 6. Debt.”

Income Taxes. At September 25, 2022, we estimated remaining future payments of $1.7 billion for a one-time U.S. repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next four years. At September 25, 2022, other current liabilities included $207 million for the next installment due in January 2023. Beginning in fiscal 2023, we are required to capitalize and amortize research and development expenditures for federal income tax purposes. If this requirement is not delayed or repealed, our cash flow generated from operations will be adversely affected due to significantly higher cash tax payments in the near term. Additional information regarding our income taxes is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”

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Capital Return Program. The following table summarizes stock repurchases, before commissions, and dividends paid during fiscal 2022 and 2021 (in millions, except per-share amounts):

On October 12, 2021, we announced a $10.0 billion stock repurchase program. The stock repurchase program has no expiration date. At September 25, 2022, $8.1 billion remained authorized for repurchase under our stock repurchase program. Our stock repurchase programs are subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, and we may accelerate, suspend, delay or discontinue repurchases at any time.

On October 14, 2022, we announced a cash dividend of $0.75 per share on our common stock, payable on December 15, 2022 to stockholders of record as of the close of business on December 1, 2022. We currently intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that cash dividends are in the best interests of our stockholders, among other factors.

Additional Capital Requirements. We believe our cash, cash equivalents and marketable securities, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•Our purchase obligations at September 25, 2022, which primarily relate to purchase commitments with certain suppliers of our integrated circuit products, including those under multi-year capacity commitments, and certain other expenses, some of which relate to research and development activities and capital expenditures, totaled $24.5 billion, of which, $13.3 billion is expected to be paid in the next 12 months. We expect a significant decrease in advance payments made under our multi-year capacity commitments as compared to fiscal 2022.

•Our research and development expenditures were $8.2 billion in fiscal 2022 and $7.2 billion in fiscal 2021.

•Cash outflows for capital expenditures were $2.3 billion in fiscal 2022 and $1.9 billion in fiscal 2021.

•Amounts related to future lease payments for operating lease obligations at September 25, 2022 totaled $863 million, with $129 million expected to be paid within the next 12 months.

•We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly. For further information related to our most recent acquisitions, including details regarding the Non-Arriver businesses presented as held for sale, see “Notes to Consolidated Financial Statements, Note 9. Acquisitions” in this Annual Report.

Further, regulatory authorities in certain jurisdictions have investigated our business practices and instituted proceedings against us and they or other regulatory authorities may do so in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, financial condition and cash flows. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies” and “Part I, Item 1A. Risk Factors” in this Annual Report.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are inherently subject to a degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results could differ materially from our estimates and assumptions, and could be material to our consolidated financial statements.

In addition to our critical accounting estimates and policies below, refer to “Note 1. Significant Accounting Policies” and “Note 2. Composition of Certain Financial Statement Items” included in this Annual Report in “Notes to Consolidated Financial Statements” for further information. If the impact of changes in our critical accounting estimates are material or considered necessary to understand our results of operations for the periods presented, then such information is disclosed within this Annual Report in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Revenue Recognition. We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products. We estimate and recognize sales-based royalties on such licensed products in the period in which the licensees’ sales occur, which is based largely on preliminary royalty estimates provided by our licensees. For fiscal 2022 and

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2021, actual amounts for sales-based royalties have been materially consistent with such estimates, and no significant reversals of revenues have been required as a result of adjustments to prior period royalty estimates.

Impairment of Non-marketable Equity Investments. We monitor our investments for events or circumstances that could indicate impairment, including those that result from observable price adjustments. In fiscal 2021, and to a lesser extent in fiscal 2022, significant evaluation and judgments were required in determining whether such investments were impaired due to the continuing effects of the COVID-19 pandemic (as well as the effects of other macroeconomic factors), and if so, the extent of such impairment. This included, among other items: (i) assessing the business impacts that COVID-19 had on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as applicable; (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and cash flows, as well as assessing liquidity and/or going concern risks; and (iii) considering any appreciation in fair value that has not been recognized in the carrying values of such investments. In fiscal 2022 and 2021, there were no significant impairment losses or adjustments to our previous judgments and estimates recorded.

Inventories. We measure inventory at the lower of cost or net realizable value considering judgments and estimates related to future customer demand and other market conditions, such as the impact of certain capacity constraints experienced across the semiconductor industry through the third quarter of fiscal 2022 and in fiscal 2021, as well as the impact of the macroeconomic environment in fiscal 2022. Although we believe these estimates are reasonable, any significant changes in customer demand that are less favorable than our previous estimates may require additional inventory write-downs and would be reflected in cost of sales resulting in a negative impact to our gross margin in that period. For fiscal 2022 and 2021, the net effect from changes in this estimate and related reserves was less than 2% of cost of revenues during each period.

Impairment of Goodwill, Other Indefinite-Lived Assets and Long-Lived Assets. We monitor our goodwill, other indefinite-lived assets and long-lived assets for the existence of impairment indicators and apply judgments in the valuation methods and underlying assumptions utilized in such assessments. During fiscal 2022 and fiscal 2021, impairment charges for long-lived assets were not material. Additionally, the estimated fair values of our QCT and QTL reporting units, based on our qualitative assessment, were substantially in excess of their respective carrying values at September 25, 2022.

Legal and Regulatory Proceedings. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. We face difficulties in evaluating or estimating likely outcomes or the amount of possible loss in certain legal and regulatory proceedings.

Income Taxes. We make significant judgments and estimates in determining our provision for income taxes, including our assessment of our income tax positions given the uncertainties involved in the interpretation and application of complex tax laws and regulations in various taxing jurisdictions.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those referred to herein due to a number of factors, including but not limited to the risks described in “Part I, Item 1A. Risk Factors” and elsewhere in this Annual Report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.

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The following section generally discusses fiscal 2021 and 2020 items and year-to-year comparisons between fiscal 2021 and 2020. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and 2019 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.

Fiscal 2021 Overview and Other Recent Events

Revenues were $33.6 billion, an increase of 43% compared to revenues of $23.5 billion in fiscal 2020, with net income of $9.0 billion, an increase of 74% compared to net income of $5.2 billion in fiscal 2020. Highlights from fiscal 2021 and other recent events included:

•QCT revenues increased by 64% in fiscal 2021 compared to the prior year, primarily due to an increase in demand for 5G products across handsets and RFFE, in part reflecting a recovery from the negative impacts of COVID-19, along with higher automotive and IoT revenues.

•QTL revenues increased by 26% in fiscal 2021 compared to the prior year, primarily due to an increase in estimated sales of 3G/4G/5G-based multimode products, in part reflecting a recovery from the negative impacts of COVID-19.

•QSI earnings before income taxes increased by $927 million compared to the prior year, primarily due to higher net gains on investments.

•On March 16, 2021, we completed the acquisition of NUVIA for $1.1 billion, net of cash acquired. NUVIA has certain in-process technologies and is comprised of a CPU (central processing unit) and technology design team with expertise in high performance processors, SoC (system-on-chip) and power management for compute-intensive devices and applications. Upon completion of development, NUVIA’s technologies are expected to be integrated into certain QCT products.

•On March 26, 2021, the FTC’s deadline for filing a petition for certiorari with the U.S. Supreme Court to seek review of the Ninth Circuit’s decision in our favor in United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated expired. The case is now over.

•In October 2021, we and SSW Partners, a New York-based investment partnership, entered into a definitive agreement to acquire Veoneer, Inc. (Veoneer) for $37.00 per share in cash, which values the estimated total cash consideration to be paid to Veoneer’s shareholders at approximately $4.5 billion. At closing, SSW Partners will acquire all of the outstanding capital stock of Veoneer, shortly after which it will sell Veoneer’s Arriver business to Qualcomm and retain Veoneer’s Tier-1 automotive supplier businesses. Following the close of the Arriver business sale, we intend to incorporate Arriver’s computer vision, drive policy and driver assistance technologies into our Snapdragon automotive platform to deliver an open and competitive ADAS platform for automakers and Tier-1 automotive suppliers. Subject to the satisfaction of closing conditions, the acquisition is expected to close in 2022.

Our Business and Operating Segments

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

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

Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.

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

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Results of Operations

2021 vs. 2020

The increase in revenues in fiscal 2021 was primarily due to:

+    $10.4 billion in higher equipment and services revenues from our QCT segment

+    $1.3 billion in higher licensing revenues from our QTL segment

-    $1.8 billion in licensing revenues from Huawei recorded in the fourth quarter of fiscal 2020 resulting from amounts due under the settlement agreement signed in July 2020 and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent license agreement signed in July 2020 (which were not allocated to our segment results)

2021 vs. 2020

Gross margin percentage decreased in fiscal 2021 primarily due to:

-    decrease in licensing revenues from Huawei recorded in fiscal 2020 resulting from amounts due under the settlement agreement and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent licensing agreement

-    decrease in higher margin QTL licensing revenues in proportion to QCT revenues

+    increase in QCT gross margin

2021 vs. 2020

The increase in research and development expenses in fiscal 2021 was due to:

+    $793 million increase driven by higher costs related to the development of wireless and integrated circuit technologies (including 5G and application processor technologies), a portion of which was attributable to higher employee cash incentive program costs

+    $362 million increase in share-based compensation expense

+    $46 million increase in expenses driven by revaluation of our deferred compensation obligation on improved stock market performance (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)

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2021 vs. 2020

The increase in selling, general and administrative expenses in fiscal 2021 was primarily due to:

+    $164 million increase in employee-related expenses, a portion of which was attributable to higher employee cash incentive program costs

+    $83 million increase in share-based compensation expense

+    $38 million increase in expenses driven by revaluation of our deferred compensation obligation on improved stock market performance (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)

+    $32 million increase in sales and marketing expenses

-    $73 million decrease in litigation costs

2020

Other income in fiscal 2020 consisted of $28 million in gains related to a favorable legal settlement.

Net gains on marketable securities for fiscal 2021 was primarily driven by the initial public offerings of certain QSI equity investments. Net gains on other investments for fiscal 2021 was primarily driven by realized gains resulting from the sale of certain of our QSI non-marketable investments.

The impairment losses in fiscal 2020 were due in part to the impact COVID-19 had on certain of our investees. A significant portion of the impairment losses related to our investment in OneWeb who filed for bankruptcy in the second quarter of fiscal 2020.

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Income Tax Expense (in millions, except percentages)

The following table summarizes the primary factors that caused our annual tax provision to differ from the expected income tax provision at the U.S. federal statutory rate. Substantially all of our income is in the U.S., of which a significant portion qualifies for preferential treatment as FDII (foreign-derived intangible income) at a 13% effective tax rate.

In the first quarter of fiscal 2021, the United States Treasury Department issued final regulations on the foreign tax credit, which generally are applicable beginning in fiscal 2021, with certain provisions retroactive to fiscal 2019. As a result of these regulations, our fiscal 2021 effective tax rate increased by approximately 1%. The retroactive impact resulting from these new regulations, which was related to fiscal 2019 and fiscal 2020 and recorded in fiscal 2021, was not significant.

Unrecognized tax benefits were $2.1 billion and $1.9 billion at September 26, 2021 and September 27, 2020, respectively. The increase in unrecognized tax benefits in fiscal 2021 was primarily due to expected refunds of Korean withholding taxes previously paid as licensees in Korea continue to withhold taxes on payments due under their licensing agreements at a rate higher than we believe is owed (which had an insignificant impact to our income tax provision). If successful, the refund will result in a corresponding reduction in U.S. foreign tax credits. We are subject to income taxes in the U.S. and numerous foreign jurisdictions and are currently under examination by various tax authorities worldwide, primarily related to transfer pricing. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. As of September 26, 2021, we believe that adequate amounts have been reserved for based on facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our income tax provision and the related accruals.

The current U.S. presidential administration and Congress have proposed to increase U.S. tax rates and/or eliminate or reduce the FDII deduction. Substantially all of our income is taxable in the U.S., of which a significant portion qualifies for preferential treatment as FDII. If such proposals are enacted into law, our provision for income taxes, results of operations and cash flows would be adversely affected (potentially materially) beginning as early as the first quarter of fiscal 2022.

Segment Results

The following should be read in conjunction with the fiscal 2021 and 2020 results of operations for each reportable segment included in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.”

QCT Segment (in millions, except percentages)

(1) Includes revenues from products sold for use in mobile handsets, excluding RFFE (radio frequency front-end) components.

(2) Includes all revenues from sales of 4G, 5G sub-6 and 5G millimeter wave RFFE products (a substantial portion of which are sold for use in mobile handsets) and excludes radio frequency transceiver components.

(3) Includes revenues from products sold for use in automobiles, including telematics, connectivity and digital cockpit.

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

(5) Earnings (loss) before income taxes.

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Substantially all of QCT’s revenues consist of equipment and services revenues, which were $26.6 billion and $16.1 billion in fiscal 2021 and 2020, respectively. QCT handsets, automotive and IoT revenues mostly relate to sales of our stand-alone Mobile Data Modems, Snapdragon platforms (which include processors and modems), radio frequency transceiver, power management and wireless connectivity integrated chipsets.

QCT results for fiscal 2021 compared to the prior year reflect a recovery from the negative impacts of COVID-19.

2021 vs. 2020

The increase in QCT revenues in fiscal 2021 was primarily due to:

+    higher handset revenues, primarily driven by $3.6 billion in higher chipset shipments and $2.6 billion in higher revenue per chipset, both of which were primarily due to an increase in demand for 5G products from Apple and other major OEMs

+    higher RFFE product revenues, driven by an increase in demand for 4G/5G products from Apple and other major OEMs

+    higher automotive revenues, primarily driven by an increase in demand for telematics and digital cockpit products

+    higher IoT revenues, driven by $1.7 billion in higher shipments across consumer, edge networking and industrial products and $378 million in revenue per unit due to an increase in demand for 5G

QCT EBT as a percentage of revenues increased in fiscal 2021 due to:

+    higher revenues

+    higher gross margin percentage, primarily driven by favorable mix and higher average selling prices, partially offset by higher average unit costs, all of which were due to an increase in demand for 5G products

-    higher operating expenses, primarily driven by higher research and development expenses

QTL Segment (in millions, except percentages)

In July 2020, we entered into a settlement agreement with Huawei to resolve our prior dispute related to the license agreement that expired on December 31, 2019. We also entered into a new long-term, global patent license agreement that applies to sales of certain wireless products by Huawei beginning on January 1, 2020. We did not record any QTL revenues for the first nine months of fiscal 2020 for royalties due on the sales of Huawei’s consumer wireless products. Revenues of $1.8 billion recorded in the fourth quarter of fiscal 2020 resulting from the settlement agreement with Huawei and royalties for sales made in the March 2020 and June 2020 quarters under the new global patent license agreement with Huawei were not allocated to our segment results.

2021 vs. 2020

The increase in QTL licensing revenues in fiscal 2021 was due to:

+    $1.1 billion in estimated sales of 3G/4G/5G-based multimode products, primarily due to a recovery from the negative impacts of COVID-19 and as a result of not recognizing any QTL revenues for the first nine months of fiscal 2020 for royalties due on the sales of Huawei’s consumer wireless products

+    $273 million in higher estimated revenues per unit, primarily due to favorable OEM mix

-    $103 million in lower royalty revenues recognized related to devices sold in prior periods

QTL EBT as a percentage of revenues increased in fiscal 2021 due to:

+    higher revenues

-    higher operating expenses, primarily driven by higher research and development expenses

QSI Segment (in millions)

2021 vs. 2020

The increase in QSI EBT in fiscal 2021 was due to:

+     $575 million increase in net gains on investments, primarily driven by gains resulting from the initial public offerings of certain of our equity investments

+     $313 million decrease in impairment losses on other investments, of which a significant portion in fiscal 2020 related to our investment in OneWeb

+     $38 million increase in equity in net earnings of investees

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Looking Forward

In the coming years, we expect new consumer demand for 3G/4G/5G multimode and 5G products and services to continue to ramp around the world as we continue to transition from 3G/4G multimode and 4G products and services. We believe that 5G will continue to drive adoption of certain technologies that are already commonly used in smartphones by industries and applications beyond mobile handsets, such as automotive and IoT. We believe it is important that we remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and a leading developer and supplier of 5G integrated circuit products in order to sustain and grow our business long term.

As we look forward to the next several quarters, our business may be impacted by the following key items:

•We expect QCT revenues to continue to be favorably impacted compared to fiscal 2021 due to increased demand across handset, RFFE, automotive and IoT revenue streams.

•While the semiconductor industry continues to experience certain capacity constraints, we have entered into several, and we expect to enter into additional, multi-year capacity purchase commitments with certain suppliers of our integrated circuit products in an effort to secure commitments for future supply, which we expect will allow us to continue to realize benefits from increased demand for integrated circuit products, particularly from certain Chinese OEMs as they continue to position to gain device share.

•We expect commercial 5G network deployments and device launches will continue.

•We expect our research and development costs will increase compared to fiscal 2021, primarily due to increased investment towards advancements in 5G and application processor technologies and certain other long-term initiatives, as well as an increase in share-based compensation expense.

•We expect continued intense competition, particularly in China.

•Current U.S./China trade relations and/or national security protection policies may negatively impact our business, growth prospects and results of operations. See “Risk Factors” in this Annual Report, including the Risk Factor entitled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”

•We currently do not expect a significant impact on our results of operations in the future due to COVID-19. The degree to which the COVID-19 pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain. See “Risk Factors” in this Annual Report, specifically the Risk Factor titled “The coronavirus (COVID-19) pandemic had an adverse effect on our business and results of operations, and may continue to impact us in the future.”

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

Further discussion of risks related to our business is provided in “Part I, Item 1A. Risk Factors” included in this Annual Report.

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Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and cash provided by our debt programs. The following table presents selected financial information related to our liquidity as of and for the years ended September 26, 2021 and September 27, 2020 (in millions):

Cash, cash equivalents and marketable securities. The net increase in cash, cash equivalents and marketable securities was primarily due to net cash provided by operating activities (which includes $1.6 billion of cash outflows related to certain advance payments made to suppliers of our integrated circuit products under multi-year capacity commitments), $430 million increase in marketable securities resulting from initial public offerings of certain non-marketable equity investments, $347 million in proceeds from the issuance of common stock (primarily under our Employee Stock Purchase Plan) and $320 million in proceeds from other investments, partially offset by $3.4 billion in payments to repurchase shares of our common stock, $3.0 billion in cash dividends paid, $1.9 billion in capital expenditures, $1.4 billion in cash paid for acquisitions and other investments (primarily related to the acquisition of NUVIA) and $737 million in payments of tax withholdings related to the vesting of share-based awards.

Accounts receivable, net. The decrease in accounts receivable was primarily due to payments received under the previously disclosed settlement agreement with Huawei. The decrease in accounts receivable was also partially attributable to the timing of collection of payments from certain of our QTL licensees, partially offset by an increase in QCT accounts receivable resulting from an increase in QCT revenues in the fourth quarter of fiscal 2021 as compared to the fourth quarter of fiscal 2020.

Inventories. The increase in inventories was primarily driven by the increase in demand for 5G products.

Debt. At September 26, 2021, we had $15.5 billion of principal floating- and fixed-rate notes outstanding, $1.5 billion of which matures in May 2022. The remaining debt has maturity dates in 2023 through 2050.

We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. At September 26, 2021, we had $500 million of commercial paper outstanding.

On December 8, 2020, we entered into a Revolving Credit Facility replacing our prior Amended and Restated Revolving Credit Facility. There were no outstanding borrowings under the Amended and Restated Revolving Credit Facility at the time of termination. The Revolving Credit Facility provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5 billion, which expires on December 8, 2025. At September 26, 2021, no amounts were outstanding under the Revolving Credit Facility.

We expect to issue new debt in the future. The amount and timing of any such new debt will depend on a number of factors, including but not limited to maturities of our existing debt, acquisitions and strategic investments, favorable and/or acceptable interest rates and changes in corporate income tax law. Additional information regarding our outstanding debt at September 26, 2021 is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 6. Debt.”

Income Taxes. At September 26, 2021, we estimated remaining future payments of $1.9 billion for a one-time U.S. repatriation tax accrued in fiscal 2018, after application of certain tax credits, which is payable in installments over the next five years. At September 26, 2021, other current liabilities included $196 million for the next installment due in January 2022. Additional information regarding our income taxes is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”

Acquisitions. In October 2021, we and SSW Partners entered into a definitive agreement to acquire Veoneer for total estimated cash consideration of approximately $4.5 billion, substantially all of which will be funded by Qualcomm, and we paid a $110 million termination fee to Magna International Inc., on behalf of Veoneer. Further, we have agreed to provide a

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loan facility (or guarantee amounts provided by a third party) that provides financing to Veoneer of up to $480 million. The acquisition is expected to close in 2022. Information related to this definitive agreement to acquire Veoneer, including additional information related to certain contingent financing obligations, is included in this Annual Report in “Notes to Consolidated Financial Statements, Note 12. Subsequent Events.” We expect to continue making strategic investments and acquisitions, the amounts of which could vary significantly, to open new opportunities for our technologies, obtain development resources, grow our patent portfolio or pursue new businesses.

Capital Return Program. The following table summarizes stock repurchases, before commissions, and dividends paid during fiscal 2021 and 2020 (in millions, except per-share amounts):

In fiscal 2018, we announced a stock repurchase program authorizing us to repurchase up to $30.0 billion of our common stock. On October 12, 2021, we announced a new $10.0 billion stock repurchase authorization, which is in addition to the remaining repurchase authority of $0.9 billion under the aforementioned program. The stock repurchase programs have no expiration date. Since September 26, 2021, we repurchased and retired 5.4 million shares of common stock for $703 million. Our stock repurchase programs are subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, and we may accelerate, suspend, delay or discontinue repurchases at any time.

On October 13, 2021, we announced a cash dividend of $0.68 per share on our common stock, payable on December 16, 2021 to stockholders of record as of the close of business on December 2, 2021. We intend to continue to use cash dividends as a means of returning capital to stockholders, subject to capital availability and our view that cash dividends are in the best interests of our stockholders, among other factors.

Additional Capital Requirements. We believe our cash, cash equivalents and marketable securities, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•Our purchase obligations at September 26, 2021, which primarily relate to purchase commitments with certain suppliers of our integrated circuit products, including those under multi-year capacity commitments, and certain other expenses, some of which relate to research and development activities and capital expenditures, totaled $23.5 billion, of which, $12.9 billion is expected to be paid in the next 12 months. We expect an increase in operating cash outflows as compared to fiscal 2021 as we make payments under the multi-year capacity commitments and as we enter into additional agreements with certain suppliers of our integrated circuit products.

•Our research and development expenditures were $7.2 billion in fiscal 2021 and $6.0 billion in fiscal 2020, and we expect to increase our investment in research and development in fiscal 2022, including in advancements in existing and new technologies and products.

•Cash outflows for capital expenditures were $1.9 billion in fiscal 2021 and $1.4 billion in fiscal 2020. We expect capital expenditures to increase in fiscal 2022 to support the increase in our manufacturing and production capacity needs.

•Amounts related to future lease payments for operating lease obligations at September 26, 2021 totaled $677 million, with $141 million expected to be paid within the next 12 months.

•At September 26, 2021, $1.5 billion was accrued related to two fines imposed by the EC (based on the exchange rate at September 26, 2021, including related foreign currency gains and accrued interest). We have provided financial guarantees in lieu of cash payment to satisfy the obligations while we appeal the EU’s decisions.

Further, regulatory authorities in certain jurisdictions have investigated our business practices and instituted proceedings against us and they or other regulatory authorities may do so in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, financial condition and cash flows. See “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies” and “Part I, Item 1A. Risk Factors” in this Annual Report.

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Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are subject to an inherent degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results that differ from our estimates could be material to our consolidated financial statements.

Refer to “Note 1. Significant Accounting Policies” and “Note 2. Composition of Certain Financial Statement Items” included in this Annual Report in “Notes to Consolidated Financial Statements” for further information on our critical accounting estimates and policies, which are as follows. In addition, if the impact of changes in our critical accounting estimates are material or considered necessary to understand our results of operations for the periods presented, then such information is disclosed within this Annual Report in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations.”

Revenue Recognition. We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products. We estimate and recognize sales-based royalties on such licensed products in the period in which the licensees’ sales occur, which is based largely on preliminary royalty estimates provided by our licensees. Actual amounts for sales-based royalties have been materially consistent with such estimates, and no significant reversals of revenues have been required as a result of adjustments to prior period royalty estimates. Significant evaluation and judgment were required in determining the appropriate accounting for the settlement agreement and the global patent license agreement with Huawei, which were signed in the fourth quarter of fiscal 2020. We considered, among other items, Huawei’s commitment to perform under such agreements (including Huawei’s intent and ability to pay amounts due), Huawei’s performance as of the date of assessment under the agreements (including timely payments made), Huawei’s then-current and projected financial condition (including the impact of enacted national security protection policies by the U.S. government on Huawei’s business) and certain contractual protections that we obtained under these agreements. In the fourth quarter of fiscal 2021, Huawei paid the final installment under the settlement agreement, and there were no changes to our previous judgments, estimates and initial evaluation related to the revenues recorded in fiscal 2020 under the settlement agreement.

Impairment of Non-marketable Equity Investments. We monitor our investments for events or circumstances that could indicate impairment, including those that result from observable price adjustments. In fiscal 2021, we recorded impairment losses on other investments (which primarily related to our non-marketable equity investments) of $33 million, a decrease of $372 million compared to fiscal 2020. Significant evaluation and judgments were required in determining if the negative effects of COVID-19 indicated that such investments were impaired, and if so, the extent of such impairment. This included, among other items: (i) assessing the business impacts that COVID-19 had on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as applicable, (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and cash flows, as well as assessing liquidity and/or going concern risks and (iii) considering any appreciation in fair value that has not been recognized in the carrying values of such investments. Based on this evaluation, certain of our investments were impaired and written down to their estimated fair values in fiscal 2020 (a significant portion of which related to the full impairment of our investment in OneWeb, who filed for bankruptcy in the second quarter of fiscal 2020). For a significant portion of the impairment losses recorded in 2020, the estimated fair values resulted in a full write-off of the carrying value. In fiscal 2021, there were no significant impairment losses or adjustments to our previous judgments and estimates recorded.

Inventories. We measure inventory at the lower of cost or net realizable value considering judgments related to future demand and market conditions, such as the impact of certain capacity constraints experienced across the semiconductor industry in fiscal 2021 and the impacts of COVID-19 in fiscal 2020. For fiscal 2021 and 2020, the overall net effect on our operating results from changes in this estimate were not material.

Impairment of Goodwill and Long-Lived Assets. We monitor our goodwill and long-lived assets for the existence of impairment indicators and apply judgments in the valuation methods and underlying assumptions utilized in such assessments. During fiscal 2021 and fiscal 2020, impairment charges for long-lived assets were negligible. Additionally, the estimated fair values of our QCT and QTL reporting units, based on our qualitative assessment, were substantially in excess of their respective carrying values at September 26, 2021.

Legal and Regulatory Proceedings. We record our best estimate of a loss related to pending legal and regulatory proceedings when the loss is considered probable and the amount can be reasonably estimated. We face difficulties in evaluating or estimating likely outcomes or the amount of possible loss in certain legal and regulatory proceedings.

Income Taxes. We make significant judgments and estimates in determining our provision for income taxes, including our assessment of our income tax positions given the uncertainties involved in the interpretation and application of complex tax laws and regulations in various taxing jurisdictions.

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Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and the impact of those pronouncements, if any, on our consolidated financial statements is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 1. Significant Accounting Policies.”