Qualcomm’s balance sheet
Qualcomm’s (QCOM) recent litigations have cost it billions of dollars in fines, thereby impacting its cash flows. The current litigations surrounding its licensing business have also reduced the company’s overall cash flows.
However, these short-term challenges didn’t deter the chip supplier from progressing with its $38 billion acquisition of NXP Semiconductors (NXPI).
In fiscal 3Q17, Qualcomm’s GAAP (generally accepted accounting principles) operating cash flow fell to just $82 million as the company paid over $1.8 billion in litigation fines and payments. It made a $940 million payment to BlackBerry (BBRY), and it paid a $927 million fine to the Korea Fair Trade Commission (EWY). Its cash flows were also affected by the nonpayments of royalties by Apple (AAPL) and one other licensee.
It’s important to note that QCOM deducted the fine paid to South Korea in its fiscal 1Q17 income statement, and it deducted the Blackberry payment in its fiscal 2Q17 income statement. However, the company made its cash payments to both these parties in fiscal 3Q17. Excluding the impact of arbitration and fines, Qualcomm’s non-GAAP operating cash flow stood at $2 billion in the quarter.
If the court rules in Apple’s favor, Qualcomm’s cash flows could face another big blow.
Cash and debt
Despite legal headwinds, Qualcomm has continued to prepare for its NXP acquisition. In May 2017, it issued $11 billion worth of debt, increasing its long-term debt to $21.8 billion as of the end of fiscal 3Q17. It also increased its cash reserves to $37.8 billion.
QCOM now has adequate money to fund its $38 billion NXP acquisition. Following the acquisition, the combined company will have $10 billion in cash reserves and $26 billion in long-term liabilities, resulting in net debt of $16 billion. Qualcomm will halt its share buybacks to channel its free cash flow toward debt repayment until it returns to a net cash position.
Next, let’s look at analysts’ opinions on Qualcomm.