QUALCOMM INC/DE, 10-K405, 1997-12-03

QUALCOMM INC/DE
10-K405, 1997-12-03
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
----------------

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1997

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-19528

QUALCOMM INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------

DELAWARE 95-3685934
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6455 LUSK BLVD. 92121-2779
SAN DIEGO, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 587-1121
----------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

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

The aggregate market value of the voting stock held by non affiliates of the
registrant as of November 21, 1997 was $4,148,221,037.*

The number of shares outstanding of the registrant's common stock was
68,552,532 as of November 21, 1997.

<PAGE> 2

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant's Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A in connection with the 1998 Annual Meeting
are incorporated herein by reference into Part III of this Report. Such proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year ended September 28, 1997.

Certain Exhibits filed with the registrant's (i) Registration Statement on
Form S-1 (Registration No. 33-42782), as amended; (ii) Annual Report on Form
10-K for the fiscal year ended September 27, 1992; (iii) Registration Statement
on Form S-3 (Registration No. 33-62724), as amended; (iv) Annual Report on Form
10-K for the fiscal year ended September 26, 1993; (v) Form 10-Q for the quarter
ended March 27, 1994, as amended; (vi) Registration Statement on Form S-8
(Registration No. 333-2750); (vii) Registration Statement on Form S-8
(Registration No. 333-2752); (viii) Registration Statement On Form S-8
(Registration No. 333-2754); (ix) Registration Statement on Form S-8
(Registration No. 333-2756); (x) Current Report on Form 8-K dated as of
September 26, 1995, are incorporated herein by reference into Part IV of this
Report; (xi) Annual Report on Form 10-K for the fiscal year ended September 29,
1996; and (xii) Registration Statement on Form S-3 (Registrations No.
333-26069), as amended.

- ----------

* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
November 21, 1997. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the registrant
or that such person is controlled by or under common control with the
registrant.

================================================================================
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QUALCOMM INCORPORATED

FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1997

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Business................................................. 1
Introduction............................................. 1
Recent Developments...................................... 2
Wireless Telecommunications Industry..................... 3
Strategy................................................. 4
CDMA Technology and Products............................. 5
OmniTRACS................................................ 9
Globalstar............................................... 11
Eudora Electronic Mail................................... 12
Government Systems....................................... 12
Manufacturing and Backlog................................ 12
Research and Development................................. 13
Competition.............................................. 13
Patents, Trademarks and Trade Secrets.................... 14
Employees................................................ 14
Executive Officers....................................... 15
Risk Factors............................................. 18
Reliance on Key Personnel................................ 26
Volatility of Stock Price................................ 27
Item 2. Properties............................................... 27
Item 3. Legal Proceedings........................................ 27
Item 4. Submission of Matters to a Vote of Security Holders...... 29
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters............................ 29
Item 6. Selected Financial Data.................................. 30
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 31
Item 8. Financial Statements.................................... 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant...... 41

Item 11. Executive Compensation.................................. 41

Item 12. Security Ownership of Certain
Beneficial Owners and Management...................... 41
Item 13. Certain Relationships and Related Transactions.......... 41

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................... 42
Signatures.............................................. 46
</TABLE>
<PAGE> 4
PART I

ITEM 1. BUSINESS

Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. QUALCOMM Incorporated's ("QUALCOMM" or the "Company") future
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not specifically
limited to: the ability to develop and introduce cost effective new products in
a timely manner; avoiding delays in the commercial implementation of the
Company's Code Division Multiple Access ("CDMA") technology; continued growth in
the CDMA subscriber population and the scale-up and operations of CDMA systems;
developments in current or future litigation; the Company's ability to
effectively manage growth and the intense competition in the wireless
communications industry; risks associated with vendor financing; timing and
receipt of license fees and royalties; the Company's ability to successfully
manufacture and sell significant quantities of CDMA infrastructure equipment on
a timely basis; failure to satisfy performance obligations; as well as the other
risks detailed in this section, and in the sections entitled Risk Factors and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

INTRODUCTION

QUALCOMM, a Delaware corporation, is a leading provider of digital wireless
communications products, technologies and services. The Company designs,
develops, manufactures, markets and sells wireless communications,
infrastructure and subscriber equipment and Application Specific Integrated
Circuits ("ASICs") based on its CDMA technology and has licensed its CDMA
technology to major telecommunications equipment suppliers for incorporation
into their wireless communications products. The Company designed and is
manufacturing, distributing and operating the OmniTRACS system, a
satellite-based, two-way mobile communications and tracking system that provides
messaging, position reporting and other services for transportation companies
and other mobile and fixed-site customers. The Company also provides contract
development services, including the design and development of subscriber and
ground communications equipment for the Globalstar L.P. ("Globalstar")
satellite-based communications system. In addition, the Company develops,
manufactures, markets and sells a variety of other communications products,
including products for the U.S. government and Eudora, a leading Internet-based
electronic mail software application, for personal, commercial and government
applications.

The Company's CDMA technology has been adopted as an industry standard and
now serves as a platform for digital cellular systems, Personal Communications
Services ("PCS") and Wireless Local Loop ("WLL") networks as well as other
wireless applications. The technology base for this group of international
standards is now collectively known as cdmaOne(TM). Wireless networks based on
the Company's CDMA technology have been commercially deployed or are under
development in over 30 countries around the world. In the U.S., CDMA has emerged
as a leading digital technology for cellular and PCS applications having been
deployed by a number of the largest cellular and PCS carriers. To support the
deployment of CDMA equipment, the Company has entered into a number of
royalty-bearing license agreements with major telecommunications companies
throughout the world. These companies include Alps Electric, DENSO, DSP
Communications, Fujitsu, Hanwha Corporation, Hatai Electronics Co., Ltd.,
Hitachi Ltd. ("Hitachi"), Hughes Network Systems ("Hughes"), Hyundai
Electronics, Kenwood, Kokusai Electric Co., Ltd., Kyocera, LGE, LGIC, LSI Logic
Corporation, Lucent Technologies ("Lucent"), M.I. Tel Co., Ltd., Matsushita,
Maxon, Mitsubishi, Motorola, NEC, NOKIA, Northern Telecom ("Nortel"), OKI
Electric, Pantech, SK Telecom Company, Samsung Electronics, Sanyo, Sharp
Corporation, Siemens Wireless Terminals, Sony Electronics ("Sony"), Toshiba and
VLSI Technology. The Company and its licensees are developing, marketing and
manufacturing CDMA wireless infrastructure and subscriber equipment and ASICs
for wireless networks worldwide. The Company has entered into strategic alliance
agreements with Hitachi, Hughes and Nortel to support the design and manufacture
of CDMA infrastructure equipment and has formed QUALCOMM Personal Electronics
("QPE"), a joint venture with a subsidiary of Sony, to manufacture subscriber
equipment.

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The Company's OmniTRACS system provides two-way data messaging and position
reporting services to mobile users using commercial satellites, primarily
transportation operators in the long-haul trucking industry. The Company has
sold over 210,000 OmniTRACS terminals worldwide in 32 countries (in addition to
the U.S.), both directly and through joint ventures and strategic alliances. The
Company operates a Network Management Facility ("NMF") in the U.S. which
currently processes over 4 million messages and position reports per day to over
750 customers. The Company also develops and licenses complementary software
products and services which enhance the functionality of the OmniTRACS system
and increase messaging unit volume.

RECENT DEVELOPMENTS

Fiscal 1997 was a year of broad-based acceptance and deployment of the
Company's CDMA technology. In slightly more than two years since the first
commercial deployment of a CDMA system, the Company believes that CDMA carriers
around the world have signed on more than 6 million commercial subscribers on
over 130 CDMA networks. In the U.S., CDMA is a leading digital technology for
cellular and PCS applications and the list of domestic cellular and PCS carriers
that have selected CDMA as their digital platform include: AirTouch Cellular,
ALLTEL Mobile, Ameritech, Bell Atlantic Mobile, Comcast, Cellular
Communications, GTE Wireless, PrimeCo Personal Communications, L.P. ("PrimeCo"),
Sprint Spectrum L.P. ("Sprint PCS"), 360 Communications Co. and US WEST.

Since the initial U.S. commercial deployment of CDMA PCS service in the fall
of 1996, CDMA commercial system deployments have been implemented or announced
in over 180 cities nationally. As of October 1997, Sprint PCS had launched
service in 56 cities and PrimeCo had 18 PCS networks in operation. CDMA cellular
deployments as of October 1997 include: AirTouch Cellular with CDMA cellular
service in 24 cities; Bell Atlantic Mobile with CDMA cellular service in 17
cities; and GTE Wireless with CDMA cellular or PCS service in 19 cities. A
significant portion of the subscriber equipment for these networks was provided
by QPE. CDMA-based wireless systems were successfully launched in both South
Korea and Hong Kong during 1996 and the Company believes these systems were
serving over 3.5 million subscribers as of October 1997. Other CDMA networks
that were launched outside of the U.S. during 1997 include Canada, China, India,
Indonesia, Peru, Puerto Rico, Russia and Zambia. Additional CDMA networks are
expected to be commercially deployed in the U.S. and internationally in the
coming year.

During fiscal 1997, in conjunction with the acceptance and deployment of the
Company's CDMA technology, QUALCOMM achieved numerous key milestones including:
the successful transition by QPE to manufacturing a new line of phone models
including the QCP-2700(TM), the first dual-band CDMA PCS/analog phone on the
market, and the palm-sized Q(TM) phone, both of which began shipping during the
fourth quarter of fiscal 1997; the cumulative shipment of approximately 3
million CDMA handsets since production began at QPE; the cumulative shipment of
over 10 million Mobile Station Modem ("MSM") chips since shipments began to CDMA
phone manufacturers worldwide, including QPE; and the cumulative shipment of
over 1 million Cell Station Modem ("CSM") chips to CDMA infrastructure
manufacturers, including QUALCOMM.

Also during fiscal 1997, the Company commenced operation of a 177,000 square
foot facility in San Diego, California to expand its capacity to manufacture
CDMA infrastructure equipment and cumulatively shipped over one thousand Base
Transceiver Stations ("BTS") to CDMA operators in Asia, Eastern Europe, North
America and Latin America. A significant portion of these shipments were made
pursuant to a strategic alliance agreement with Nortel entered into during 1994.
During 1997, the Company entered into a similar agreement with Hitachi, under
which the Company will share its CDMA infrastructure product designs allowing
Hitachi to accelerate its time-to-market with cost-competitive feature-rich CDMA
infrastructure products. As part of this agreement, Hitachi will purchase a
percentage of its CDMA infrastructure requirements from the Company.

In April 1997, the Company was awarded a $275 million contract to manufacture
and supply commercial gateways for deployment of Globalstar's worldwide
Low-Earth-Orbiting ("LEO") satellite-based digital tele-communications system.
This multi-year agreement has subsequently grown to $300 million and could grow
to approximately $600 million as the Globalstar network is built out. In 1997,
the Company successfully completed and tested four Gateway ASICs designs,
completed the Gateway hardware circuit board designs and began

2
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shipments of the initial Gateway systems. The Company expects to begin shipment
of their production gateways by mid-calendar 1998. This contract was in addition
to the development agreement with Globalstar to design and develop subscriber
equipment and the ground communication stations of the Globalstar system. The
revenues from the development contract are expected to be in excess of $700
million. In October 1997, the Company began testing and developing the prototype
of the Globalstar User Modem ASICs to be used in all Globalstar phones.
Currently, Globalstar expects to launch its first four satellites in February
1998, which is an eight week delay from the previously announced launch date.
This delay was not caused by work performed by QUALCOMM.

WIRELESS TELECOMMUNICATIONS INDUSTRY

Overview. Demand for wireless telecommunications continued to grow at a
significant rate. Industry publications estimate that the number of wireless
service subscribers worldwide will increase by 60 million subscribers by the end
of December 1997 bringing the total number of subscribers to approximately 194
million. Further, it is estimated that during 1998 the number of wireless
subscribers will grow by approximately 35%. This demand is largely attributable
to the widespread availability and increasing affordability of mobile telephony
and other emerging wireless telecommunications services. Technological advances
and a regulatory environment more favorable to competition have also served to
stimulate market growth. In less developed countries, wireless services have
become an alternative to fixed wireline services which are characterized by poor
quality, limited capacity and long installation waiting periods.

Currently, wireless penetration in the U.S. is estimated to be 20% and,
according to The Strategis Group, is expected to be approximately 40% by 2002.
Despite this rapid growth in the number of cellular subscribers, wireless
minutes of use represent only a small percentage of total telecommunications
traffic. The Company believes that the anticipated lower cost and higher quality
of wireless service, combined with technological improvements in handsets, will
fuel further growth in the wireless market. In addition to lower prices, the
Company believes that increased voice quality, battery life and functionality
and awareness of the productivity, convenience and emergency communications
capability, particularly associated with CDMA wireless services, will contribute
to the growth in demand for wireless airtime.

Technology. Wireless telecommunications service is currently available using
either analog or digital technology. Although it is more widely deployed than
digital technology, analog technology has several limitations, including limited
capacity, inconsistent service quality (e.g., poor voice quality and dropped
calls), lack of effectiveness in preventing "eavesdropping," susceptibility to
fraud and "cloning" and unreliability in data transfer. Digital wireless
telecommunications systems overcome the capacity constraints of analog systems
by converting voice or data signals into a stream of digits that is compressed
before transmission, enabling a single radio channel to carry multiple
simultaneous signal transmissions. This increased capacity, along with
enhancements in digital protocols, allows digital-based transfer systems to
offer new and advanced services including greater call privacy, fraud
protection, single number service, integrated voice and paging and enhanced
wireless data transmission services such as e-mail, facsimile and wireless
connections to computer networks.

Two primary digital technologies are available for cellular, PCS and WLL
applications: CDMA and Time Division Multiple Access ("TDMA"). TDMA has been
deployed in three variations including Global System for Mobile Communications
("GSM"). In July 1993, the Telecommunications Industry Association ("TIA")
adopted a North American interim standard (IS-95) for cellular
telecommunications based on QUALCOMM's CDMA technology ("cdmaOne(TM)"). In April
1995, the Company's CDMA technology was approved as a standard for PCS which was
published as ANSI standard J-STD-008. A form of TDMA has been adopted as a
standard for cellular and PCS in the U.S., and GSM has been adopted as a
standard for PCS in the U.S. and for cellular and PCS in Europe, Asia and
certain other markets. Most major telecommunications equipment manufacturers
other than the Company are offering both CDMA and TDMA/GSM infrastructure and
subscriber equipment, including Hughes, Lucent, Matsushita, Mitsubishi,
Motorola, Nortel and Samsung. The Company believes CDMA networks offer end-users
significant advantages, including increased capacity, higher quality, fewer
dropped calls, lower system costs and enhanced privacy, when compared to other
digital technologies.

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Personal Communications Services. PCS is a digital wireless communications
system using cellular wireless technologies operating in the U.S. at frequencies
ranging from 1800 MHz to 2000 MHz. In order to increase competition in wireless
communications and promote the rapid deployment of advanced technologies,
Congress enacted legislation directing the FCC to assign radio frequency
licenses for PCS by competitive bidding. In March 1995, the FCC completed its
first auction, the A-Block and B-Block Auction, resulting in the award of two
licenses for 30 MHz each of spectrum in each of 51 major trading areas. Each
licensee must construct networks that serve at least one-third of the population
in its markets within five years of the grant of the applicable license and at
least two-thirds of the population within ten years. The C-Block Auction,
comprised of 30 MHz basic trading area ("BTA") licenses, was completed during
July 1996 and the auction of the 10 MHz D-Block, E-Block and F-Block BTA
licenses was completed during January 1997. As with digital cellular, PCS
includes or is expected to include a number of attractive features, such as (i)
the provision of all services to one untethered, mobile number, (ii) low priced
service options, (iii) medium-speed data transmissions to and from portable
computers, advanced paging services and facsimile services and (iv) increased
security and fraud protection.

Wireless Local Loop. WLL systems provide fixed (non-mobile) telephone
services to users by transmitting voice messages over radio waves from the
public switched network to the location of the fixed telephone. WLL systems are
an attractive alternative to traditional copper and fiber based fixed services
with the potential to be implemented more quickly and at lower cost than
wireline services. The installation of WLL systems minimizes the need to obtain
right-of-ways and excavate existing roads and infrastructure to lay copper or
fiber cables. WLL systems increasingly are being adopted in developing markets
in order to quickly respond to the large unmet demand for communications
services. In many international markets, including the People's Republic of
China, India, Indonesia and Brazil, fixed telephone systems are inadequate to
handle demand with telephone line penetration ranging from less than 1% to less
than 10% compared with over 50% in major developed markets.

STRATEGY

QUALCOMM's strategy is to be a leading provider of CDMA-based digital
wireless communications products, services and technologies. The Company
believes its proprietary CDMA technology to be an ideal base for digital
cellular service, PCS, WLL, data services, wireless Private Branch Exchange
("PBX") systems, satellite-based voice and data communications and other
wireless services serving broad geographic areas. Elements of the Company's
strategy include:

PROMOTE WORLDWIDE COMMERCIALIZATION OF CDMA

CDMA has emerged as a leading technology worldwide for digital cellular and
PCS systems. This acceptance of the Company's CDMA technology is evidenced by
the broad commercial deployment of CDMA already undertaken in numerous markets
in the U.S., Canada, South Korea and Hong Kong, and the commercial deployments
announced in Canada, South America, elsewhere in Asia, Europe and Africa. Based
upon public announcements by PCS licensees and cellular service providers, the
Company estimates that CDMA technology will be employed by cellular and PCS
service providers whose networks cover approximately 95% of the U.S. population.
In order to facilitate worldwide implementation of CDMA, the Company has entered
into numerous royalty-bearing license agreements, including agreements with
thirty subscriber, ten infrastructure, three ASICs and seventeen test equipment
licensees. The Company continues to participate actively in various
standards-setting organizations, trade organizations and seminars in order to
expand commercial implementation of CDMA. During 1997, the Company announced
that it is working with Lucent, Motorola, Nortel and Samsung Electronics in
conjunction with the CDMA Development Group ("CDG"), on a third generation
("3G") system based on IS-95 technology. This approach will offer wider-band
options for data-intensive applications such as wireless video, multimedia and
Internet access while also providing backwards compatibility with installed CDMA
systems. The Company is working on further evolutions to introduce significant
enhancements to existing CDMA systems prior to 2000. Also, the Company and
Vodafone are currently conducting a field trial in the U.K. of a GSM-CDMA system
utilizing CDMA wireless access integrated into a GSM network. The companies plan
to demonstrate the capability of the GSM A-interface to support CDMA as an
alternative wireless access technology, and to evaluate the performance of the
hybrid GSM-CDMA system technology while gaining experience in evolving towards
multiple network interfaces.

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CONTINUE TO BE A LEADER IN PRODUCT MANUFACTURING

During fiscal 1997, QUALCOMM was one of the leading providers of CDMA-based
digital subscriber equipment. A key component of the Company's strategy is to
continue to be a leading CDMA equipment provider. In 1994 the Company formed
QPE, a joint venture with a subsidiary of Sony, to manufacture subscriber
equipment. During August 1997 QUALCOMM and Sony amended the agreement whereby
each company agrees to use their best efforts to purchase at least 90% of all of
their CDMA subscriber requirements for sale and intended use in the U.S. and
Canada from QPE. In addition the agreement allows products developed by each
partner to be manufactured by QPE and sold only by the developing partner. The
Company also manufactures infrastructure equipment for direct sale to operators
of cellular, PCS and WLL applications, and supplies proprietary ASICs to other
CDMA subscriber and infrastructure equipment suppliers. The Company will
continue to expand its manufacturing capacity and establish strategic alliances
with third parties to meet the demand for CDMA infrastructure and subscriber
equipment. Further, the Company intends to support the sales and marketing of
its CDMA equipment by arranging or providing financing for purchasers of the
Company's cellular, PCS and WLL equipment where required.

LEVERAGE INDUSTRY PARTNERSHIPS

Industry partnerships with leading domestic and international communications
companies help QUALCOMM facilitate the development, design, funding and
commercialization of new products and services, and enable the Company to
participate in a broader range of wireless communications product and service
opportunities. The Company is licensing its CDMA technology to equipment
manufacturers worldwide to encourage the wide-scale adoption and deployment of
CDMA. In addition, QUALCOMM has and will continue to enter into strategic
alliances, such as those with Nortel, Hitachi and Hughes, to promote the
deployment of CDMA infrastructure equipment and generate manufacturing revenue
for the Company. The Company formed QPE, a joint venture with a subsidiary of
Sony, to manufacture subscriber equipment. The Company has also entered into
service and equipment supply agreements with numerous international partners,
including Alcatel, to further the penetration of OmniTRACS around the world.
From time to time the Company may invest in domestic or international wireless
carriers (such as Globalstar, Chilesat Telefonia Personal S.A. and Shinsegi
Mobile Telecom) where such investment strengthens the carriers' commitment to
CDMA and/or QUALCOMM's role as a supplier of equipment.

FOCUS ON CORE TECHNOLOGIES

QUALCOMM's proprietary core technologies are used in a variety of digital
wireless communications systems that are deployed in terrestrial, airborne or
satellite-based products. The Company continues to place strong emphasis on
filing and obtaining U.S. and foreign patents and other forms of intellectual
property protection for its technology. The Company has been issued
approximately 149 U.S. patents and has 380 patent applications pending in the
U.S. The Company believes that its issued patents provide broad coverage for
many digital wireless applications of CDMA, including satellite, cellular,
cordless telephone, PCS, wireless PBX and WLL applications, as well as the
Company's OmniTRACS system. The Company also actively pursues foreign patent
protection in other countries of interest to the Company. The Company attempts
to leverage its technology across product and business areas.

CDMA TECHNOLOGY AND PRODUCTS

The Company's CDMA technology is a proprietary integrated software and
hardware system for digitally transmitting telecommunication signals in a
wireless network. Unlike analog or other digital systems, QUALCOMM's CDMA system
can reuse the same spectrum in each antenna sector of each cell in a cellular
system. This provides a more efficient use of the allocated spectrum resulting
in an increase in capacity. Using the Company's CDMA technology, multiple calls
are coded and transmitted across a 1.25 MHz channel. Each CDMA telephone is
assigned its own code to encode analog voice signals that have been converted
into digital bit streams using the Company's proprietary PureVoice vocoders. The
coded signals are then transmitted over the air to the cell site, where they are
then processed by a CDMA channel unit or modem.

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The Company's CDMA technology competes primarily with analog and TDMA based
systems to implement wireless systems in the cellular, PCS and WLL markets. The
increasing number of commercial systems have confirmed the results found in
repeated field trials which demonstrated that the Company's CDMA technology
provides the following advantages over analog technology and the other digital
technologies:

INCREASED CAPACITY

The Company's CDMA technology allows a greater number of calls within the
allocated frequency than other systems, thus increasing subscriber capacity to
as much as ten to twenty times the current analog system and at least three to
four times that of TDMA based systems. Future products in development and
certain current system configurations allow even greater capacity increases.

HIGHER QUALITY

There are inherent quality advantages in the Company's CDMA technology that
result in a consistently higher quality voice and data transmission throughout
the coverage area for mobile and portable telephone operations.

FEWER DROPPED CALLS

The Company's CDMA technology is designed to allow for "soft hand-off" when a
user switches from one cell site to another, thus reducing the number of dropped
calls compared to analog and TDMA systems.

ENHANCED PRIVACY AND DATA TRANSMISSION

Because calls made over CDMA systems are low power, wide band and coded, the
Company's CDMA technology inherently provides greatly improved privacy for users
and virtually error free data transmission.

LOWER POWER AND EXTENDED TALK TIME

The Company's proprietary power control system constantly monitors and
adjusts mobile telephone power output to the minimum level required to achieve
high quality voice or data transmission. As a result, the average power required
to operate CDMA handsets is typically reduced from one-twenty-fifth to
one-thousandth of the power required for analog cellular telephones that are
currently available on the market. Lower average power will result in longer
battery life and lighter weight, lower cost portable telephones, and also
significantly increases talk and standby time.

LOWER INFRASTRUCTURE COSTS AND EASIER TRANSITION

CDMA systems can achieve the same level of coverage as the current analog or
TDMA based systems using fewer cells, which reduces overall infrastructure cost
and the subsequent maintenance cost of CDMA systems. In addition, the Company's
CDMA technology is expected to offer an easier transition from analog to digital
than competing technologies because less frequency must be reallocated to
produce acceptable capacity gains and high quality digital service.

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LICENSING OF CDMA TECHNOLOGY

As part of QUALCOMM's strategy to support worldwide adoption of its CDMA
technology, the Company licenses to third parties the rights to design,
manufacture and sell products utilizing its CDMA technology. The following chart
lists the Company's licensees:

<TABLE>
<CAPTION>
INFRASTRUCTURE EQUIPMENT SUBSCRIBER EQUIPMENT TEST EQUIPMENT
------------------------ -------------------- --------------
<S> <C> <C>
Fujitsu Alps Electric Advantest
Hitachi DENSO Ando
Hughes Fujitsu Anritsu Corporation
Hyundai Electronics Hanwha Corporation Comarco Wireless
LGIC Hatai Electronics Co., Ltd. Grayson Electronics
Lucent Hitachi Ltd. Hewlett-Packard
Motorola Hughes IFR Systems
NEC Hyundai Electronics Japan Radio Co., Ltd.
Nortel Kenwood LCC
Samsung Electronics Kokusai Electric Co., Ltd. Ortel Corporation
Kyocera Corporation Racal Instruments
LGE Rohde & Schwarz
ASICS LGIC Rotadata
-----
DSP Communications Lucent Safco
LSI Logic Corporation M.I. Tel Co., Ltd. Sage Instruments
VLSI Technology Matsushita Tektronix
Maxon Wavetek
Mitsubishi
Motorola
NEC
NOKIA
OKI Electric
Pantech Company
SK Telecom Company
Samsung Electronics
Sanyo
Sharp Corporation
Siemens Wireless Terminals
Sony
Toshiba
</TABLE>

The Company's CDMA license agreements generally provide cross-licenses to
QUALCOMM to use certain of its licensees' technology to manufacture and sell
certain CDMA equipment. Licensees are required to pay the Company license fees
as well as ongoing royalties based on a percentage of the selling price of CDMA
subscriber and infrastructure equipment. Most of the licenses include agreements
"not to assert" CDMA patents necessary to practice the cdmaOne(TM) standards.
License fees are nonrefundable and are generally paid in one or more
installments. In many cases, the use by the Company of its licensees' technology
is royalty free. In some cases, if the Company incorporates any of this
technology into its products, it is obligated to pay royalties on the sale of
such products.

INFRASTRUCTURE PRODUCTS

QUALCOMM is developing, manufacturing and marketing CDMA cellular, PCS and
WLL infrastructure products. During January 1997, the Company commenced
operation of a 177,000 square foot facility in San Diego, California to expand
its capacity to manufacture CDMA infrastructure equipment. The Company's
infrastructure product lines include BTS and Base Station Controller ("BSC")
equipment built in compliance with the IS-95 and J-STD-008 standards. The BTS
and BSC have been designed to provide a complete turnkey solution for cellular,
PCS and WLL applications, integrating traditional switching functionality with
the BSC equipment configuration and

7
<PAGE> 11
software functionality. The BSC links BTS equipment together allowing
communication between mobile equipment within the system using packet based
switching, and connecting these mobile units with existing wireline networks.
The BSC provides mobility management, vocoding functions, routing of calls,
service features when applicable, customer billing, and operations,
administration and maintenance functionality.

Additionally, the Company and Vodafone are currently conducting a field trial
in the U.K. of a GSM-CDMA system utilizing a CDMA radio access system integrated
with a GSM mobile access protocol wireless network. The CDMA air interface
replaces GSM's TDMA air interface and could be deployed in existing GSM networks
or as new networks. The companies plan to demonstrate the capability of the GSM
air-interface to support CDMA as an alternative wireless access technology, and
to evaluate the performance of the hybrid GSM-CDMA system technology while
gaining experience in evolving towards 3G systems where multiple air interfaces,
such as CDMA and TDMA, may be expected to co-exist and where high speed data
transmission can be offered. The trial utilizes four of QUALCOMM's CDMA BTS's
and a BSC, and is planned to occur in December 1997 and the first quarter of
calendar 1998.

SUBSCRIBER PRODUCTS

QUALCOMM designs, manufactures and markets digital phones utilizing CDMA
technology for cellular, PCS, and WLL applications. The phones have been
manufactured by QUALCOMM and through QPE, a joint venture with a subsidiary of
Sony, formed in 1994. The Company has been manufacturing and shipping
significant volumes of CDMA subscriber handsets since 1996.
QUALCOMM maintains a 51% ownership in QPE.

During fiscal 1995, the Company introduced its first generation of portable
telephones for cellular users at 800 MHz (the "QCP-800" with up to five hours of
talk time) and PCS users at 1900MHz (the "QCP-1900" with up to four hours of
talk time). Both telephones provide up to 48 hours of standby time on a single
battery when providing CDMA service and support advanced features including
caller identification, voice mail notification, data communications, facsimile,
advanced paging, short message services and over-the-air activation.
Furthermore, both telephones support data transmission rates approaching 14.4
Kbps and incorporate QUALCOMM's 13 Kbps PureVoice voice coding which offers
voice quality independently judged to be equal to that of a wired telephone.

During fiscal 1997, the Company announced new models to its QCP line of
phones including the QCP-2700, the first dual-band, dual-mode CDMA digital PCS
1900 MHz/800 MHz analog phone, the QCP-820 dual-mode 800 MHz CDMA digital/analog
cellular phone and the QCP-1920 CDMA PCS 1900 MHz phone. The new models weigh in
at less than 7.5 ounces, and offer a host of new features including a unique
dial shuttle, allowing users to quickly and easily operate the phone with a
single touch; a new user interface provides simple, rapid access to a host of
phone features; an ergonomically designed earpiece providing users optimal
comfort and exceptional sound reception; intelligent internal charging controls
and three cosmetic battery options, a slim NiMH battery, NiCad battery and an
extended Lithium Ion battery providing up to five hours of talk time. The
Company also introduced the palm-sized Q phone weighing in at approximately 5
ounces. The Company is also designing next generation telephones for cellular,
PCS and WLL applications, which are expected to support advanced data features.

The Company began to produce its line of CDMA cellular fixed wireless
telephones in 1996. This line of phones was designed for worldwide use in
residential and small business WLL applications. During 1997, the Company
unveiled the 1900 MHz QCT-6200, the first in a new series of CDMA fixed wireless
telephones offering voice, fax and data capabilities in a home or office. Also
in 1997, the Company's QCT-1200 CDMA cellular fixed wireless phones were donated
to Sprint PCS in support of a disaster relief program in Texas. The Company's
fixed WLL service was proven as a flexible and reliable service in areas where
wireline infrastructure was unavailable or disabled by the disaster. Other WLL
products under development include the QCT-8000 designed for locations with
small clusters of subscribers such as small villages or office and apartment
buildings.

8
<PAGE> 12
ASICS PRODUCTS

The Company designs and incorporates its proprietary CDMA ASICs in its own
subscriber and infrastructure equipment and also sells them to its licensees for
incorporation in equipment under the terms of the related license agreements.
The Company has entered into separate license arrangements with DSP
Communications, VLSI Technology, and LSI Logic Corporation covering certain ASIC
patents belonging to QUALCOMM. The Company currently relies on several
independent foundries to manufacture all of its ASICs. The Company's strategy is
to utilize a number of qualified foundries that it believes provide cost,
technology or capacity advantages for specific products. The Company currently
has arranged with Intel, IBM and Philips and others for such ASIC manufacturing.
All of the Company's CDMA ASICs are currently available to the Company's CDMA
licensees throughout the world.

The Company's ASICs products provide complex solutions for a variety of
wireless communication applications including CDMA cellular, PCS, and WLL
applications. Product offerings include a complete selection of integrated
circuits for frequency synthesis, forward error correction ("FEC"), voice
compression and automatic gain control ("AGC"). Frequency synthesizer products
encompass direct digital synthesizers and frequency synthesizer evaluation
boards. FEC devices include industry leading Viterbi decoders and trellis
coders. Voice compression products include variable rate vocoders and vocoder
evaluation boards. The CDMA ASICs product line includes the MSM, Analog Baseband
Processor ("BBA") and AGC amplifiers for CDMA subscriber units. The product line
for CDMA base stations includes the CSM and the Frame Interface and Router
Module (FIRM). The CDMA ASICs are designed for increased functionality with
fewer components, which reduces the size and overall cost of the manufactured
product.

The MSM is a complete, single integrated circuit solution for CDMA and FM
digital baseband processing for dual mode CDMA/analog cellular telephones.
Recently the Company introduced its fourth generation ASIC in the MSM family.
The current MSM is an improved ASIC which supports both the 8 Kbps (normal) and
13 Kbps PureVoiceTM speech vocoders on a single chip for dual-mode CDMA/analog
cellular and PCS subscriber applications. With low power consumption and IS-95
compliant performance, the MSM simplifies design decisions and reduces the
complexity of the final product which provides an important advantage to the
telephone manufacturer in terms of physical area, cost and battery life. The BBA
implements the CDMA/FM portion of a dual-mode CDMA analog telephone. This single
integrated circuit replaces 17 discrete components and bridges the analog RF
processing and the digital processing sections of the cellular telephone. The
CSM provides a cost reduction and system integration enhancement for the base
station unit. The CSM incorporates the CDMA modulator, CDMA demodulator and
serial Viterbi decoder functions on single chip, providing reduced costs and
improved functionality.

QUALCOMM's Very Large Scale Integrated ("VLSI") products group designs and
sells a number of sophisticated signal system components in the electronics
industry. These processing elements include Viterbi and trellis decoders, speech
encoders, direct digital synthesizers and phase locked loops. Many of these
products are used as components of the Company's systems and products. The
Company also markets and distributes these products to communications system
developers throughout the world through a network of domestic and international
sales representatives. Designing its own circuits permits the Company to
exercise greater product control, enhance quality, reduce costs and rapidly
bring its new systems and products to market.

OMNITRACS

QUALCOMM's OmniTRACS communications system provides two-way data messaging
and position reporting services for transportation companies. Through September
28, 1997, the Company has sold over 210,000 OmniTRACS systems worldwide. Message
transmission and position tracking are provided by use of transponders on
commercially available geostationary earth orbit satellites, providing a single
network, eliminating the limited coverage and accuracy problems inherent in
land-based systems and allowing dispatchers to remain in close contact with
their fleets at all times. The OmniTRACS system helps transportation companies
improve the rate of return on assets and increase efficiency and safety by
improving communications between drivers and dispatchers. System

9
<PAGE> 13
features include status updates, load and pick-up reports, position reports at
regular intervals and vehicle and driving performance information.

The OmniTRACS system was first introduced in the U.S. in 1988, and is
currently operating in 32 countries around the world (in addition to the U.S.).
To implement the OmniTRACS system, the Company utilized its spread spectrum
technology to develop a proprietary signal processing technique that enables the
OmniTRACS system to operate without interfering with other satellite
transmissions and to tolerate legal levels of interference. The system operates
on leased commercial Ku-band or C-band satellite transponders. Position
reporting is accomplished through either the use of a pilot signal on a second
satellite using a proprietary feature of the OmniTRACS system called QASPR
(QUALCOMM Automatic Satellite Position Reporting System) or the use of the U.S.
Government-funded Global Positioning System.

UNITED STATES BUSINESS

The Company generates revenues from its OmniTRACS system in the U.S. by
manufacturing and selling OmniTRACS mobile terminals and related software
packages and by providing ongoing messaging and maintenance services. The
Company sells its OmniTRACS products in the U.S. primarily through its direct
sales force, including software systems and field engineering support personnel
in five regions throughout the United States. The Company provides field support
out of each sales office, including technical software support. Customers for
U.S. operations include over 750 U.S. transportation companies, primarily in the
trucking industry. The Company is currently processing over 4 million messages
and position reports per day. Message transmissions for U.S. operations utilize
a Ku-band satellite transponder and are formatted and processed at an NMF
operated by QUALCOMM. The primary NMF is located in San Diego, California and a
fully capable backup NMF is located in Las Vegas, Nevada. QUALCOMM is the only
provider to have such a backup hub to service its customers.

The Company has primarily targeted fleets with 25 or more trucks in the
for-hire, long-haul irregular route truckload segment of the trucking market.
The Company believes the targeted truckload market in the U.S. consists of over
500,000 trucks and includes flatbeds, household movers, dry vans and
refrigerated carriers. The Company is increasing its marketing efforts to the
truckload-like segments of the trucking industry which it believes provides an
additional market of over 150,000 trucks for the OmniTRACS system. The Company
also markets its OmniTRACS products and services to other trucking market
segments such as the less-than-truckload and to other industries and has sold
OmniTRACS products for use by private trucking fleets, service vans, ships,
trains and federal emergency vehicles and for oil and gas pipeline control and
monitoring sites.

INTERNATIONAL BUSINESS

The Company's strategy is to work with international telecommunications
companies and operators to establish OmniTRACS operations in foreign markets.
The OmniTRACS system is operating in 32 countries throughout Europe and in
Canada, Japan, Brazil, Mexico, Malaysia and South Korea, in addition to its U.S.
operations. Internationally, the Company generates revenues from the OmniTRACS
system through license fees, sales of network equipment and terminals and fees
from engineering support services. Messaging services are provided by service
providers that operate network management centers for a region under licenses
granted by the Company.

The Company distributes its products through partners in other countries. In
these countries the Company provides units for the Ku-band or C-band
frequencies. Ku-band is allocated at a higher frequency spectrum than C-band. In
addition, the Company has invested or may choose to invest in certain of its
current or future operators.

In the Ku-Band, the Company distributes its products through partners in
Europe, Japan, Mexico and South Korea. In Europe, the Company has entered into a
joint venture with Alcatel, known as ALCATEL QUALCOMM, which is owned 66% by
Alcatel N.V. and 34% by the Company. ALCATEL QUALCOMM commenced commercial
service in 1990 and has primary responsibility for managing and supporting the
OmniTRACS European operations (referred to in Europe as "EutelTRACS") and for
obtaining service providers in each country or territory. ALCATEL QUALCOMM also
has rights to develop, manage and support EutelTRACS in Eastern Europe, the
Middle East and North Africa. The Company sells the OmniTRACS terminals to
ALCATEL QUALCOMM for

10
<PAGE> 14
resale and shares in a percentage of the license and maintenance fees paid to
ALCATEL QUALCOMM. ALCATEL QUALCOMM has the option to acquire a royalty bearing
license from the Company to manufacture the OmniTRACS terminals for sale only in
the joint venture's territory. In Japan, the Company's partners are DENSO
Corporation and Itochu Corporation, which commenced commercial service in 1993.
In Mexico, the Company's partner is Corporation Nacional de Radiotermination SA,
which commenced commercial service in 1994. During 1997, the Company acquired a
49% equity interest in this Mexican corporation. In South Korea, the Company's
partner is Samsung America, which commenced commercial service in 1996.

In the C-band, the Company distributes its products through partners in
Brazil and Malaysia. In Brazil, the Company's partner is AUTOTRAC Commercia e
Telecomunicacoes SA which commenced commercial service in 1994, and in Malaysia,
the Company's partner is QUALCOMM ASEAN Co. Ltd., which commenced commercial
service in 1996.

GLOBALSTAR

QUALCOMM, Loral and other companies have formed Globalstar, a limited
partnership to design, construct and operate a worldwide, LEO satellite-based
digital telecommunications system using QUALCOMM's CDMA technology. The system
will consist of 48 satellites, a ground segment with two satellite operation
control centers, and two ground operation control centers, multiple gateways and
user terminals. Globalstar intends to offer low-cost, high-quality voice
telephony and other digital telecommunications services such as data
transmission, paging, facsimile and position location to areas currently
under-served or not served by existing wireline and cellular telecommunications
systems. The system will allow existing service providers to rapidly extend
their coverage area and to enhance their provision of telecommunications
services to new and current users.

During April 1997, the Company was awarded a $275 million contract to
manufacture and supply commercial gateways for deployment of Globalstar's
worldwide LEO satellite-based digital telecommunications system. This multi-year
agreement has subsequently grown to $300 million and could grow to approximately
$600 million as the Globalstar network is built out. The Company expects to
begin shipment of their production gateways by mid-calendar 1998.

Globalstar may require additional capital to fund payment for the equipment
to be developed by the Company. During fiscal 1997, Globalstar's funding was
strengthened as Globalstar, L.P. raised approximately $140 million of equity
from the exercise of warrants and raised approximately $800 million from a high
yield securities offering. In addition, in October 1997 Globalstar announced it
had entered into an agreement to sell $325 million of senior notes in an
offering exempt from registration. To date, Globalstar has received funds and
financing commitments totaling approximately $2.6 billion. There can be no
assurance that Globalstar will be successful in raising additional capital, if
needed, or that delays or technical or regulatory developments will not arise
which could adversely affect Globalstar's ability to continue funding the
development agreement and which would have a material adverse affect on the
Company's business and results of operations. The Globalstar development
agreement is terminable at the election of Globalstar in the event that
Globalstar abandons its efforts to develop the satellite-based communications
system.

The Company's interest in Globalstar is owned indirectly through certain
limited partnerships. The Company's current ownership interest in Globalstar is
approximately 6.5%.

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<PAGE> 15
EUDORA ELECTRONIC MAIL

The Company has developed Eudora, an electronic mail software application
which is marketed in commercial and freeware versions and available for both the
Macintosh and Windows platforms. During fiscal 1997, the Company introduced
PureVoice voice coding technology. This plug-in allows Eudora electronic mail
users to record, send, receive and play back voice messages directly from the
Eudora software interface with exceptional voice quality and fast transmission
times. During November 1997, the Company announced its acquisition of Now
Software. The acquisition allows QUALCOMM to gain a range of advanced scheduling
and calendaring software products that meet a growing demand for individual and
enterprise collaboration for both office and mobile users. In addition, QUALCOMM
acquires communication and software technology that will support an expansion of
these products to an internet and wireless environment. The Company estimates
that Eudora currently serves approximately 18 million users making it the
leading Internet e-mail application in terms of total subscribers. Eudora
software adheres to Internet standards so users can communicate with anyone on
the Internet, regardless of platform or e-mail software. The Company believes
that the combination of Eudora and its CDMA wireless technologies may create the
opportunity to develop new wireless products and services in the future.

GOVERNMENT SYSTEMS

The Company performs a variety of prime and subcontract work for various
departments and agencies of the U.S. Government involving communication-related
technologies. The Company is incorporating encryption into its CDMA digital
cellular system architecture for use in multiple U.S. Government applications
and as a prime contractor, the Company is developing wireless secure phones for
a wide variety of government uses. Many of these products contain additional
features and enhancements that may be unique to U.S. Government applications and
may also have commercial applicability. One new feature, currently in
development, is the addition of a dispatch, or net broadcast capability to the
digital cellular system. QUALCOMM is also involved in providing Globalstar
products and engineering services to the U.S. Government. Like the terrestrial
system, application dependent features are in review to better support the U.S.
Government use of Globalstar. Security and interoperability are some of the
unique requirements under study. During fiscal 1997, the Company completed the
production of its data link system for the U.S. Department of Defense. The
system is used to support air to ground communications on training ranges and
has been in production over the past five years. In addition to the development
projects, QUALCOMM also provides to the government "off-the-shelf" products,
such as CDMA base stations and OmniTRACS units, and other airborne and satellite
subsystems. Future government business, leveraging off existing and new
technologies and products, continues to be an important element of the Company's
overall strategy. Therefore, QUALCOMM will continue to pursue a wide range of
opportunities within the government where the Company's technologies can provide
beneficial solutions to existing and future potential government applications.

MANUFACTURING AND BACKLOG

In 1994 the Company formed QPE, a joint venture with a subsidiary of Sony, to
manufacture CDMA subscriber equipment and in fiscal 1996 began manufacturing and
shipping significant volumes of CDMA subscriber equipment. During fiscal 1997,
production capabilities at QPE were significantly expanded and the Company
successfully made a transition to its new line of phone models, including the Q
phone. Also during August 1997, QUALCOMM and Sony entered into an agreement
whereby each company agreed to use their best efforts to purchase at least 90%
of all of their CDMA product requirements for sale and intended use in the U.S.
and Canada from QPE.

The Company commenced infrastructure equipment production during fiscal 1996
and began shipping significant quantities of infrastructure equipment to
customer sites in the first half of fiscal 1997. In January 1997, the Company
commenced operation of a 177,000 square foot facility in San Diego, California
to expand its capacity to manufacture CDMA infrastructure equipment.

The Company has been manufacturing OmniTRACS terminals in high volumes since
1988.

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<PAGE> 16
QUALCOMM has entered into strategic alliances with Nortel, Hughes and Hitachi
relating to the development and manufacture of CDMA infrastructure equipment.
See "--CDMA Technology and Products--Infrastructure Products."

At September 28, 1997, backlog and supply contracts subject to contingencies
were approximately $2.3 billion for the Company compared to $1.7 billion at
September 29, 1996. Included in backlog and supply contracts subject to
contingencies are all customer commitments to purchase regardless of the
scheduled delivery dates. Some of these contracts may be canceled without
significant penalty, and as a result, the total backlog and supply contracts
subject to contingencies may not be indicative of future results. A significant
portion of the September 28, 1997 backlog and supply contracts reflect large
contract awards. Those awards include approximately $350 million for the Telecom
Great Wall contract awarded to QUALCOMM for PCS subscriber equipment and
approximately $600 million for Globalstar's development agreement and production
contract awarded to QUALCOMM. See "--Globalstar."

RESEARCH AND DEVELOPMENT

The telecommunications industry is characterized by rapid technological
change, requiring a continuous effort to enhance existing products and develop
new products. The Company maintains a substantial program of research and
product development. Company sponsored research and development expenditures in
fiscal years 1997, 1996 and 1995 totaled approximately $236 million, $162
million and $80 million, respectively. Most of these expenditures are related to
the Company's development of CDMA technology for cellular, PCS and WLL
applications. The Company intends to continue to maintain a substantial research
and development program and expects research and development expenses to
increase in the future. In addition to Company sponsored research and
development, the Company performs contract research and development for various
commercial and government agencies and contractors, including Globalstar.

COMPETITION

The wireless telecommunications industry consists of major domestic and
international companies, many of which have financial, technical, marketing,
sales, manufacturing, distribution and other resources substantially greater
than those of the Company. The Company competes on the basis of product quality,
reliability, price, customer support and responsiveness and product features.

CDMA

The primary competition with respect to CDMA technology is from current
analog and digital TDMA-based systems, including GSM. GSM has been adopted as
the digital cellular standard throughout Europe and has received substantial
international acceptance in other countries. Industry publications have reported
that over 100 countries have adopted or are deploying GSM. In Japan, the
Ministry of Posts and Telecommunications has adopted a different TDMA as its
primary digital cellular standard, which has been widely deployed throughout the
country. Japan's proprietary TDMA system is not compatible with either GSM or
the U.S. IS-54 and IS-136 TDMA standards. However, in 1996, two of the three
largest cellular service providers in Japan announced plans to offer commercial
CDMA service in 1998. In addition, a number of alternative radio systems are
also being marketed for WLL applications. Several major equipment suppliers have
made substantial investments in TDMA and GSM technology including Hughes,
Lucent, Motorola, Nokia, Nortel and Siemens, all of whom are licensees of the
Company, as well as Ericsson.

The Company also competes against its licensees in the manufacture of CDMA
infrastructure and subscriber equipment and ASICs. The Company will face
increasing competition in 1998 as more of its licensees introduce CDMA products.
There can be no assurance that the Company's competitors will not devote a
significantly greater amount of their financial, technical, marketing and other
resources to aggressively market competitive communications systems or develop
and adopt competitive digital cellular technologies, and that such efforts will
not materially adversely affect the Company's results of operations in the
future.

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<PAGE> 17
OMNITRACS

The Company's primary competition to its U.S. OmniTRACS system operations
includes American Mobile Satellite Corporation ("AMSC") and HighwayMaster
Communications, Inc. AMSC and its resellers are offering services through the
AMSC satellite which was launched in 1995. These competitors are aggressively
pricing their products and could continue to do so in the future. In addition,
these competitors are offering new value-added products and services similar to
those developed or being developed by QUALCOMM. Emergence of new competitors,
particularly those offering lower cost products and future LEO satellite
communications systems, may impact margins and intensify competition in new
markets. The Company also faces competition abroad from numerous suppliers of
equipment and services. These include Inmarsat and its authorized resellers
through its Inmarsat C geostationary satellite service. In addition, the Company
is facing competition abroad from various terrestrial based systems and
specifically in Europe from GSM-based terrestrial systems. All of these
competitors are aggressively pricing their products and services and the Company
can continue to expect pricing pressures.

PATENTS, TRADEMARKS AND TRADE SECRETS

The Company has been issued approximately 149 U.S. patents and has
approximately 380 patent applications pending in the U.S., of which 11 patents
and 14 patent applications relate to the Company's OmniTRACS products and
approximately 138 patents and approximately 366 patent applications relate to
the Company's CDMA digital wireless technology. The Company also actively
pursues foreign patent protection in countries of interest to the Company. The
policy of the Company is to apply for patents, or other appropriate proprietary
or statutory protection, when it develops valuable new or improved technology.
The Company believes that the issued patents provide broad coverage for its
OmniTRACS system and many digital wireless applications of CDMA, including
satellite, cellular, cordless telephone, PCS, wireless PBX and WLL and other
wireless applications.

In addition to potential patent protection, the Company relies on the laws of
unfair competition and trade secrets to protect its proprietary rights. The
Company attempts to protect its trade secrets and other proprietary information
through agreements with customers and suppliers, proprietary information
agreements with employees and consultants and other security measures. Although
the Company intends to protect its rights vigorously, there can be no assurance
that these measures will be successful.

The Company believes that, because of the rapid pace of technological change
in the communications industry, patent and trade secret protections are
important but must be supported by other factors such as the expanding
knowledge, ability and experience of the Company's personnel, new product
introductions and frequent product enhancements.

EMPLOYEES

As of September 28, 1997, the Company and its subsidiaries employed
approximately 9,000 full-time and temporary employees. None of the Company's
employees is represented by a collective bargaining agreement. The Company
considers employee relations to be good.

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<PAGE> 18

EXECUTIVE OFFICERS

The executive officers of the Company and their ages as of November 21, 1997
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Irwin Mark Jacobs............ 64 Chairman of the Board and Chief
Executive Officer
Andrew J. Viterbi............ 62 Vice Chairman of the Board
Harvey P. White.............. 63 President and Director
Richard Sulpizio............. 47 Chief Operating Officer and Executive
Vice President
Anthony S. Thornley.......... 51 Executive Vice President and Chief
Financial Officer
Steven R. Altman............. 36 Executive Vice President, General Counsel
and Assistant Secretary and General
Manager, Technology Transfer and
Strategic Alliances Division
Franklin P. Antonio.......... 45 Executive Vice President and Chief
Technology Officer
John E. Major................ 51 Executive Vice President and President,
Infrastructure Products Division
Gerald L. Beckwith........... 49 Senior Vice President and President,
Communications Systems Division
Thomas J. Bernard............ 65 Senior Vice President and General Manager,
Infrastructure Products Division
Paul E. Jacobs............... 35 Senior Vice President and President,
Subscriber Products Division
John F. Sarto................ 49 Senior Vice President and President,
OmniTRACS Division
Donald E. Schrock............ 52 Senior Vice President and President,
ASIC Products Division
Daniel O. Pegg............... 51 Senior Vice President, Public Affairs
</TABLE>

IRWIN MARK JACOBS, one of the founders of the Company, has served as Chairman
of the Board of Directors and Chief Executive Officer of the Company since it
began operations in July 1985. He also held the title of President prior to May
1992. Before joining the Company, Dr. Jacobs was Executive Vice President and a
Director of M/A-COM, Inc., a telecommunications company. From October 1968 to
April 1985, Dr. Jacobs held various executive positions at LINKABIT (M/A-COM
LINKABIT after August 1980), a company he co-founded. During most of his period
of service with LINKABIT, he was Chairman, President and Chief Executive Officer
and was at all times a Director. Dr. Jacobs received his B.E.E. degree from
Cornell University and his M.S. and Sc.D. degrees from the Massachusetts
Institute of Technology ("MIT"). Dr. Jacobs is a member of the National Academy
of Engineering and received the National Medal of Technology in 1994.

ANDREW J. VITERBI, one of the founders of the Company, has served as
Vice-Chairman of the Board of Directors since it began operations in July 1985.
From July 1985 through July 1996 he also served as the Company's Chief Technical
Officer. From July 1983 to April 1985, Dr. Viterbi was Senior Vice President and
Chief Scientist of M/A-COM, Inc., a telecommunications company. From October
1968 to April 1985, Dr. Viterbi held various executive positions at LINKABIT
(M/A-COM LINKABIT after August 1980), a company he co-founded, and served as
President of the M/A-COM LINKABIT subsidiary of M/A-COM, Inc. During most of his
period of service with LINKABIT, he was Vice-Chairman and was at all times a
Director. Dr. Viterbi received his B.S and M.S. degrees in Electrical
Engineering from MIT and his Ph.D. degree from the University of Southern
California. He is a member of both the National Academy of Engineering and the
National Academy of Sciences.

HARVEY P. WHITE, one of the founders of the Company, has served as President
since May 1992 and as Chief Operating Officer from February 1994 to August 1995.
Prior to May 1992 he was Executive Vice President and

15
<PAGE> 19
Chief Operating Officer and has also been a Director of the Company since it
began operations in July 1985. From March 1978 to June 1985, Mr. White was an
officer of LINKABIT (M/A-COM LINKABIT after August 1980), where he was
successively Chief Financial Officer, Vice President, Senior Vice President and
Executive Vice President. Mr. White became Chief Operating Officer of LINKABIT
in July 1979 and a Director of LINKABIT in December 1979. He holds a B.A. degree
in Economics from Marshall University.

RICHARD SULPIZIO currently serves as the Company's Chief Operating Officer
and was named Executive Vice President in July 1996. He returned to the Chief
Operating Officer position in August 1995 after serving as President of the
Company's OmniTRACS division from February 1994 to August 1995. He previously
held the Chief Operating Officer title from May 1992 to February 1994. He joined
the Company in May 1991 as Vice President, Information Systems and was promoted
to Senior Vice President in September 1991. Prior to joining the Company, Mr.
Sulpizio held various positions with Unisys Corporation, a diversified computer
and electronics company, including manager of MIS and Director of Program
Management and most recently as Vice President and General Manager of the
Component Engineering and Procurement Division. Mr. Sulpizio holds a B.A. degree
in Liberal Arts from California State University, Los Angeles and a Masters
degree in Systems Management from University of Southern California.

ANTHONY S. THORNLEY joined the Company as Vice President of Finance and Chief
Financial Officer in March 1994, was promoted to Senior Vice President in
February 1996 and was promoted to Executive Vice President in November 1997.
Prior to that, Mr. Thornley was with Nortel, a telecommunications equipment
manufacturer, for sixteen years in various financial and information systems
management positions, including Vice President, Public Networks, Vice President
Finance NT World Trade and Corporate Controller Nortel Limited. He has also
worked for Coopers and Lybrand and is a Fellow of the Institute of Chartered
Accountants in England and Wales. Mr. Thornley received his B.S. degree in
Chemistry from the University of Manchester, England.

STEVEN R. ALTMAN has served as General Counsel since joining the Company in
October 1989. He was named Vice President in December 1992, was promoted to
Senior Vice President in February 1996 and was promoted to Executive Vice
President in November 1997. He was also named General Manager, Technology
Transfer and Strategic Alliances Division in September 1995. Prior to joining
the Company, Mr. Altman was a business lawyer in the San Diego law firm of Gray
Cary Ware & Freidenrich, where he specialized in intellectual property, mergers
and acquisitions, securities and general corporate matters. Mr. Altman received
a B.S. degree from Northern Arizona University and a Juris Doctorate from the
University of San Diego.

FRANKLIN P. ANTONIO, one of the founders of the Company, has served as
Executive Vice President and Chief Technology Officer of the Company since July
1996, as Senior Vice President of Engineering from September 1992 to July 1996,
and as Vice President of Engineering of the Company from August 1985 to
September 1992. He served as a Director of the Company from August 1985 until
February 1989. Prior to joining the Company, Mr. Antonio was Assistant Vice
President of Engineering of M/A-COM LINKABIT where he held various technical and
management positions from May 1972 through July 1985. Mr. Antonio received his
B.A. degree in Applied Physics and Information Science from the University of
California, San Diego.

JOHN E. MAJOR, an Executive Vice President of the Company, has also served as
President of its Wireless Infrastructure Division since joining the Company in
May 1997. Prior to joining the Company, Mr. Major served most recently as Senior
Vice President and Staff Chief Technical Officer at Motorola. Prior to that, he
served as Senior Vice President and General Manager for Motorola's Worldwide
Systems Group of the Land Mobile Products Sector. Mr. Major currently serves on
the Board of Directors' Executive Committee for the Telecommunications Industry
Association (TIA) and is Vice-Chair for the Electronics Industry Association
(EIA). He will begin a two year term as Chairman of the EIA in January of 1998.
He also serves on the Boards of the Littlefuse Corporation and Lennox
Corporation. He serves on the Visitor's Board for the Software Engineering
Institute of Carnegie Mellon and the Computer Science and Telecommunications
Board for the National Academy of Science. Additionally, he is on the Trustee's
Council for the University of Rochester. Mr. Major holds a B.S. degree in
Mechanical and Aerospace Engineering from the University of Rochester, and an
M.S. degree in Mechanical Engineering from the University of Illinois. He also
holds an MBA degree, with distinction, from Northwestern

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<PAGE> 20
University and a Juris Doctor from Loyola University. Mr. Major received an
honorary doctorate from Westminster College in May, 1995.

GERALD L. BECKWITH, a Senior Vice President of the Company, was named
President of the Company's Communications Systems division in September 1994. He
served as Vice President and General Manager, Communications Systems from June
1991 to September 1994. Mr. Beckwith joined the Company in 1987 as Program
Manager for the development of OmniTRACS, and was appointed Vice President of
Commercial Programs in 1990. Prior to joining QUALCOMM, Mr. Beckwith held
various positions at LINKABIT. Mr. Beckwith received his Bachelor and Masters
degrees in electrical engineering from San Diego State University.

THOMAS J. BERNARD, a Senior Vice President of the Company, has served as
General Manager of the Infrastructure Products Division of the Company since
April 1996. He retired in April 1994, but returned to QUALCOMM in August 1995 as
Executive Consultant and became Senior Vice President, Marketing, in December
1995. Mr. Bernard first joined the Company in September 1986. He served as Vice
President and General Manager for the OmniTRACS division and in September 1992
was promoted to Senior Vice President. From March 1982 to September 1986, Mr.
Bernard held various positions at M/A-COM LINKABIT. Prior to joining the Company
in September 1986, Mr. Bernard was Executive Vice President and General Manager,
M/A-COM Telecommunication Division, Western Operations. Mr. Bernard has served
on the Board of Directors of Sigma Circuits, Inc., a circuit board manufacturing
company, since April 1995.

PAUL E. JACOBS, a Senior Vice President of the Company, was named Vice
President and General Manager, Subscriber Products Division in April 1995 and
was promoted to President, Subscriber Products Division in February 1997. He
joined the Company in September 1990 as Senior Engineer and was promoted to
Engineering Director in April 1993. Dr. Jacobs' previous experience includes
positions as Post Doctoral Researcher at Laboratoire d'Automatique et d'Analyse
des Systemes, Toulouse, France. Dr. Jacobs holds a B.S. degree in Electrical
Engineering and Computer Science, a M.S. degree in Electrical Engineering and
Ph.D. degree in Electrical Engineering and Computer Science from the University
of California, Berkeley. Dr. Paul Jacobs is the son of Dr. Irwin Mark Jacobs, a
member of the Board of Directors of the Company.

JOHN F. SARTO JR., a Senior Vice President of the Company, joined the Company
in January 1995 as Vice President of Sales and Marketing, OmniTRACS Division,
was promoted to Vice President & General Manager, OmniTRACS Division, in August
1995 and was promoted to President, OmniTRACS Division in February 1997. Prior
to joining the Company, he was at Overnite Transportation Company, where his
most recent position was that of Senior Vice President, Customer Services and
Marketing. Prior to his employment at Overnite, Mr. Sarto was with Carolina
Freight Corporation, where he entered the company as a management trainee and
advanced through a variety of positions, eventually holding the position of Vice
President, Sales. Mr. Sarto holds a B.A. degree in Business and English from
Niagara University.

DONALD E. SCHROCK, Senior Vice President of the Company, was also named
President, ASIC Products Division in September 1997. He joined the Company in
January 1996 as Corporate Vice President, in June 1996 was promoted to General
Manager, ASIC Products Division and in February 1997 was named Senior Vice
President. Prior to joining the Company, he was Group Vice President and
Division Manager with Hughes Aircraft Company. Prior to his employment with
Hughes, Mr. Schrock was Vice President of Operations with Applied Micro Circuit
Corporation. Mr. Schrock has also held positions as Vice President/Division
General Manager at Burr-Brown Corporation and spent 15 years with Motorola
Semiconductor. Mr. Schrock holds a BSEE with Honors from the University of
Illinois, as well as a MSEE and Advanced Business Administration from Arizona
State University.

DANIEL O. PEGG joined the Company in March 1997 as Senior Vice President of
Public Affairs. Prior to joining the Company, Mr. Pegg was President of the San
Diego Economic Development Corp. ("EDC") since 1983. Mr. Pegg holds a B.A.
degree from California State University at Los Angeles.

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<PAGE> 21
RISK FACTORS

Uncertainty and Fluctuations of Operating Results. The Company has
experienced quarterly variability in revenues and profitability. There can be no
assurance that the Company will sustain profitability on a quarterly or annual
basis in the future. The Company's future results will depend in part on the
successful large-scale implementation of the Company's CDMA technology and
equipment; the Company's ability to successfully manufacture and sell commercial
scale quantities of CDMA infrastructure, subscriber, ASICs and other equipment
on a timely and profitable basis and to meet any applicable performance
guarantees; the timing and magnitude of licensing fees and royalties from the
Company's CDMA licensees; the continued success of its OmniTRACS operations; and
the continuation of the Globalstar development contract. In particular, any
delays in commencement of commercial operation of CDMA-based cellular, PCS or
WLL systems could have a material adverse effect on quarterly and annual results
of operations, liquidity or financial position. The Company has experienced and
may continue to experience fluctuations in quarterly and annual operating
results due to variations in the amount and timing of CDMA fees and royalties.
In addition, earnings in future periods could be adversely affected in the event
that the Company does not meet performance obligations relative to scheduled
delivery dates and performance specifications for CDMA equipment.

Ability to Manage Growth. The Company is experiencing a period of rapid
growth which has placed, and is expected to continue to place, significant
demands on the Company's managerial, operational and financial resources. The
management of such growth will require the Company to continue to improve and
expand the Company's management, operational and financial systems and controls,
including quality control and delivery and service capabilities, and to expand,
train and manage its employee base. In particular, the Company must carefully
manage production and inventory levels to meet increasing product demand and new
product introductions. Inaccuracies in the Company's demand forecasts could
quickly result in either insufficient or excessive inventories and
disproportionate overhead expenses. The Company must also continue to hire and
retain qualified technical, engineering and other personnel in the face of
strong demand from the Company's competitors and others for such individuals.
Any ineffective management of growth or unsuccessful recruitment and retention
of personnel could have a material adverse effect on the Company's business,
results of operations, liquidity or financial position.

The Company is experiencing significant growth in connection with the
commercial implementation of its CDMA technology, including significant
expansion of manufacturing, test and installation capabilities, customer support
capabilities, and marketing and sales personnel, which requires significant
expenditures to build the necessary organizations. The Company is expanding its
business into international markets which will require it to establish, manage
and control operations in countries where the Company has limited or no
operating experience. The Company's success will depend in part upon the
Company's ability to successfully manage such growth. There can be no assurance
that the Company's attempts to expand its manufacturing, customer support and
marketing and sales organizations will be successful or will result in
additional sales or profitability in any future period. In order to accommodate
planned growth, it is expected that the rate of growth of the Company's
operating expenses will continue to increase. There can be no assurance that
expense growth will not exceed the rate of revenue growth.

Dependence on Equipment Sales. An important element of the Company's strategy
is to remain a major supplier of CDMA infrastructure and subscriber equipment
worldwide for cellular, PCS and WLL service providers, including C, D, E and
F-Block PCS licensees in North America. The Company's ability to generate
substantial revenues and profits from sales of infrastructure and subscriber
equipment will require continued substantial capital investments by the Company
and is subject to risks and uncertainties.

PCS systems have a limited operating history in the U.S., and the extent of
demand for PCS is uncertain. Sales of infrastructure equipment internationally
are subject to a number of risks, including substantial competition with other
providers of CDMA, GSM and other competing wireless systems (most of whom have
substantially greater resources than the Company and are well-established
equipment manufacturers with long manufacturing histories) and risks related to
unexpected changes in regulatory requirements, export controls, national
standards, currency exchange rates, expropriation, tariffs and other barriers,
political risks and difficulties in staffing and managing foreign operations.
WLL systems in the U.S. and foreign countries are just beginning to be
implemented, and their market acceptance is uncertain. The wireless
telecommunications industry is experiencing significant technological

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<PAGE> 22
changes. As a result, the future prospects of the industry, the success of PCS,
WLL and other competing services and the Company's ability to generate
substantial revenues and profits from sales of CDMA infrastructure and
subscriber equipment are uncertain.

The Company's ability to generate substantial sales of CDMA infrastructure
and subscriber equipment to C, D, E and F-Block PCS licensees is subject to a
number of risks in addition to those facing other wireless service providers.
Many of these licensees have limited financial resources, are highly leveraged
and will require large amounts of capital to complete the build-out of their
systems. To date, there have been a number of unsuccessful efforts made by
C-Block licensees to raise additional capital through various sources. There can
be no assurance that these licensees will be able to raise such capital. In
March 1997, a C-Block licensee holding the second largest number of PCS licenses
filed for protection under Chapter 11 of the U.S. Bankruptcy code and during
October 1997, a C-Block licensee holding the third largest number of PCS
licenses also filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
There can be no assurance that other C, D, E and F-Block licensees, including
those in which the Company has an ownership interest (NextWave Telecom Inc.,
("NextWave") and Chase Telecommunications, Inc. ("Chase")),will not file for
similar protections. Additionally, during 1997 several C-Block licensees made
filings to the FCC requesting modification of their installment payment debt. In
response to these filings, the Federal Communications Commission ("FCC")
suspended the deadline for payment of all C and F-Block installment payments
until further notice. On September 25, 1997 the FCC reinstated the deadline for
C and F-block licensees to make installment payments, with the first payment due
March 31, 1998. Alternatively, the FCC granted the C-Block licensees three
additional options to the reinstated payments. The C-Block licensees may elect
one of the four options by January 15, 1998. Although the FCC has offered four
payment options there can be no assurance that C-Block licensees, including
NextWave and Chase, will be able to obtain sufficient financing to build out
their systems or meet their payment obligations to the FCC. The failure of
NextWave or Chase to obtain sufficient financing or to meet their obligations to
the FCC could adversely affect the value of the Company's investments in these
entities. The C, D, E and F-Block auctions were concluded over one year
following the conclusion of the A-Block and B-Block auctions, which provided the
A-Block and B-Block licensees with a significant time-to-market competitive
advantage over these licensees. There can be no assurance that the C, D, E and
F-Block licensees will be successful in building out their systems.

Competition. The wireless communications industry consists primarily of major
domestic and international companies which have financial, technical, marketing,
sales, manufacturing, distribution and other resources substantially greater
than those of the Company. Many of these companies are licensees of the
Company's technology, and have established market positions, trade names,
trademarks, patents, copyrights and intellectual property rights and substantial
technological capabilities. See "Business -- Competition."

The primary competition with respect to CDMA technology is from current
analog and digital TDMA-based systems, including GSM and DCS 1900, the GSM
implementation for PCS in the U.S. GSM has been adopted as the digital cellular
standard throughout Europe and has received substantial international acceptance
in other countries. Industry publications have reported that over 100 countries
have adopted or are deploying GSM. In Japan, the Ministry of Posts and
Telecommunications has adopted TDMA as its primary digital cellular standard,
which has been widely deployed throughout the country. Japan's proprietary TDMA
system is not compatible with either GSM or the U.S. IS-54 TDMA standard.
However, in 1996, two of the three largest cellular service providers in Japan
announced plans to offer commercial CDMA service in 1998. In addition, a number
of alternative radio systems are also being marketed for WLL applications. Many
of the major equipment suppliers have made substantial investments in TDMA and
GSM technology including Hughes, Lucent, Motorola, NOKIA, Nortel and Siemens,
all of whom are licensees of the Company, as well as Ericsson.

The Company also competes against its licensees in the manufacture of CDMA
infrastructure and subscriber equipment and ASICs. The Company will face
increasing competition in 1998 as more of its licensees introduce CDMA products.
There can be no assurance that the Company's competitors will not devote a
significantly greater amount of their financial, technical, marketing and other
resources to aggressively market competitive communications systems or develop
and adopt competitive digital cellular technologies, and that such efforts will
not have a material adverse affect on the Company's results of operations,
liquidity or financial position in the

19
<PAGE> 23
future. Moreover, certain equipment manufacturers may offer extremely attractive
financing terms as a means of gaining access to the wireless markets.

The Company's primary direct domestic competition to its U.S. OmniTRACS
system includes AMSC and HighwayMaster Communications, Inc. AMSC and its
resellers are offering services through the AMSC satellite which was launched in
1995. These competitors are aggressively pricing their products and services and
could continue to do so in the future. In addition, these competitors are
offering new value-added products and services similar to those developed or
being developed by the Company. Emergence of new competitors, particularly those
offering low cost products and future LEO satellite communications systems, may
impact margins and intensify competition in new markets. The Company also faces
competition abroad from numerous suppliers of equipment and services. These
include Inmarsat and its authorized resellers through its Inmarsat C
geostationary satellite service. In addition, the Company is facing competition
abroad from various terrestrial based systems and specifically in Europe from
GSM-based terrestrial systems. All of these competitors are aggressively pricing
their products and services and the Company can continue to expect pricing
pressures. As with the U.S. operations, the international business may also
experience competition in the future from LEO Satellite communications systems.

Risks Related to Vendor Financing. Cellular, PCS and WLL network operators
both domestic and international, increasingly have required their suppliers to
arrange or provide long-term financing for them as a condition to obtaining or
bidding on infrastructure projects. Many WLL and PCS network operators,
including a number of C and F-Block licensees, have limited or no operating
histories, and are faced with significant capital requirements. Pursuant to FCC
regulations applicable to C and F-Block licensees, the Company will not be
permitted to retain a security interest in any C-Block licenses, which initially
will constitute the primary asset of many C-Block licensees. C-Block licensees
are faced with strict regulatory requirements under applicable FCC regulations.
Compliance with those regulations is outside of the control of the Company. The
failure of a C-Block licensee to comply with any of those regulations could
result in the revocation of that licensee's FCC licenses.

In order to arrange or provide for such financing, the Company will likely be
subjected to significant project, market, political and credit risks. The
Company may be required to provide such financing directly, and/or guarantee
such financing through third party lenders. The amount of such financing could
become significant and, if not repaid, could have a material adverse effect on
the Company's results of operations, liquidity or financial position. The
Company may be required to maintain any such extensions of credit, or remain
obligated under guarantees, until maturity, which could have a material adverse
effect on the Company's credit rating. Although the Company may seek to have
third parties assume some or all of any such credit arrangements, there can be
no assurance that the Company will be able to do so. Such amounts financed may
include "soft costs" (such as software, cell site leases and permits), and thus
the amount financed may exceed 100% of infrastructure equipment costs. The
Company has vendor financing obligations with Sprint PCS (through Nortel), and
directly with other service providers. The Company has limited experience
evaluating the credit worthiness or commercial viability of potential purchasers
of CDMA equipment, and there can be no assurances that such customers will not
default on any financing arranged or provided by the Company for the purchase of
its CDMA equipment and services. In addition, during fiscal 1998, the Company
expects to finalize negotiations with Globalstar which could result in the
deferral of approximately $100 million of remaining contract payments under the
development agreement, the majority of which relates to contract services to be
provided subsequent to September 28, 1997. Such deferrals will be interest
bearing and paid by Globalstar over a period not exceeding four years from the
deferral. (See "--Dependence on Key Customers.")

The Company's ability to arrange or provide and be competitive with such
financing will depend on a number of factors, including the Company's capital
structure, level of available credit and ability to provide financing in
conjunction with third-party lenders. There can be no assurance that the Company
will be able to arrange or provide such financing on terms and conditions, and
in amounts, that will be satisfactory to such network operators. The Company may
be required to hold any loans, or remain obligated under guarantees, until
maturity, which could have a material adverse effect on the Company's credit
rating. Most of the Company's competitors have substantially greater resources
than the Company, which may enable them to offer more favorable financing terms
and successfully compete against the Company for infrastructure projects. The
inability to arrange or provide such

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<PAGE> 24
financing or to successfully compete for infrastructure projects could have a
material adverse effect on the Company and its business prospects.

Patents and Proprietary Information. The Company relies on a combination of
patents, copyrights, trade secrets, trademarks and proprietary information to
maintain and enhance its competitive position. The Company has been granted
approximately 149 patents and has approximately 380 patent applications pending
in the United States, of which 11 patents and 14 patent applications relate to
the Company's OmniTRACS products and approximately 138 patents and approximately
366 patent applications relate to the Company's CDMA digital wireless
technology. The Company also actively pursues patent protection in other
countries of interest to the Company. There can be no assurance that the pending
patent applications will be granted, that the Company's patents or copyrights
will provide adequate protection, or that the Company's competitors will not
independently develop or initiate technologies that are substantially equivalent
or superior to the Company's technologies. There can also be no assurance that
the confidentiality agreements upon which the Company relies to protect its
trade secrets and proprietary information will be adequate. From time to time,
certain companies may assert exclusive patent, copyright and other intellectual
proprietary rights to technologies which are claimed to be important to the
industry or to the Company. In addition, from time to time third parties provide
the Company with copies of their patents relating to spread spectrum and other
digital wireless technologies and offer licenses to such technologies, and the
Company evaluates such patents and the advisability of such licenses. If any of
the Company's products were found to infringe on protected technology, the
Company could be required to redesign such products, license such technology,
and/or pay damages to the infringed party. If the Company is unable to license
protected technology used in the Company's products or to redesign such
products, the Company could be prohibited from marketing such products.

Ericsson, Motorola and InterDigital have each advised the TIA that they hold
patent rights in technology embodied in IS-95. Lucent and OKI Electric have
claimed patent rights in IS-96. In accordance with TIA guidelines, each company
has confirmed to the TIA that it is willing to grant licenses under its rights
on reasonable and nondiscriminatory terms. In connection with the settlement and
dismissal of the Company's patent litigation with InterDigital, the Company
received, among other rights, a fully-paid, royalty free license to use and to
sublicense the use of those patents claimed by InterDigital to be essential to
IS-95. If the Company and other equipment manufacturers are required to obtain
additional licenses and/or pay royalties to one or more patent holders, this
could have an adverse effect on the commercial implementation of the Company's
CDMA technology.

On September 23, 1996, Ericsson Inc. and Telefonaktiebolaget LM Ericsson
("Ericsson") filed suit against the Company and on December 17, 1996, Ericsson
also filed suit against QPE with both complaints alleging that various elements
of the Company's CDMA equipment system and components infringe one or more
patents owned by Ericsson. In December 1996, QUALCOMM filed a countersuit
alleging, among other things, unfair competition by Ericsson based on a pattern
of conduct intended to impede the acceptance and commercial deployment of
QUALCOMM's CDMA technology and seeking a judicial declaration that certain of
Ericsson's patents are not infringed by QUALCOMM and are invalid. On September
10, 1996, OKI America, Inc. ("OKI") filed a complaint against Ericsson seeking a
judicial declaration that certain of OKI's CDMA subscriber products do not
infringe nine patents of Ericsson and that such patents are invalid. The nine
patents are among the eleven patents at issue in the litigation between the
Company and Ericsson. In December 1996, the Company was joined as co-plaintiff
with OKI in the OKI-Ericsson case. Although there can be no assurances that an
unfavorable outcome would not have a material adverse effect on the Company's
results of operations, liquidity or financial position, the Company believes the
named Ericsson patents are not required to produce IS-95 compliant systems and
that Ericsson's claims are without merit. See "Item 3. Legal Proceedings."

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patents. On August 18, 1997, Motorola filed another complaint against the
Company alleging infringement by the Company of seven additional patents. All of
the Motorola cases have been consolidated for pretrial proceedings. Although
there can be no assurance that an unfavorable outcome of the dispute would not
have a material adverse effect on the Company's results of operations, liquidity
or financial position, the Company believes Motorola's complaint has no merit
and will vigorously defend the action. See "Item 3. Legal Proceedings."

On May 19, 1997, the Company filed a complaint against U.S. Philips
Corporation ("Philips") seeking a judicial declaration that certain of the
Company's products do not infringe three patents held by Philips and that such
patents are invalid. The court stayed all proceedings in the action until
November 30, 1997 to allow the parties to hold settlement discussions. Subject
to court approval the parties have agreed to an extension to the stay until
January 5, 1998. Although there can be no assurances that an unfavorable outcome
would not have a material adverse effect on the Company's results of operations,
liquidity or financial position, the Company believes the named Philips patents
are not required to produce IS-95 compatible products and that such patents are
not infringed by the Company. See "Item 3. Legal Proceedings."

Rapid Technological Change and New Products. The market for the Company's
products is characterized by rapid technological advances, evolving industry
standards, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render the
Company's existing products, and products currently under development, obsolete
and unmarketable. Accordingly, the Company's future success will depend upon its
ability to enhance its current products and develop and introduce new products
that keep pace with technological developments, satisfy varying customer
requirements and achieve market acceptance. Any failure by the Company to
anticipate or respond adequately to technological developments or customer
requirements, or any significant delays in product development or introduction,
could damage the Company's competitive position and have an adverse effect on
revenues, results of operations, liquidity or financial position. There can be
no assurance that the Company will be successful in developing and marketing new
equipment products on a timely basis or that the Company will not experience
significant delays in the future, which could have a material adverse effect on
the Company's business and operations. In addition, there can be no assurance
that new products developed by the Company will achieve market acceptance.

Manufacturing of CDMA Equipment. The Company's revenues from CDMA wireless
communications infrastructure and subscriber equipment and ASIC components has
increased substantially during fiscal 1997, and manufacturing capacity is a
critical element. The Company is investing substantial amounts in product
development activities to maintain or improve its competitive position. The
Company may spend substantially more on such software and hardware development
than currently anticipated. The Company has significantly expanded and will
continue to significantly expand its infrastructure and subscriber equipment
manufacturing capabilities. Many of the Company's competitors have greater
resources and experience with such large scale manufacturing. There can be no
assurance that the Company will be able to timely or effectively accomplish such
increases in production volume.

Any delays or difficulties in connection with the planned increase in
manufacturing capacity could have a material adverse effect on the Company's
business, results of operations, liquidity or financial position. If the Company
is unable to manufacture CDMA subscriber and infrastructure equipment at
commercially acceptable costs, or if the Company expands its manufacturing
capacity but is unable to secure sufficient orders for its CDMA equipment, the
Company's competitive position and the ability of the Company to achieve a
profitable return on its CDMA research and development expenditures could be
materially impaired.

The manufacture of wireless communications equipment is a complex and precise
process involving specialized manufacturing and testing equipment and processes.
Defects or impurities in the components or materials used, equipment failure or
other difficulties could adversely affect the Company's ability to meet planned
production yields. There can be no assurance that the Company will not encounter
difficulties in achieving planned yields on its products, which would adversely
affect its margins, results of operations, liquidity or financial position.

The Company manufactures its CDMA based digital cellular and PCS subscriber
equipment through QPE, a joint venture between the Company and a subsidiary of
Sony. The risks associated with the commercial

22
<PAGE> 26
manufacture of the Company's infrastructure and subscriber equipment products
which are described in this document also apply to the manufacture of subscriber
equipment by QPE. To the extent that QPE experiences any of the complications,
delays or interruptions described herein, the Company's results of operations,
liquidity or financial position would be adversely affected.

Future Capital Needs. The design, development, manufacture and marketing of
digital wireless communication products and services are highly capital
intensive. In addition, cellular, PCS and WLL systems operators increasingly
have required their suppliers to arrange or provide long-term financing for them
as a condition to obtaining or bidding on infrastructure projects. To the extent
that such cash resources are insufficient to fund the Company's activities, the
Company may be required to raise additional funds from a combination of sources
including potential debt or equity issuances. There can be no assurance that
additional financing will be available on reasonable terms or at all. If
additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders could occur.

Dependence on Suppliers. The Company has from time to time experienced delays
in obtaining quantities of specification compliant RF components and other parts
to meet the demands for its equipment. Several of the critical products and
services used in the Company's existing and proposed products, including ASICs,
flash memory chips and certain RF components used in the Company's CDMA products
and certain custom and semi-custom VLSI circuits and other sophisticated
electronic parts and major subassemblies used in the OmniTRACS system, are
currently available only from single or limited sources. The reliance on sole or
limited source vendors by the Company and its licensees involves risks,
including the possibility of shortages of certain key components, product
performance shortfalls, and reduced control over delivery schedules,
manufacturing capability, quality and costs. Business disruptions or financial
difficulties of a sole or limited source supplier of any particular component
could materially and adversely impact the Company by increasing the cost of
goods sold or reducing the availability of such components. While the Company
believes that it could obtain necessary components from other manufacturers, an
unanticipated change in the source of supply of these components could trigger
performance guarantee payments or cause significant shipment delays in the
Company's products.

Unanticipated supply limitations could adversely affect the Company's ability
to meet its product orders. There can be no assurance that the supplier
commitments will be met. The Company is also working with its suppliers to
obtain expanded volumes of specification compliant components. There may be
significant demand on the Company's suppliers from other manufacturers
(including the Company's licensees) for such components. Delays in the
availability or reduced quantities of these components could adversely affect
the Company's ability to manufacture subscriber equipment in the volumes and
within the time frames required by its customers, which could result in lost
revenues and profits and possible performance guarantee payments. See
"--Performance Guarantees."

Certain components require an order lead time of six months or longer. Other
components that currently are readily available may become difficult to obtain
in the future. There can be no assurance that the Company will not experience
delays in the receipt of certain key components. Delays or the failure of the
Company to order sufficient quantities of these components in advance could
prevent the Company from meeting production requirements and could result in the
requirement to pay performance guarantees. To meet forecasted production levels,
the Company may be required to commit to certain long lead time items prior to
contract award. If forecasted orders are not awarded, the Company may be faced
with large inventories of slow moving or unusable parts which could have an
adverse affect on the Company's results of operations.

Performance Guarantees. QUALCOMM and QPE have entered into contracts that
provide performance guarantees to protect customers against late delivery or
failure to perform. These performance guarantees, and any future commitments for
performance guarantees, are obligations entered into separately, and in some
cases jointly, with partners to supply CDMA subscriber and infrastructure
equipment. Certain of these obligations provide for substantial performance
guarantees that accrue at a daily rate based on percentages of the contract
value to the extent the equipment is not delivered by scheduled delivery dates
or the systems fail to meet certain performance criteria by such dates. The
Company is dependent in part on the performance of its suppliers and strategic
partners in order to provide equipment which is the subject of the guarantees.
Thus, the ability to timely deliver such

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equipment may be outside of the Company's control. If the Company and QPE are
unable to meet their performance obligations, the payment of the performance
guarantees could amount to a significant portion of the contract value and would
have a material adverse effect on product margins and the Company's results of
operations, liquidity or financial position.

Dependence on Key Customers. A significant portion of the Company's CDMA
subscriber and infrastructure equipment sales are, and are expected to continue
to be, concentrated with a limited number of customers. As a result, the
Company's performance will depend significantly on relatively large orders from
a limited number of customers, as well as gaining additional customers, both
within existing cellular, PCS and WLL markets and in new markets. The loss of
any existing customer for CDMA equipment or the failure of the Company to gain
additional customers could have a material adverse effect on the Company's
business, results of operations, liquidity or financial position.

CDMA Commercialization. The Company's CDMA technology has been launched
commercially for PCS and cellular applications in the U.S., Canada, China, Hong
Kong, India, Indonesia, Peru, Puerto Rico, Russia, South Korea and Zambia, and
is being evaluated in numerous other markets worldwide. The successful
implementation and operation of such systems is a complex process requiring
coordination of a number of factors, including the successful interface between
infrastructure and subscriber equipment from multiple vendors and the public
wireline network, as well as avoiding interference from microwave and cellular
systems. There can be no assurance that unforeseen complications will not arise
as more subscribers are added to these systems or in the scale-up and operation
of other commercial CDMA systems that could materially delay or limit the
commercial use of the Company's CDMA technology. Further, if the Company's
licensees are unable to deliver CDMA equipment to the market on a timely basis,
or if carriers which have adopted CDMA fail to deploy their systems on a timely
basis, the Company's business and the reputation of the Company's CDMA
technology could be adversely affected.

A number of companies with international operations are developing and
implementing competing cellular, PCS and WLL technologies. While the Company
strongly believes that CDMA is superior to competing digital technologies and is
actively promoting the benefits of its CDMA technology outside the U.S., there
can be no assurance that the Company will receive significant international
acceptance of its CDMA technology for cellular, PCS or WLL applications due to
the installed base of GSM systems and competition from the U.S. and Japanese
TDMA systems. In some countries, the Company's CDMA products may be required to
undergo extensive testing and certification by government entities before CDMA
can be approved for commercial use in those countries.

Equipment Sales by CDMA Licensees. Full commercial implementation of the
Company's CDMA technology requires that subscriber and infrastructure equipment
be made available in commercial quantities in a timely and cost effective
manner. Although the Company is a supplier of certain CDMA subscriber and
infrastructure equipment, the Company expects that a major portion of the
subscriber and infrastructure equipment that will be made commercially available
will be supplied by the Company's licensees. If CDMA subscriber and
infrastructure

24
<PAGE> 28
equipment is not delivered to the market on a timely basis, customers could
select other digital wireless technologies. Availability of equipment and other
factors are critical for CDMA technology to be chosen for wireless applications.
The amount and timing of resources devoted by licensees to the development of
CDMA subscriber and infrastructure equipment are controlled by such licensees,
and thus the timing of the availability of third party equipment is not under
the Company's control.

Reliance on Satellite and other Facilities for OmniTRACS Service. The
Company's OmniTRACS system currently operates in the U.S. market on leased
Ku-band satellite transponders. The Company's data satellite transponder lease
runs through 2001. The Company's position reporting satellite transponder runs
through May 1998, with the rights to extend through May 1999. System
enhancements currently under development should allow for increased utilization
of transponder capacity. Based on results of the system enhancements, the
Company believes that the U.S. OmniTRACS operations may not require additional
transponder capacity in fiscal year 1998. The Company believes that in the event
additional transponder capacity would be required in fiscal 1998 or in future
years, that additional capacity will be available on acceptable terms. However,
no assurance can be given that the Company will be able to acquire additional
transponder capacity on acceptable terms on a timely basis. Any failure of the
Company to maintain adequate satellite capacity would have a material adverse
effect on the Company's financial results. The Company's NMF operations are
subject to the risk that a failure or natural disaster could interrupt the
OmniTRACS service and have a material adverse effect on OmniTRACS revenues. The
Company maintains a fully operational NMF in Las Vegas, Nevada as a backup to
its primary NMF in San Diego, California. See "Business -- OmniTRACS."

Contribution of OmniTRACS. OmniTRACS systems, complementary software
products, related messaging services and maintenance services historically have
accounted for a significant portion of the Company's total revenues and margins.
A significant portion of the Company's OmniTRACS revenues is derived from the
North American trucking industry, particularly providers of long-haul
transportation of goods and equipment. Any adverse events affecting the domestic
trucking industry could have a material adverse effect on the Company's
OmniTRACS revenues. Although an increasing portion of the Company's OmniTRACS
revenues is derived from ongoing messaging and maintenance revenues, new
customer sales of the Company's OmniTRACS systems are important to the Company.
In addition, the Company has been experiencing pricing pressure from competitors
on sales of its OmniTRACS products and messaging services, which could result in
further reduction of the margins for such products and services. See "Business
- -- Competition." The Company expects that an increasing portion of its future
OmniTRACS sales will be derived from international sales. There can be no
assurance that the Company's domestic or international OmniTRACS business will
continue to grow at the levels experienced in the past, which could have a
material adverse effect on the Company's results of operations.

Factors Affecting International Business. Revenues from international
customers accounted for approximately 30% of total revenues in fiscal 1997, 36%
of total revenues in fiscal 1996 and 20% of total revenues in fiscal 1995. Since
the Company is a relatively new entrant into some of these markets and its
competitors may have long-standing, entrenched positions, it may be difficult
for the Company to succeed in certain markets, thereby limiting international
sales. Other risks faced by the Company in its international business include
unexpected changes in regulatory requirements, export controls, national
standards, currency exchange rates, expropriation, tariffs or other barriers,
political risks, difficulties in staffing and managing foreign operations and
potentially negative tax consequences. These factors could have an adverse
impact on the Company's operating results. In addition, because certain joint
ventures between the Company and foreign firms provide for a minority ownership
position by the Company in the joint venture, the Company may be limited in
taking actions it might otherwise wish to pursue. The Company is subject to U.S.
export control laws and regulations with respect to all of the Company's
products and technology that are exported from the United States. The Company is
subject to the risk that more stringent export control requirements could be
imposed in the future on product classes that include products exported by the
Company, which would result in additional compliance burdens on the Company or
ensure the enforceability of its contract rights. In addition, the laws of
certain foreign countries, including developing nations in Asia, South America,
Africa and Eastern Europe, may not protect the Company's intellectual property
rights or ensure the enforceability of its contract rights to the same extent as
do the laws of the United States.

25
<PAGE> 29

Uncertainty of Government Regulation. The Company's products are subject to
various FCC regulations in the U.S. These regulations require that the Company's
products meet certain radio frequency emission standards and not cause
unallowable interference to other services. The Company is also subject to
government regulations and requirements by local and international standards
bodies outside the U.S., where the Company is less prominent than local
competitors and has less opportunity to participate in the establishment of
regulatory and standards policies. Changes in the regulation of the Company's
activities, including changes in the allocation of available spectrum by the
U.S. Government and other governments, or exclusion of its technology by a
standards body, could have a material adverse effect on the Company's results of
operations and its ability to market its products and services. The Company is
also subject to state and federal health, safety and environmental regulations
as well as regulations related to the handling of and access to classified
information.

Reliance on Key Personnel. The Company's success depends in a large part upon
its ability to retain highly qualified technical and management personnel, the
loss of one or more of whom could have a material adverse effect on the business
of the Company. None of these individuals has an employment contract with the
Company. The Company's success also depends upon its ability to continue to
attract and retain highly qualified personnel in all disciplines. There can be
no assurance that the Company will be successful in hiring or retaining
requisite personnel.

Product Liability. Testing, manufacturing, marketing and use of the Company's
products entail the risk of product liability. While the Company currently has
product liability insurance that it believes is adequate to protect against
product liability claims, no assurance can be given that the Company will be
able to continue to maintain such insurance at a reasonable cost or in
sufficient amounts to protect the Company against losses due to product
liability. An inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability could prevent or inhibit
the commercialization of the Company's products. In addition, a product
liability claim or recall could have a material adverse effect on the business,
results of operations, liquidity or financial position of the Company.

News reports have asserted that power levels associated with hand-held
cellular telephones may pose certain health risks. The Company is not aware of
any study that has concluded that there are any significant health risks from
using hand-held cellular telephones. If it were determined that electromagnetic
waves carried through the antennas of cellular telephones create a significant
health risk, there could be a material adverse effect on the Company's ability
to market and sell its wireless telephone products.

Anti-Takeover Measures; Rights Plan. The Company's Certificate of
Incorporation provides for cumulative voting in the election of directors. In
addition, the Company's Certificate of Incorporation provides for a classified
Board of Directors and includes a provision (the "Fair Price Provision") that
requires the approval of the holders of at least 66 2/3% of the Company's voting
stock as a condition to a merger or certain other business transactions with, or
proposed by, a holder of more than 15% or more of the Company's voting stock,
except in cases where certain directors approve the transaction or certain
minimum price criteria and other procedural requirements are met. The Company's
Certificate of Incorporation also requires the approvals of holders of at least
66 2/3% of the Company's voting stock to amend or change the provisions relating
to the classified board, cumulative voting or the Fair Price Provision. The
Company's Certificate of Incorporation also requires that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders of the Company and may not be
effected by any consent in writing. The Company's Bylaws, as amended, permit a
special meeting of the stockholders to be called only by the Company's Board of
Directors, the Chairman of the Board or the Company's President.

The classified board, Fair Price Provision and other charter provisions may
discourage certain types of transactions involving an actual or potential change
in control of the Company, including transactions in which the stockholders
might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. Further, pursuant to the terms of
its preferred share purchase rights plan, the Company has distributed a dividend
of one right for each outstanding share of Common Stock. These rights will cause
substantial dilution to the ownership of a person or group that attempts to
acquire the Company on terms not approved by the Board of Directors and may have
the

26
<PAGE> 30
effect of deterring hostile takeover attempts. In addition, the Board of
Directors has the authority to fix the rights and preferences of and issue
shares of Preferred Stock, which may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders.

Volatility of Stock Price. Historically, the Company's stock price has been
volatile. The sales prices for the Company's Common Stock have ranged from
$38.00 to $71.94 during the 52-week period ended November 21, 1997. See "Item 5.
Market for Registrants' Common Stock and Related Stockholders Matters." Future
announcements concerning the Company or its competitors, including the selection
of wireless technology by cellular, PCS and WLL service providers, the timing of
roll-out of those systems, the receipt of substantial orders for infrastructure
or subscriber equipment, quality deficiencies in services or products, results
of technological innovations, new commercial products, changes in
recommendations of securities analysts, government regulations, proprietary
rights or product or patent litigation, may have a significant impact on the
market price of the Company's Common Stock. The Company's future earnings and
stock price may be subject to significant volatility, particularly on a
quarterly basis. Any shortfalls in revenues or earnings from the levels expected
by securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock in any given period.

ITEM 2. PROPERTIES

The Company is headquartered in San Diego, California where it occupies 22
properties, or approximately 2,200,000 square feet. These facilities are used
for manufacturing, engineering and administration. Of the total facilities in
San Diego, the Company owns 10 of the properties, totaling approximately
1,600,000 square feet and utilizes approximately 700,000 square feet for
manufacturing facilities. The remaining properties in San Diego are used for
engineering, research and administrative facilities.

In addition to leased space in San Diego, the Company also leases
approximately 166,000 square feet for sales and support offices in 8 other U.S.
locations as well as engineering facilities in Boulder, Colorado; Santa Clara,
California; and a backup Network Management Facility ("NMF") in Las Vegas,
Nevada. The Company also leases office space internationally.

During fiscal 1997, the Company began construction of a new 319,000 square
foot building on QUALCOMM's Morehouse Campus which will be used primarily as an
engineering and marketing facility. The Company also began construction of a
280,000 square foot building on land owned in La Jolla, California. This
facility will provide additional administrative, marketing, engineering and
research facilities. The Company also owns land in Boulder, Colorado.

The Company believes its facilities are adequate for its present needs. In
the future, the Company will need to purchase, build or lease additional
facilities to meet the requirements projected in its long term business plan.

ITEM 3. LEGAL PROCEEDINGS

<PAGE> 31
Eastern District of Texas. On September 10, 1996, OKI America, Inc. ("OKI")
filed a complaint in the United States District Court for the Northern District
of California, Civil Action No. C-96=20747 RMW (EAI), against Ericsson seeking a
judicial declaration that certain of OKI's CDMA subscriber products do not
infringe nine patents of Ericsson and that such patents are invalid. The nine
patents are among the eleven patents at issue in the litigation between the
Company and Ericsson. In December 1996, the Company filed a motion to intervene
as co-plaintiff with OKI in the OKI-Ericsson case. The court granted the
Company's motion on August 25, 1997. This case has not yet been set for trial.
Although there can be no assurances that an unfavorable outcome would not have a
material adverse effect on the Company's results of operations, liquidity or
financial position, the Company believes the named Ericsson patents are not
required to produce IS-95 compliant systems and that Ericsson's claims are
without merit.

On November 8, 1996, the Company was served with a complaint in connection
with a lawsuit filed in the U.S. District Court for the Eastern District of
Pennsylvania by BTG USA Inc, ("BTG"). The complaint alleges that the Company's
Global Positioning System, CDMA telecommunications products and the OmniTRACS
system components thereof infringe United States Patent No. Re. 34,004. The
patent expired in November 1996. During October 1997 BTG voluntarily offered to
dismiss its case against the Company and grant a complete release to QUALCOMM of
all claims under the patent, without any payment from the Company to BTG.
QUALCOMM accepted BTG's offer with an agreement from BTG to never file suit
against suppliers, licensees, or customers designated by the Company with
respect to the patent.

On March 5, 1997, the Company filed a complaint against Motorola, Inc.
("Motorola") in the U.S. District Court for the Southern District of California,
Civil Action No. CV00372. The complaint was filed in response to allegations by
Motorola that the Company's recently announced Q phone infringes design and
utility patents held by Motorola as well as trade dress and common law rights
relating to the appearance of certain Motorola wireless telephone products. The
complaint denies such allegations and seeks a judicial declaration that the
Company's products do not infringe any patents held by Motorola. The complaint
also states that, pursuant to certain patent and technology license agreements
entered into in 1990 between the companies, Motorola is precluded from asserting
infringement of the utility patents. On March 10, 1997, Motorola filed a
complaint against the Company in the U.S. District Court for the Eastern
Division of Illinois, Civil Action No. 97 C 1616 (the "Motorola Complaint"),
alleging claims based primarily on the above alleged infringement. The Company's
motion to transfer the Motorola Complaint to the U.S. District Court for the
Southern District of California was granted on April 3, 1997. On April 24, 1997,
the court denied Motorola's motion for a preliminary injunction thereby
permitting the Company to continue to manufacture, market and sell the Q phone.
On April 25, 1997, Motorola appealed the denial of its motion for a preliminary
injunction. On June 4, 1997, Motorola filed another lawsuit in the United States
District Court for the Southern District of California, alleging infringement by
QUALCOMM of four patents. Three of the patents had already been alleged in
previous litigation between the parties. On August 18, 1997, Motorola filed
another complaint against the Company in the United States District Court for
the Southern District of California, alleging infringement by the Company of
seven additional patents. All of the Motorola cases have been consolidated for
pretrial proceedings. Although there can be no assurance that an unfavorable
outcome of the dispute would not have a material adverse effect on the Company's
results of operations, liquidity or financial position, the Company believes
Motorola's complaint has no merit and will vigorously defend the action.

On May 19, 1997, the Company filed a complaint, Case No. 97CV968-K, in the
United States District Court for the Southern District of California against
U.S. Philips Corporation ("Philips"). The complaint seeks a judicial declaration
that certain of the Company's products do not infringe three patents held by
Philips and that such patents are invalid. The court stayed all proceedings in
the action until November 30, 1997 to allow the parties to hold settlement
discussions. Subject to court approval the parties have agreed to an extension
to the stay until January 5, 1998. Although there can be no assurances that an
unfavorable outcome would not have a material adverse effect on the Company's
results of operations, liquidity or financial position, the Company believes the
named Philips patents are not required to produce IS-95 compatible products and
that such patents are not infringed by the Company.

The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its financial position or results of
operations.

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<PAGE> 32

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter
ended September 28, 1997.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

(a) Market Information

The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "QCOM." The following table sets forth the range of high and low
sales prices on the National Market of the Common Stock for the periods
indicated, as reported by Nasdaq. Such quotations represent inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996
First Quarter........... $ 47.50 $ 34.88
Second Quarter.......... 49.75 35.50
Third Quarter........... 54.50 30.38
Fourth Quarter.......... 52.88 36.38
FISCAL 1997
First Quarter........... $ 46.75 $ 35.38
Second Quarter.......... 63.75 39.13
Third Quarter........... 60.63 41.25
Fourth Quarter.......... 56.88 43.25
</TABLE>

As of November 21, 1997, there were 2,245 holders of record of the Common
Stock. On November 21, 1997, the last sale price reported on the Nasdaq National
Market for the Common Stock was $69.63 per share.

(b) Recent Sales of Unregistered Securities

On February 25, 1997 and March 10, 1997 the Company completed the sale of
13,200,000 QUALCOMM Financial Trust I 5-3/4% Trust Convertible Preferred
Securities for an aggregate sales price of $660 million. The Trust Convertible
Preferred Securities were sold to certain "qualified institutional buyers" (as
defined in Rule 144A promulgated under the Securities Act of 1993, as amended
(the "Act")) and certain "accredited investors" (as defined in Rule 501
promulgated under the Act) pursuant to the exemptions from registration afforded
under Rules 144A and 506 promulgated under the Act. Proceeds from the initial
purchase of the Trust Convertible Preferred Securities from the Company by
Lehman Brothers, Bear, Stearns & Co. Inc., Alex. Brown & Sons Incorporated,
Goldman, Sachs & Co. and Merrill Lynch & Co., were approximately $642 million,
which is net of issuance costs of approximately $18 million. Each Trust
Convertible Preferred Security is convertible into approximately 0.6882 shares
of Common Stock of the Company.

29
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA

The following data has been derived from the Company's audited financial
statements. Consolidated balance sheets at September 30, 1997 and 1996 and the
related consolidated statements of income and of cash flows for each of the
three years in the period ended September 30, 1997 and notes thereto appear
elsewhere herein. The data should be read in conjunction with the annual
financial statements, related notes and other financial information appearing
elsewhere herein.

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,(1)
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Communications systems .......... $ 1,733,169 $ 582,953 $ 246,997 $ 194,037 $ 123,828
Contract services ............... 211,661 131,022 95,150 48,310 28,609
License, royalty and development
fees............................ 151,535 99,875 44,465 29,276 16,271
----------- ----------- ----------- ----------- -----------
Total revenues ................ 2,096,365 813,850 386,612 271,623 168,708
----------- ----------- ----------- ----------- -----------
Operating expenses:
Communications systems .......... 1,361,641 445,481 143,774 118,636 77,206
Contract services ............... 156,365 90,380 69,396 38,051 23,416
Research and development ........ 235,922 162,340 80,171 49,586 27,415
Selling and marketing ........... 147,040 74,114 37,754 23,687 16,335
General and administrative ...... 89,148 48,971 34,918 18,696 12,085
Other(2) ........................ 8,792 -- -- 13,017 326
----------- ----------- ----------- ----------- -----------
Total operating expenses ...... 1,998,908 821,286 366,013 261,673 156,783
----------- ----------- ----------- ----------- -----------
Operating income (loss) ........... 97,457 (7,436) 20,599 9,950 11,925
Interest income, net .............. 23,833 20,885 7,265 4,470 1,333
Gain on sale of trading securities 13,400 -- -- -- --
Distributions on trust convertible
preferred securities of
subsidiary trust ................. (23,277) -- -- -- --
Minority interest in (income) loss
of consolidated subsidiary ....... (2,979) 13,178 12,016 2,893 --
Equity in losses of joint ventures -- -- -- -- (198)
----------- ----------- ----------- ----------- -----------
Income before income taxes ........ 108,434 26,627 39,880 17,313 13,060
Income tax expense(3) ............. (16,500) (5,600) (9,700) (2,120) (1,000)
----------- ----------- ----------- ----------- -----------
Net income ........................ $ 91,934 $ 21,027 $ 30,180 $ 15,193 $ 12,060
=========== =========== =========== =========== ===========
Net income per common share ....... $ 1.27 $ 0.30 $ 0.53 $ 0.28 $ 0.25
Fully diluted net income per common
share ........................... $ 1.27 $ 0.30 $ 0.52 $ 0.28 $ 0.25
Shares used in primary per share
calculation ..................... 72,430 70,214 57,420 53,514 48,046
Shares used in fully diluted per
share calculation ............... 72,665 70,468 58,194 53,562 48,326
BALANCE SHEET DATA:
Working capital ................... $ 982,117 $ 425,231 $ 599,633 $ 151,448 $ 200,666
Total assets ...................... 2,274,680 1,185,330 940,717 357,925 306,589
Bank lines of credit and long-term
debt(4) .......................... 110,239 80,930 33,959 25,676 26,215
Capital lease obligations(4) ...... 10,728 12,912 535 1,810 4,330
Trust convertible preferred
securities of subsidiary trust.... 660,000 -- -- -- --
Stockholders' equity .............. 1,024,178 844,913 799,617 262,170 236,696
</TABLE>

- ----------

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<PAGE> 34
(1) The Company's fiscal years end on the last Sunday in September. As a
result of this practice, fiscal 1996 includes 53 weeks.

(2) Consists of asset impairment charge in 1997 and litigation settlement and
related costs in 1994 and 1993.

(3) Includes the tax benefit of $21.5 million in 1997, $3 million in 1995 and
$4 million in 1994 from the recognition of deferred tax assets.

(4) Includes current and long-term portions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to: the ability to develop and
introduce cost effective new products in a timely manner, avoiding delays in the
commercial implementation of the CDMA technology; continued growth in the CDMA
subscriber population and the scale-up and operations of CDMA systems;
developments in current or future litigation; the Company's ability to
effectively manage growth and the intense competition in the wireless
communications industry; risks associated with vendor financing; timing and
receipt of license fees and royalties; the Company's ability to successfully
manufacture and sell significant quantities of CDMA infrastructure equipment on
a timely basis; failure to satisfy performance obligations; as well as the other
risks detailed in this section and in the sections entitled Results of
Operations and Liquidity and Capital Resources.

OVERVIEW

QUALCOMM, a Delaware corporation, commenced operations in July 1985,
initially providing contract research and development services and limited
product manufacturing. In December 1988, the Company began shipping its two-way
OmniTRACS mobile terminals and providing messaging services to its OmniTRACS
system customers. The Company is also involved in the development and
commercialization of its proprietary CDMA technology for digital wireless
communication applications, including digital cellular, PCS and WLL applications
and now is involved in production of its own products for those markets. The
Company also provides contract development services, including the design and
development of subscriber and ground communications equipment for the Globalstar
satellite-based communications system. In addition, the Company develops,
markets and manufactures a variety of other communications products, including
Eudora, a leading Internet-based electronic mail software application, for
personal, commercial and government applications.

During fiscal 1997, the Company successfully completed the private placement
of $660 million of 5-3/4% Trust Convertible Preferred Securities ("Trust
Convertible Preferred Securities"). The proceeds will be used by the Company for
working and fixed capital requirements (including facilities) related to the
expansion of its operations, financing for customers of its CDMA infrastructure
equipment and investments in joint ventures or other companies and other assets
to support growth of its business.

The Company's revenues generated from its proprietary CDMA technology are
currently derived primarily from subscriber and infrastructure equipment and
ASICs component sales to domestic and international wireless communications
equipment suppliers and service providers. In addition, the Company has derived
significant revenues and margins from license, royalty and development fees.
Although the Company expects to continue to receive CDMA license, royalty and
development fees from its existing agreements and may receive similar fees and
royalties from new licensees, the amount and timing of these CDMA fees and
royalties will depend on the extent to which and when the Company's CDMA
technology is commercially implemented. Delays in roll-out of future cellular,
PCS or WLL systems could have a material adverse effect on quarterly and annual
revenues.

The Company began manufacturing and shipping significant volumes of CDMA
subscriber handsets during fiscal 1996. Production capabilities at QPE were
significantly expanded and during fiscal 1997, in support of the broad-based
deployment of the Company's CDMA technology, the Company achieved numerous key
milestones

31
<PAGE> 35
including the successful transition to its new line of phone models including
the QCP-2700, the first dual-band CDMA PCS/analog phone on the market, and the Q
phone, both of which began shipping during the fourth quarter of fiscal 1997;
and the cumulative shipment of approximately 3 million CDMA handsets since
production began at QPE. Also during fiscal 1997, QUALCOMM and Sony entered into
an agreement whereby each company agreed to use their best efforts to purchase
at least 90% of all of their CDMA product requirements for sale and intended use
in the U.S. and Canada from QPE.

QUALCOMM's CDMA technology continues to expand throughout the world as
service providers have launched, expanded or announced intentions to launch
their PCS, cellular and WLL networks utilizing the Company's CDMA proprietary
technology. Following the initial U.S. commercial deployment of CDMA PCS service
in the fall of 1996, CDMA commercial system deployments have been implemented or
announced in over 180 cities nationally. As of October 1997, Sprint PCS had
launched service in 56 cities and PrimeCo had 18 PCS networks in operation. CDMA
cellular deployments as of October 1997 include: AirTouch Cellular with CDMA
cellular service in 24 cities; Bell Atlantic Mobile with CDMA cellular service
in 17 cities; and GTE Wireless with CDMA cellular or PCS service in 19 cities. A
significant portion of the subscriber equipment for these networks was provided
by QPE. Additionally, during 1997 the Company entered into several contracts to
supply CDMA subscriber equipment including: an $80 million CDMA handset supply
agreement with US WEST Communications; a $70 million handset supply agreement
with Bell Mobility; a $300 million, four year handset supply agreement with an
affiliate of Telecom Great Wall Development Company of Beijing; a $60 million
handset supply agreement for the 1800 MHz Q phone with Hansol PCS of Korea; and
a $50 million handset supply agreement for the Q phone with Sprint PCS.

The Company commenced infrastructure equipment production during fiscal 1996
and, in January 1997, the Company commenced operation of a 177,000 square foot
facility in San Diego, California to expand its capacity to manufacture CDMA
infrastructure equipment. During fiscal 1997, the Company reached the milestone
of cumulatively shipping over one thousand BTS's to CDMA operators in Asia,
Eastern Europe, North America and Latin America. A significant portion of these
shipments were made pursuant to a strategic alliance agreement with Nortel
entered into during 1994. Major customers under this agreement include Sprint
PCS, AirTouch, BCTel Mobility Cellular and Bell Mobility. The Company began
recognizing revenues during fiscal 1997 with respect to the base stations
installed under a major contract, commensurate with the commercial launch in the
U.S. of PCS networks utilizing the Company's infrastructure equipment. During
1997, the Company entered into a strategic alliance agreement with Hitachi,
under which the Company will share its CDMA infrastructure product designs
allowing Hitachi to accelerate its time-to-market with cost-competitive,
feature-rich CDMA infrastructure products. As part of this agreement, Hitachi
will purchase a percentage of its CDMA infrastructure requirements from the
Company. During fiscal 1997, the Company also entered into several international
infrastructure contracts including an agreement with Chilesat Telefonia Personal
S.A. ("Chilesat PCS"), a subsidiary of Telex-Chile S.A., to supply approximately
$94 million of PCS infrastructure and subscriber equipment and services; a
multi-year contract with JSC Personal Communications of Moscow, Russian
Federation to supply its CDMA digital wireless infrastructure equipment, network
planning and installation services; and an agreement with Rostov Electorviaz of
Rostov, Russia to supply fixed WLL infrastructure equipment and services. During
fiscal 1997 the commercial launches of the Company's CDMA WLL systems occurred
in several countries.

In order to commence operation, PCS and WLL operators will need, among other
things, to invest substantial capital and complete their system designs and
build-outs. Any delays in connection with the commercial rollout of CDMA
technology by the Company's major customers, or any delays in obtaining orders
for the Company's infrastructure equipment from both national and international
customers could result in under utilization of the manufacturing facility and
have a material adverse effect on the Company's results of operations.

An important element of the Company's strategy is to be a major supplier of
CDMA infrastructure and subscriber equipment worldwide for cellular, PCS and WLL
service providers, including C, D, E and F-Block PCS licensees in North America.
The Company's ability to generate substantial revenues and profits from sales of
infrastructure and subscriber equipment will require continued substantial
capital investments by the Company and is subject to risks and uncertainties.
The Company's ability to generate substantial sales of CDMA infrastructure

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<PAGE> 36
and subscriber equipment to C, D, E and F-Block PCS licensees is subject to a
number of risks in addition to those facing other wireless service providers.
(See "--Part I, Item I --Risk Factors - Dependence on Equipment Sales.")

Cellular, PCS and WLL systems operators are requiring their suppliers to
arrange or provide long-term financing for them as a condition to obtaining
infrastructure projects. These projects may require the Company to arrange or
provide significant amounts of financing either directly, and/or through a
guarantee of such financing through third party lenders. The inability to
arrange or provide such financing or to successfully compete for infrastructure
projects could have a material adverse effect on the Company. Also, in order for
the Company to arrange or provide financing for the cellular, PCS and WLL
projects, the Company will likely be subjected to significant project, market,
political and credit risks. (See "--Part I, Item I --Risk Factors - Risks
Related to Vendor Financing.")

The Company generates revenues from its domestic OmniTRACS business by
manufacturing and selling OmniTRACS terminals and related application software
packages and by providing ongoing messaging and maintenance services to domestic
OmniTRACS users. The Company generates revenues from its international OmniTRACS
business through license fees, sales of network equipment and terminals and fees
from engineering support services. International messaging services are provided
by service providers that operate network management centers for a region under
licenses granted by the Company.

The Company has entered into a number of royalty-bearing license agreements
with major telecommunication companies throughout the world. Licensees are
required to pay the Company an up front license fee, generally paid in one or
more installments, as well as ongoing royalties based on a percentage of the
selling price of CDMA subscriber and infrastructure equipment. During fiscal
1997, a total of nine CDMA subscriber licensees, one infrastructure licensee,
one ASICs licensee and two test equipment licensees were added to the list of
more than 50 companies authorized to build and sell equipment based on the
Company's CDMA technology. Revenues generated from license, royalty and
development fees will fluctuate quarterly and yearly due to variations in the
amount and timing of recognition of CDMA license fees and the timing and amount
of sales by the Company's licensees.

The Company has entered into a development agreement with Globalstar to
design and develop subscriber equipment and the ground communication stations of
the Globalstar system. Currently, Globalstar expects to launch its first four
satellites in February 1998, which is an eight week delay from the previously
announced launch date. This delay was not caused by work performed by QUALCOMM.
The revenues from this contract are expected to be in excess of $700 million and
the Company is reimbursed for its development services on a cost-plus basis.
During April 1997, the Company was awarded a $275 million contract to
manufacture and supply commercial gateways for deployment of Globalstar's
worldwide Low-Earth-Orbiting satellite-based digital telecommunications system.
This multi-year agreement has subsequently grown to $300 million and could grow
to approximately $600 million as the Globalstar network is built out. The
Company expects to begin shipment of their production gateways in mid-calendar
1998. Globalstar may require additional capital to fund payment for the
equipment to be developed by the Company. During fiscal 1997, Globalstar's
funding was strengthened as Globalstar, L.P. raised approximately $140 million
of equity from the exercise of warrants and raised approximately $800 million
from a high yield securities offering. In addition, in October 1997 Globalstar
announced it had entered into an agreement to sell $325 million of senior notes
in an offering exempt from registration. To date, Globalstar has received funds
and financing commitments totaling approximately $2.6 billion. There can be no
assurance that Globalstar will be successful in raising additional capital, if
needed, or that delays or technical or regulatory developments will not arise
which could adversely affect Globalstar's ability to continue funding the
development agreement and which could have a material adverse effect on the
Company's business and results of operations. The Globalstar development
agreement is terminable at the election of Globalstar in the event that
Globalstar abandons its efforts to develop the satellite-based communications
system. The Company's interest in Globalstar is owned indirectly through certain
limited partnerships. The Company's current ownership interest in Globalstar is
approximately 6.5%.

The Company has experienced, and expects to continue to experience, increased
operating expenses as a result of the Company's overall expansion. In fiscal
1997, operating expenses were significantly higher, although

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<PAGE> 37
operating expenses as a percentage of revenue declined. The growth was primarily
due to increased research and development expenditures, expanded sales and
marketing efforts, overall expansion of the business base and increased legal
expenses associated with patent infringement litigation. Through fiscal 1998,
the Company expects to continue to add to its engineering resources and increase
its investments in research and development projects, and expand its sales and
marketing efforts as the Company's products are marketed in major areas
throughout the world.

On March 5, 1997, the Company filed a complaint against Motorola, Inc.
("Motorola"). The complaint was filed in response to allegations by Motorola
that the Company's recently announced Q phone infringes design and utility
patents held by Motorola as well as trade dress and common law rights relating
to the appearance of certain Motorola wireless telephone products. The complaint
denies such allegations and seeks a judicial declaration that the Company's
products do not infringe any patents held by Motorola. On March 10, 1997,
Motorola filed a complaint against the Company (the "Motorola Complaint"),
alleging claims based primarily on the above alleged infringement. On June 4,
1997, Motorola filed another lawsuit alleging infringement by QUALCOMM of four
patents. On August 18, 1997, Motorola filed another complaint against the
Company alleging infringement by the Company of seven additional patents. All of
the Motorola cases have been consolidated for pretrial proceedings. Although
there can be no assurance that an unfavorable outcome of the dispute would not
have a material adverse effect on the Company's results of operations, liquidity
or financial position, the Company believes Motorola's complaint has no merit
and will vigorously defend the action. See "Item 3. Legal Proceedings."

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<PAGE> 38
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain consolidated statement of operations data:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,(1)
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Revenues:
Communications systems ................ 83% 72% 64%
Contract services ..................... 10 16 25
License, royalty and development fees . 7 12 11
---- ---- ----
Total revenues ...................... 100% 100% 100%
---- ---- ----
Operating expenses:
Communications systems ................ 65% 55% 37%
Contract services ..................... 8 11 18
Research and development .............. 11 20 21
Selling and marketing ................. 7 9 10
General and administrative ............ 4 6 9
---- ---- ----
Total operating expenses ............ 95% 101% 95%
---- ---- ----
Operating income (loss) ................. 5 (1) 5
Interest income, net .................... 1 3 2
Distributions on trust convertible
preferred securities of subsidiary trust (1) -- --
Minority interest in loss of consolidated
subsidiary ............................. -- 2 3
---- ---- ----
Income before income taxes .............. 5 4 10
Income tax expense ...................... 1 1 2
---- ---- ----
Net income .............................. 4% 3% 8%
==== ==== ====
Communications systems costs as a
percentage of communications systems
revenues ............................... 79% 76% 58%
Contract service costs as a percentage of
contract services revenues ............. 74% 69% 73%
</TABLE>

- ----------

(1) The Company's fiscal years end on the last Sunday in September.

FISCAL 1997 COMPARED TO FISCAL 1996

Total revenues for fiscal 1997 were $2,096 million, which more than doubles
revenues of $814 million for fiscal 1996. Revenue growth was primarily due to
the significant growth in communications systems which was primarily
attributable to increased revenues from CDMA subscriber, ASICs and
infrastructure products. Also contributing were increased contract services
revenues from the Company's development agreement with Globalstar, and an
increase in royalties recognized in conjunction with the worldwide sales of
subscriber and infrastructure equipment utilizing the Company's CDMA technology
by licensees.

Communications systems revenues, which consisted primarily of sales of CDMA
subscriber and infrastructure products, ASICs to CDMA licensees and service
providers and product and service revenues from the sale of the Company's
OmniTRACS system were $1,733 million in fiscal 1997, almost tripling fiscal 1996
revenues of $583 million. The growth in communications systems revenues for
fiscal 1997 was primarily attributable to the following: increased sales in
subscriber equipment, which more than quadrupled fiscal 1996 sales; increased
ASIC sales, which shipped approximately 8 million MSM chips to CDMA handset
manufacturers worldwide, including QPE, and increased infrastructure sales due
to revenue recognized during fiscal 1997 with respect to base stations installed
under a major contract with Nortel to deliver infrastructure equipment to Sprint
PCS. OmniTRACS domestic revenues continue to increase primarily driven by
increased messaging revenues due to the expansion of the installed OmniTRACS
base in the U.S. This was partially offset by a decline in international unit
sales.

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<PAGE> 39

Contract services revenues for fiscal 1997 were $212 million, a 62% increase
compared to $131 million for fiscal 1996. The increase resulted primarily from
the development agreement with Globalstar.

License, royalty and development fees for fiscal 1997 were $152 million, a
52% increase compared to revenues of $100 million for fiscal 1996. The increase
was driven by increased royalties recognized in conjunction with the worldwide
sales of subscriber units and infrastructure equipment utilizing the Company's
CDMA technology by the Company's licensees. Royalty income will fluctuate
quarter to quarter due to the timing and amount of sales by the Company's
licensees and the Company expects to continue to experience considerable
fluctuations in quarterly and annual operating results in the future due to
variations in the amount and timing of recognition of CDMA license, royalty and
development fees. To date, the Company has entered into numerous royalty-bearing
license agreements including agreements with thirty subscriber, ten
infrastructure, three ASICs and seventeen test equipment licensees.

Costs of communications systems were $1,362 million or 79% of communications
systems revenues for fiscal 1997, compared to $445 million or 76% of
communications systems revenues for fiscal 1996. The increase in communications
systems costs, and communications systems costs as a percentage of
communications systems revenues, primarily reflected the significant increase in
sales volumes of CDMA products which realize a lower gross margin than OmniTRACS
revenues. Communications systems costs as a percent of communications systems
revenues may fluctuate in future quarters depending on the mix of products sold,
competitive pricing, new product introduction costs and other factors.

Contract services costs for fiscal 1997 were $156 million or 74% of contract
services revenues, compared to $90 million or 69% of contract services revenues
for fiscal 1996. The increase in costs was primarily related to the significant
growth in the Globalstar development effort. The percentage increase in contract
services costs as a percentage of contract services revenues was related to the
overall growth and relative mix of labor and subcontract costs combined with
lower fees associated with the Globalstar development contract. Contract
services costs as a percent of contract services revenues may fluctuate in
future quarters depending on the mix of products sold and other factors.

Research and development costs were $236 million or 11% of revenues for
fiscal 1997, compared to $162 million or 20% of revenues for fiscal 1996. The
Company continues to invest in the commercial development of its CDMA related
infrastructure, ASICs and subscriber products. The Company anticipates these
efforts to continue into future periods and research and development
expenditures in absolute dollars are expected to increase in fiscal 1998.

Selling and marketing expenses were $147 million or 7% of revenues for fiscal
1997, compared to $74 million or 9% of revenues for fiscal 1996. The dollar
increase in selling and marketing was due primarily to increased marketing
efforts both domestically and internationally as the Company expanded its sales
and marketing force. Also during fiscal 1997, the Company launched a
multi-million dollar national advertising campaign promoting its broad line of
CDMA subscriber products. These efforts are expected to continue into future
periods.

General and administrative expenses for fiscal 1997 were $89 million or 4% of
revenues, compared to $49 million or 6% of revenues for fiscal 1996. The dollar
increase was driven primarily by additional personnel and associated overhead
costs necessary to support the overall growth in the Company's operations and
increased legal fees associated with patent infringement litigation. Although
the Company is experiencing rapid growth, it continues to emphasize control of
operating expenses.

Interest income was $35 million for fiscal 1997, compared to $24 million for
fiscal 1996. The increase was primarily due to interest generated from the
proceeds received from the $660 million private placement of Trust Convertible
Preferred Securities during the second quarter of fiscal 1997.

Interest expense was $11 million for fiscal 1997, compared to $3 million for
fiscal 1996. The increase is the result of increased bank borrowings to support
the working capital needs of QPE.

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<PAGE> 40
The gain on sale of trading securities of $13 million for fiscal 1997 relates
to the sale of Globalstar Telecommunications Ltd. common stock obtained in
exchange for the Company's guarantee of a Globalstar bank financing agreement.

Distributions on Trust Convertible Preferred Securities of $23 million for
fiscal 1997 relate to the $660 million of 5-3/4% Trust Convertible Preferred
Securities issued by the Company in March 1997. The securities are convertible
into common stock of the Company at a conversion price of $72.6563 per share of
common stock.

The minority interest primarily consists of Sony's 49% share of the income
generated from QPE, a joint venture consolidated in the Company's financial
statements. QPE manufactures CDMA handsets developed jointly and individually by
both QUALCOMM and Sony.

Income tax expense was $17 million for fiscal 1997, compared to $6 million
for fiscal 1996. The increase was primarily due to higher pretax earnings in
fiscal 1997 substantially offset by the tax benefit from recognition, during
fiscal 1997, of deferred tax assets that satisfied the "more likely than not"
criteria for recognition established by FAS 109. The effective tax rate in
fiscal 1997 was 15% compared to 21% in fiscal 1996. In the future, the Company
expects that the effective tax rate will be reflective of the tax rate of other
California-based companies.

FISCAL 1996 COMPARED TO FISCAL 1995

Total revenues for fiscal 1996 were $814 million, a 111% increase compared to
$387 million for fiscal 1995. Revenue growth was primarily due to the growth in
communications systems which was driven by increased revenues related to
subscriber, ASIC, and infrastructure products, as well as increased messaging
revenues and sales of OmniTRACS units internationally. Also contributing were
higher license, royalty and development fees related to additional CDMA
licensing and royalties.

Communications systems revenues, which consisted primarily of revenues from
the sale of OmniTRACS products and services, sales of CDMA subscriber and
infrastructure equipment, and ASICs chip sales were $583 million in fiscal 1996,
a 136% increase compared to revenues of $247 million for fiscal 1995. The growth
in communications systems revenues for fiscal 1996 was primarily attributable to
increased sales in subscriber equipment, producing approximately 400,000 phones
in fiscal 1996, and increased ASIC sales, with sales of over two million chips
to CDMA licensees. Infrastructure sales were also higher primarily driven by
component shipments to Nortel. OmniTRACS messaging revenues continue to increase
due to the expansion of the installed OmniTRACS base in the U.S. OmniTRACS
international shipments increased 38% in fiscal 1996 due primarily to expansion
of unit shipments.

Contract services revenues for fiscal 1996 were $131 million, a 38% increase
compared to $95 million for fiscal 1995. The increase resulted primarily from
the development agreement with Globalstar which has continued to ramp up since
its inception in fiscal 1994.

License, royalty and development fees for fiscal 1996 were $100 million, a
125% increase, compared to $44 million for fiscal 1995. The increase was
primarily as a result of a number of new CDMA license agreements signed in
fiscal 1996. Increased CDMA royalties, generated through equipment sales by
licensees, also contributed to the revenue growth.

Costs of communications systems, which consisted primarily of costs of
manufacturing OmniTRACS units, operating the NMF and leasing Ku-band satellite
transponders and manufacturing CDMA subscriber and infrastructure equipment, and
ASICs components, were $445 million or 76% of communications systems revenues
for fiscal 1996, compared to $144 million or 58% of communications systems
revenues for fiscal 1995. The dollar increase in costs primarily reflects
increased shipments of CDMA subscriber and infrastructure equipment and
increased ASICs volume. The increase in communications systems costs as a
percentage of communications systems revenues was due to previously anticipated
start-up costs associated with the manufacturing of CDMA subscriber,
infrastructure, and ASIC products and increasing volumes of CDMA subscriber
equipment and

37
<PAGE> 41
components. Such subscriber equipment generates lower margins than the Company's
OmniTRACS business which was the major element of communication systems revenues
in fiscal 1995.

Contract services costs for fiscal 1996 were $90 million or 69% of contract
services revenues, compared to $69 million or 73% of contract services revenues
for fiscal 1995. The increase in costs was primarily related to the significant
growth in the Globalstar development effort. The percentage decrease in contract
services costs as a percentage of contract services revenues was related to the
overall growth and relative mix of labor and subcontract costs on the Globalstar
development contract.

Research and development costs were $162 million or 20% of revenues for
fiscal 1996, compared to $80 million or 21% of revenues for fiscal 1995. This
dollar increase was attributable primarily to increased efforts toward the
development of commercial CDMA infrastructure and subscriber equipment and ASIC
components.

Selling and marketing expenses were $74 million or 9% of revenues for fiscal
1996, compared to $38 million or 10% of revenues for fiscal 1995. The dollar
increase in selling and marketing was due primarily to the growth in personnel
and other marketing expenses, primarily related to the introduction of CDMA
products in the domestic and international marketplace, and to support sales
growth in the OmniTRACS. The Company opened three new international offices in
fiscal 1996.

General and administrative expenses for fiscal 1996 were $49 million or 6% of
revenues, compared to $35 million or 9% of revenues for fiscal 1995. The dollar
increase was driven primarily by additional personnel and associated overhead
costs necessary to support the overall growth in the Company's operations.
General and administrative costs as a percentage of revenues declined due to the
significantly increased revenue base in fiscal 1996. Also, during the second
quarter of fiscal 1996, the Company and Hughes agreed to dismiss their
respective litigation against each other without penalty by either party. In
fiscal 1995, the Company had accrued $3 million for the anticipated liability
for legal fees. As a result of the settlement of this litigation, the Company
reversed this accrual in the second quarter of fiscal 1996, resulting in a $3
million reduction to general and administrative expense.

Interest income was $24 million for fiscal 1996, compared to $10 million for
fiscal 1995. The increase in fiscal 1996 was primarily due to interest generated
from the public offering proceeds received in August 1995.

Interest expense was $3 million for fiscal 1996, compared to $2 million for
fiscal 1995. The increase was primarily due to the increased outstanding debt
and capital leases related to the QPE joint venture.

The minority interest primarily consists of Sony's 49% share of the losses of
QPE, a joint venture consolidated in the Company's financial statements.

Income tax expense was $6 million for fiscal 1996, compared to $10 million
for fiscal 1995. The decrease was primarily due to lower pretax earnings in
fiscal 1996 and the incorporation of the additional tax losses from the
guarantee of Globalstar vendor financing obligations. The effective tax rate in
fiscal 1996 was 21% compared to 24% in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company anticipates that the cash and cash equivalents and investment
balances of $809 million at September 28, 1997, including interest earned
thereon, will be used to fund working and fixed capital requirements including
facilities related to the expansion of its operations, financing for customers
of its CDMA infrastructure equipment and investment in joint ventures or other
companies and other assets to support the growth of its business.

In fiscal 1997, $29 million in cash was used in operating activities,
compared to $69 million used in operating activities in fiscal 1996. The cash
used in operating activities in 1997 relates to an increase in net working
capital requirements offset by improved cash flow from operations resulting from
the increase in net income plus higher

38
<PAGE> 42
levels of depreciation and amortization. The increase in net working capital
requirements was due to increases in inventories, accounts receivable and
finance receivables offset by the increase in accounts payable and accrued
liabilities. The increase in receivables and inventories reflects the
significant increase in CDMA equipment sales during fiscal 1997. Investments in
other assets include a one time payment of approximately $18 million to the city
of San Diego in exchange for certain naming rights to San Diego Jack Murphy
Stadium. The stadium was renamed QUALCOMM Stadium with certain rights obtained
for signage in and around the facility for a twenty-year period.

Investments in capital expenditures, intangible assets and other entities
totaled $221 million in fiscal 1997, compared to $227 million in fiscal 1996.
Significant components in fiscal 1997 consisted of the purchase of $163 million
of capital assets, the purchase of $42 million of voting preferred shares
representing a 50% ownership interest in a corporate joint venture, Chilesat
PCS, the investment of $9 million for a 49% ownership interest in Telesystems of
Ukraine, a Ukrainian limited liability company, and the investment of $7 million
in entities in which the Company holds less than a 50% ownership interest.
Significant components in fiscal 1996 consisted of the purchase of $217 million
of capital assets, the purchase of intangible assets of $4 million and the
investment of $6 million in entities in which the Company holds less than a 50%
ownership interest. The Company expects to continue making significant
investments in capital assets, including new facilities and building
improvements, throughout fiscal 1998.

Investments in other entities include investments in C-Block licensees,
(including $20 million in NextWave Telecom, Inc.) and foreign entities and joint
ventures, which may expose the Company to certain financial risks. Some of these
entities may require substantial additional equity investments, loans or
advances in order to expedite the build-out and deployment of CDMA systems.
NextWave will require significant financing to complete its PCS network
build-out and to meet its payment obligations relating to the purchase of PCS
licenses from the FCC. NextWave's failure to obtain sufficient financing or to
meet its obligations to the FCC could adversely affect the value of the
Company's investment in NextWave. There can be no assurance that NextWave will
be successful in obtaining sufficient financing for its network build-out or in
meeting its payment obligations to the FCC. The Company may continue to make
similar investments in future periods in an effort to expand its infrastructure
business. There can be no assurances that these current or future investments,
loans or advances will provide an adequate financial or market return. As a
result, such investments, loans and advances may have a material adverse effect
on the Company's results of operations, liquidity or financial position.

In fiscal 1997, the Company's financing activities provided net cash of $704
million compared to $87 million in fiscal 1996. Fiscal 1997 included $660
million in proceeds from the issuance of the Trust Convertible Preferred
Securities and $33 million from the issuance of common stock under the Company's
stock option and employee stock purchase plans. Additionally, QPE made net
additional draws of $29 million on its outstanding credit facility. Fiscal 1996
included proceeds from the QPE bank lines of credit, the sale and lease back by
QPE of manufacturing equipment and additional contributions received from Sony
related to the QPE joint venture, which were partially offset by the retirement
of the $20 million note on the San Diego Design Center.

The design, development, manufacture and marketing of digital wireless
communication products and services are highly capital intensive. To the extent
that such cash resources are insufficient to fund the Company's activities, the
Company may be required to raise additional funds which may be derived through
additional debt, equity financing, or other sources. If additional capital is
raised through the sale of additional equity or convertible debt securities,
dilution to the Company's stockholders could occur. The Company continues to
evaluate financing alternatives, including unsecured bank facilities, extension
of the current QPE secured revolving credit facilities, or other sources of debt
or equity financing. The Company is in the process of establishing a $300
million line of credit and anticipates finalizing the terms of the credit
facility during the first quarter of fiscal 1998. There can be no assurances
such additional financing, including the $300 million credit facility, will be
available or, if available, that it will be on acceptable terms.

The actual amount and timing of working capital and capital equipment
expenditures that the Company may incur in future periods may vary
significantly. This will depend upon numerous factors, including the extent and
timing of the commercial deployment of the Company's CDMA technology in the U.S.
and worldwide, investments in joint ventures or other forms of strategic
alliances, the requirement to provide CDMA vendor financing and the

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<PAGE> 43
growth in personnel and related facility expansion and the increase in
manufacturing capacity. In addition, expenses related to any patent infringement
or other litigation may require additional cash resources and may have an
adverse impact on the Company's results of operations, liquidity or financial
position.

Cellular, PCS and WLL network operators increasingly have required their
suppliers to arrange or provide long-term financing for them as a condition to
obtaining or bidding on infrastructure projects. In order to arrange or provide
for such financing, the Company will likely be subjected to significant project,
market, political and credit risks. The Company may be required to provide such
financing directly, and/or guarantee such financing through third-party lenders.
The amount of such financing could become significant and, if not repaid by the
carrier, could have a material adverse effect on the Company's operating results
and liquidity. Such amounts financed may include "soft costs" (such as software,
cell site leases and permits), and thus the amount financed may exceed 100% of
infrastructure equipment costs. The Company has vendor financing obligations
with Sprint PCS (through Nortel), and directly with other service providers.
(See "--Notes to Consolidated Financial Statements --Note 3. Finance
Receivables.") The Company has limited experience evaluating the credit
worthiness or commercial viability of potential purchasers of CDMA equipment,
and there can be no assurances that such customers will not default on any
financing arranged or provided by the Company for the purchase of its CDMA
equipment. In addition, during fiscal 1998, the Company expects to finalize
negotiations with Globalstar which could result in the deferral of approximately
$100 million of remaining contract payments under the development agreement, the
majority of which relates to contract services to be provided subsequent to
September 28, 1997. Such deferrals will be interest bearing and paid by
Globalstar over a period not exceeding four years from the deferral.

The Company's ability to arrange or provide and be competitive with such
financing will depend on a number of factors, including the Company's capital
structure, level of available credit and ability to provide financing in
conjunction with third-party lenders. There can be no assurance that the Company
will be able to arrange or provide such financing on terms and conditions, and
in amounts, that will be satisfactory to such network operators. The Company may
be required to hold any loans, or remain obligated under guarantees, until
maturity, which could have a material adverse effect on the Company's credit
rating. A number of the Company's competitors have substantially greater
resources than the Company, which may enable them to offer more favorable
financing terms and successfully compete against the Company for infrastructure
projects. The inability to arrange or provide such financing or to successfully
compete for infrastructure projects could have a material adverse effect on the
Company and its business prospects.

The Company and QPE have entered into contracts that provide performance
guarantees to protect customers against late delivery or failure to perform.
These performance guarantees, and any future commitments for performance
guarantees, are obligations entered into separately, and in some cases jointly,
with partners to supply CDMA subscriber and infrastructure equipment. Certain of
these obligations provide for substantial performance guarantees that accrue at
a daily rate based on percentages of the contract value to the extent the
equipment is not delivered by scheduled delivery dates or the systems fail to
meet certain performance criteria by such dates. The Company is dependent in
part on the performance of its suppliers and strategic partners in order to
provide equipment which is the subject of the guarantees. Thus, the ability to
timely deliver such equipment may be outside of the Company's control. If the
Company and QPE are unable to meet their performance obligations, the payment of
the performance guarantees could amount to a significant portion of the contract
value and would have a material adverse effect on product margins and the
Company's results of operations, liquidity or financial position.

FUTURE ACCOUNTING REQUIREMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130"), "Reporting
Comprehensive Income," which the Company will be required to adopt for fiscal
year 1999. This statement will require the Company to report in the financial
statements, in addition to net income, comprehensive income and its components
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. Upon adoption, the Company will also be required to
reclassify financial statements for earlier periods provided for comparative
purposes. The Company currently expects that the effect of adoption of FAS 130
may be primarily

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from foreign currency translation adjustments and has not yet determined the
manner in which comprehensive income will be displayed.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("FAS 131"),"Disclosures about Segments of an Enterprise and Related
Information," which the Company will be required to adopt for fiscal year 1999.
This statement establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under FAS 131, operating segments are to
be determined consistent with the way that management organizes and evaluates
financial information internally for making operating decisions and assessing
performance. The Company has not determined the impact of the adoption of this
new accounting standard on its consolidated financial statement disclosures.

ITEM 8. FINANCIAL STATEMENTS

The Company's consolidated financial statements at September 30, 1997 and
1996, and for each of the three years in the period ended September 30, 1997 and
the Report of Price Waterhouse LLP, Independent Accountants, are included in
this report on Form 10-K on pages F-1 through F-22.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding Directors is incorporated by reference to the section
entitled "Election of Directors" in the QUALCOMM Incorporated definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Annual Meeting of Stockholders to be held on February 10, 1998 (the
"Proxy Statement"). Information regarding Executive Officers is set forth in
Item 1 of Part I of this Report under the caption "Executive Officers of the
Registrant."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."

41
<PAGE> 45
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
(a) Documents filed as part of the report:
(1) Report of Independent Accountants F-1
Consolidated Balance Sheets at September 30, 1997 and 1996 F-2
Consolidated Statements of Income for Fiscal 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for Fiscal 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for Fiscal 1997,
1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
(2) Consolidated Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts S-1
</TABLE>

Financial statement schedules other than those listed above have been omitted
because they are either not required, not applicable or the information is
otherwise included.

42
<PAGE> 46

(3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation.(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation.(7)
3.3 Certificate of Designation of Preferences.(15)
3.4 Bylaws.(2)(2)
3.5 Amendment of the Bylaws.
4.1 Certificate of Trust of QUALCOMM Financial Trust I, filed with
the Delaware Secretary of State on February 7, 1997.(16)
4.2 Declaration of Trust of QUALCOMM Financial Trust I, dated as of
February 7, 1997, among QUALCOMM Incorporated, as Sponsor,
Wilmington Trust Company, as Delaware Trustee and Property
Trustee, and Irwin Mark Jacobs, Harvey P. White, and Anthony
Thornley, as Regular Trustees.(16)
4.3 Amended and Restated Declaration of Trust of QUALCOMM Financial
Trust I, dated as of February 25, 1997, among QUALCOMM
Incorporated, as Sponsor, Wilmington Trust Company, as Delaware
Trustee and Property Trustee, and Irwin Mark Jacobs, Harvey P.
White, and Anthony Thornley, as Regular Trustees.(16)
4.4 Indenture for the 5-3/4% Convertible Subordinated Debt
Securities, dated as of February 25, 1997, among QUALCOMM
Incorporated and Wilmington Trust Company, as Indenture
Trustee.(16)
4.5 Form of 5-3/4% Trust Convertible Preferred Securities (Included
in Annex 1 to Exhibit 4.3 above).(16)
4.6 Form of 5-3/4% Convertible Subordinated Debt Securities
(Included in Annex 1 to Exhibit 4.3 above).(16)
4.7 Preferred Securities Guarantee Agreement, dated as of February
25, 1997, between QUALCOMM Incorporated, as Guarantor, and
Wilmington Trust Company, as Guarantee Trustee.(16)
10.1 Form of Indemnity Agreement between the Company, each director
and certain officers.(2)(14)
10.2 1991 Stock Option Plan, as amended.(10)(14)
10.3 Form of Incentive Stock Option Grant under the 1991 Stock Option
Plan.(2)(14)
10.4 Form of Supplemental Stock Option Grant under the 1991 Stock
Option Plan.(2)(14)
10.5 1991 Employee Stock Purchase Plan.(11)(14)
10.6 Form of Employee Stock Purchase Plan Offering under the 1991
Employee Stock Purchase Plan.(2)(14)
10.7 Registration Rights Agreement dated September 11, 1991 between
the Company and various Stockholders.(2)
10.8 Satellite Service Agreement dated March 5, 1991 between the
Company and GTE Spacenet Corporation.(2)(3)
10.9 Joint Venture Agreement dated January 24, 1990 between the
Company and Alcatel Transmission par Faisceaux Hertziens.(2)(3)
10.10 Agreement dated April 17, 1989 between the Company and PACTEL
Corporation.(2)(3)
10.11 CDMA Technology Agreement and related Patent License Agreement,
each dated July 3, 1990 between the Company and American
Telephone & Telegraph Company.(2)(3)
10.12 DS-CDMA Technology Agreement and related Patent License
Agreement, each dated September 26, 1990 between the Company and
MOTOROLA, Inc.(2)(3)
10.13 JSM Shareholders Agreement dated May 24, 1991 between the
Company, C. Itoh, Ltd. and Nippon Steel Corporation.(2)(3)
10.14 401(k) Plan.(2)
10.15 Amendments dated January 15, 1992 and February 7, 1992 to that
certain Technology Agreement dated July 3, 1990 with American
Telephone & Telegraph Company.(4)
10.16 Amendment dated January 21, 1992 to that certain Technology
Agreement dated September 26, 1990 with MOTOROLA, Inc.(4)(5)
10.17 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan").(14)(15)
10.18 Form of Stock Option Grant under the Directors' Plan, with
related schedule.(6)(14)
10.19 Joint Venture and Partnership Agreement dated February 25, 1994
between QUALCOMM Investment Company and Sony Electronics CDMA
Investment, Inc.(7)(8)
</TABLE>

43
<PAGE> 47
(3) Exhibits (continued)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>

10.20 Contract dated March 18, 1994 between the Company and
Globalstar, L.P.(7)(8)

10.21 Executive Retirement Matching Contribution Plan.(12)(14)

10.22 1996 Non-qualified Employee Stock Purchase Plan.(13)(14)

10.23 Stockholder Rights Plan.(9)

10.24 Registration Rights Agreement, dated February 25, 1997, between
QUALCOMM Financial Trust I and Lehman Brothers, Bear Stearns &
Co., Inc., Alex. Brown & Sons Incorporated, Goldman, Sachs & Co.
and Merrill Lynch & Co., as Initial Purchasers.(16)

11.1 Calculation of earnings per share.

23.1 Consent of Price Waterhouse LLP.

24.1 Power of Attorney. Reference is made to page 46.

27.0 Financial Data Schedule.
</TABLE>

- ----------

(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-3 (No. 33-62724) or amendments thereto and incorporated herein by
reference.

(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-42782) or amendments thereto and incorporated herein by
reference.

(3) Certain confidential portions deleted pursuant to Order Granting
Application or Confidential Treatment issued in connection with
Registration Statement on Form S-1 (No. 33-42782) effective December 12,
1991.

(4) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 27, 1992.

(5) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934 dated March 19, 1993.

(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 26, 1993.

(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 27, 1994, as amended.

(8) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934 dated July 7, 1994.

(9) Filed as an exhibit to the Company's Form 8-K current report dated as of
September 26, 1995.

(10) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (File No. 333-2754) filed on March 25, 1996.

(11) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (File No. 333-2756) filed on March 25, 1996.

(12) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (File No. 333-2752) filed on March 25, 1996.

(13) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (File No. 333-2750) filed on March 25, 1996.

(14) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(c).

(15) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 28, 1997.

(16) Filed as an exhibit to the Registrant's Registration Statement on Form
S-3 (No. 333-26069) or amendments thereto and incorporated herein by
reference.

44
<PAGE> 48

(b) REPORTS ON FORM 8-K

There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended September 28, 1997.

The exhibits required by this Item are listed under Item 14(a)(3).

(d) FINANCIAL STATEMENT SCHEDULES

The consolidated financial statement schedules required by this Item are
listed under Item 14(a)(2).

45
<PAGE> 49
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

November 24, 1997

QUALCOMM Incorporated

By /s/ IRWIN MARK JACOBS
-----------------------------------
Irwin Mark Jacobs,
Chief Executive Officer and Chairman

POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears
below constitutes and appoints Irwin Mark Jacobs and Harvey P. White, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that all said attorneys-in-fact
and agents, or any of them or their or his substitute or substituted, may
lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ IRWIN MARK JACOBS Chief Executive Officer and Chairman November 24, 1997
- -------------------------------- (Principal Executive Officer)
Irwin Mark Jacobs

/s/ ANDREW J. VITERBI Vice-Chairman November 24, 1997
- --------------------------------
Andrew J. Viterbi

/s/ HARVEY P. WHITE President and Director November 24, 1997
- --------------------------------
Harvey P. White

/s/ ANTHONY S. THORNLEY Senior Vice President, Chief November 24, 1997
- -------------------------------- Financial Officer, (Principal
Anthony S. Thornley Financial and Accounting Officer)

/s/ RICHARD C. ATKINSON Director November 24, 1997
- --------------------------------
Richard C. Atkinson

/s/ ADELIA A. COFFMAN Director November 24, 1997
- --------------------------------
Adelia A. Coffman

/s/ JEROME S. KATZIN Director November 24, 1997
- --------------------------------
Jerome S. Katzin

/s/ NEIL KADISHA Director November 24, 1997
- --------------------------------
Neil Kadisha
</TABLE>

46
<PAGE> 50
<TABLE>
<S> <C> <C>
/s/ DUANE A. NELLES Director November 24, 1997
- --------------------------------
Duane A. Nelles

/s/ PETER M. SACERDOTE Director November 24, 1997
- --------------------------------
Peter M. Sacerdote

/s/ MARC I. STERN Director November 24, 1997
- --------------------------------
Marc I. Stern

/s/ BRENT SCOWCROFT Director November 24, 1997
- --------------------------------
Brent Scowcroft

/s/ FRANK SAVAGE Director November 24, 1997
- --------------------------------
Frank Savage

/s/ ROBERT E. KAHN Director November 24, 1997
- --------------------------------
Robert E. Kahn
</TABLE>

47
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of QUALCOMM Incorporated

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 42 present fairly, in all material
respects, the financial position of QUALCOMM Incorporated and its subsidiaries
at September 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

San Diego, California
November 7, 1997

F-1
<PAGE> 52
QUALCOMM INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
------------ --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 248,837 $ 110,143
Investments ............................................. 448,235 236,129
Accounts receivable, net ................................ 445,382 217,433
Finance receivables ..................................... 111,501 --
Inventories ............................................. 225,156 171,511
Other current assets .................................... 70,484 15,974
---------- ----------
Total current assets ................................... 1,549,595 751,190
PROPERTY, PLANT AND EQUIPMENT, NET ........................ 425,090 352,699
INVESTMENTS ............................................... 111,786 8,009
OTHER ASSETS .............................................. 188,209 73,432
---------- ----------
TOTAL ASSETS .............................................. $2,274,680 $1,185,330
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities ................ $ 409,156 $ 229,799
Unearned revenue ........................................ 45,084 13,226
Bank lines of credit .................................... 110,000 80,700
Current portion of long-term debt ....................... 3,238 2,234
---------- ----------
Total current liabilities .............................. 567,478 325,959
LONG-TERM DEBT ............................................ 7,729 10,908
OTHER LIABILITIES ......................................... 15,295 3,550
---------- ----------
Total liabilities ...................................... 590,502 340,417
---------- ----------

COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST CONVERTIBLE
PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY
DEBT SECURITIES OF THE COMPANY (NOTE 7) ................. 660,000 --
---------- ----------

COMMITMENTS AND CONTINGENCIES (NOTE 11)

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (NOTE 10) .... -- --

STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value issuable in series;
8,000 shares authorized; none outstanding in 1997 and
1996 ................................................... -- --
Common stock, $0.0001 par value; 150,000 shares
authorized; 68,124 and 66,535 shares issued and
outstanding in 1997 and 1996 ........................... 7 7
Paid-in capital ......................................... 906,373 819,042
Retained earnings ....................................... 117,798 25,864
---------- ----------
Total stockholders' equity ............................. 1,024,178 844,913
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $2,274,680 $1,185,330
========== ==========
</TABLE>

See accompanying notes.

F-2
<PAGE> 53
QUALCOMM INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Communications systems ................... $ 1,733,169 $ 582,953 $ 246,997
Contract services ........................ 211,661 131,022 95,150
License, royalty and development fees .... 151,535 99,875 44,465
----------- ----------- -----------
Total revenues ................... 2,096,365 813,850 386,612
----------- ----------- -----------

OPERATING EXPENSES:
Communications systems ................... 1,361,641 445,481 143,774
Contract services ........................ 156,365 90,380 69,396
Research and development ................. 235,922 162,340 80,171
Selling and marketing .................... 147,040 74,114 37,754
General and administrative ............... 89,148 48,971 34,918
Other .................................... 8,792 -- --
----------- ----------- -----------
Total operating expenses ......... 1,998,908 821,286 366,013
----------- ----------- -----------

OPERATING INCOME (LOSS) .................... 97,457 (7,436) 20,599

INTEREST INCOME ............................ 34,845 24,239 9,529
INTEREST EXPENSE ........................... (11,012) (3,354) (2,264)
GAIN ON SALE OF TRADING SECURITIES ......... 13,400 -- --
DISTRIBUTIONS ON TRUST CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST ........... (23,277) -- --
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARY .................. (2,979) 13,178 12,016
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ................. 108,434 26,627 39,880
INCOME TAX EXPENSE ......................... (16,500) (5,600) (9,700)
----------- ----------- -----------
NET INCOME ................................. $ 91,934 $ 21,027 $ 30,180
=========== =========== ===========

NET EARNINGS PER COMMON SHARE:
Primary .................................. $ 1.27 $ 0.30 $ 0.53
=========== =========== ===========
Fully diluted ............................ $ 1.27 $ 0.30 $ 0.52
=========== =========== ===========

SHARES USED IN PER SHARE CALCULATION:
Primary .................................. 72,430 70,214 57,420
=========== =========== ===========
Fully diluted ............................ 72,665 70,468 58,194
=========== =========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE> 54
QUALCOMM INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................. $ 91,934 $ 21,027 $ 30,180
Depreciation and amortization .............. 93,598 56,817 30,919
Tax benefit from recognition of deferred
tax assets ................................ (21,531) -- (3,000)
Gain on sale of trading securities ......... (13,400) -- --
Non-cash charge for impaired assets ........ 8,792 -- --
Minority interest in income (loss) of
consolidated subsidiary ................... 2,979 (13,178) (12,016)
Increase (decrease) in cash resulting
from changes in:
Accounts receivable, net ................ (227,949) (134,700) (19,806)
Finance receivables ..................... (111,501) -- --
Inventories ............................. (53,645) (127,501) (28,379)
Other assets ............................ (34,260) (11,550) 9,609
Accounts payable and accrued
liabilities............................ 179,357 134,030 36,790
Unearned revenue ........................ 31,858 5,013 1,774
Other liabilities ....................... 11,745 926 (227)
Proceeds from sale of trading securities .... 23,129 -- --
Purchase of trading securities .............. (9,729) -- --
--------- --------- ---------
Net cash (used in) provided by
operating activities ........................ (28,623) (69,116) 45,844
--------- --------- ---------
INVESTING ACTIVITIES:
Issuance of note receivable (Note 10) ...... -- (25,000) --
Collection of note receivable (Note 10) .... -- 9,602 --
Capital expenditures ....................... (163,115) (216,554) (99,455)
Purchases of investments ................... (978,745) (587,898) (84,343)
Maturities of investments .................. 662,862 422,127 98,423
Purchases of intangible assets ............. -- (3,843) (5,054)
Investments in other entities .............. (57,887) (6,500) (11,925)
--------- --------- ---------
Net cash used in investing activities ........ (536,885) (408,066) (102,354)
--------- --------- ---------
FINANCING ACTIVITIES:
Sale-leaseback transaction ................. -- 10,248 --
Net borrowings under bank lines of credit .. 29,300 80,700 --
Proceeds from issuance of trust
convertible preferred securities of
subsidiary trust........................... 660,000 -- --
Deferred offering costs .................... (18,624) -- --
Principal payments on long-term debt ....... (2,175) (46,036) (3,749)
Proceeds from issuance of notes payable .... -- 11,772 10,757
Minority interest investment in
consolidated subsidiary ................... 3,182 6,397 5,917
Net proceeds from issuance of common stock . 32,519 23,615 499,165
--------- --------- ---------
Net cash provided by financing activities .... 704,202 86,696 512,090
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................ 138,694 (390,486) 455,580
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 110,143 500,629 45,049
--------- --------- ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR ..... $ 248,837 $ 110,143 $ 500,629
========= ========= =========
</TABLE>

See accompanying notes.

F-4
<PAGE> 55
QUALCOMM INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
------------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 .. 51,486 $ 5 $ 287,508 $ (25,343) $ 262,170

Exercise of stock options ...... 1,458 -- 9,318 -- 9,318
Tax benefit from exercise of
stock options ................ -- -- 8,102 -- 8,102
Issuance of common stock, net of
issuance costs of $17,364 .... 11,500 1 485,761 -- 485,762
Issuance for Employee Stock
Purchase Plan ................ 249 -- 4,085 -- 4,085
Net income ..................... -- -- -- 30,180 30,180
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995 .. 64,693 6 794,774 4,837 799,617

Exercise of stock options ...... 1,510 1 14,277 -- 14,278
Tax benefit from exercise of
stock options ................ -- -- 654 -- 654
Issuance for Employee Stock
Purchase Plans and Executive
Retirement Plans ............. 332 -- 9,337 -- 9,337
Net income ..................... -- -- -- 21,027 21,027
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1996 .. 66,535 7 819,042 25,864 844,913

Exercise of stock options ...... 1,208 -- 19,979 -- 19,979
Tax benefit from exercise of
stock options (Note 5) ....... -- -- 54,812 -- 54,812
Issuance for Employee Stock
Purchase Plans and Executive
Retirement Plans ............. 381 -- 12,540 -- 12,540
Net income ..................... -- -- -- 91,934 91,934
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1997 .. 68,124 $ 7 $ 906,373 $ 117,798 $1,024,178
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 56
QUALCOMM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

The Company

QUALCOMM Incorporated (the "Company" or "QUALCOMM"), a Delaware corporation,
develops, manufactures, markets, licenses and operates advanced communications
systems and products based on digital wireless technology, including mobile and
fixed satellite communications systems and products and digital wireless
telephone systems and products using the Company's proprietary Code Division
Multiple Access ("CDMA") technology. Other products include secure
communications equipment and subsystems and a range of Very Large Scale
Integrated circuit components for use in commercial and government applications.

Principles of Consolidation

The Company's consolidated financial statements include the assets,
liabilities and results of operations of majority-owned subsidiaries. The
ownership of the other interest holders is reflected as minority interest. All
significant intercompany accounts and transactions have been eliminated.

Financial Statement Preparation

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Fiscal Year

The Company operates and reports using a fiscal year ending on the last
Sunday in September. As a result of this practice, fiscal 1996 includes 53
weeks. The additional week of activity occurred in the first quarter of fiscal
1996. For presentation purposes, the Company has indicated its fiscal year as
ending on September 30.

Revenues

Revenue from communications systems and products is generally recognized at
the time the units are shipped and over the period during which message and
warranty services are provided, except for shipments under arrangements
involving significant acceptance requirements. Under such arrangements, revenue
is recognized when the Company has substantially met its performance
obligations. Revenue from long-term contracts and revenue earned under license
and development agreements with continuing performance obligations is recognized
using the percentage-of-completion method, based either on costs incurred to
date compared with total estimated costs at completion or using a units of
delivery methodology. Estimated contract losses are recognized when determined.
Non-refundable license fees are recognized when there is no material continuing
performance obligation under the agreement and collection is probable. Royalty
revenue is recorded as earned in accordance with the specific terms of each
license agreement when reasonable estimates of such amounts can be made.

A significant portion of the Company's CDMA revenues are concentrated with a
limited number of customers because the worldwide market for wireless telephone
systems and products is dominated by a small number of large corporations and
government agencies. The Company also derives significant revenues from the
North American trucking industry, particularly providers of long-haul
transportation of goods and equipment.

F-6
<PAGE> 57
During fiscal 1997, 1996 and 1995, revenues from Globalstar (Note 10)
accounted for 10%, 15% and 19% of revenues, respectively. Revenues from
international customers were approximately 30%, 36% and 20% of total revenues in
fiscal 1997, 1996 and 1995, respectively. The 1997, 1996 and 1995 revenues
included $522 million, $221 million and $43 million from Asia, respectively; $68
million, $36 million and $12 million from Canada, respectively; and $8 million,
$13 million and $10 million from Latin America, respectively.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash and cash equivalents
include money market funds, commercial paper and loan participations. The
carrying amount approximates the fair value due to the short maturity of these
instruments.

The Company's policy is to place its cash, cash equivalents and investments
with high credit quality financial institutions, government agencies and
corporate entities and to limit the amount of credit exposure.

Investments

Management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. At September 30, 1997 and 1996, the Company's investment
portfolio consisted of debt securities classified as held-to-maturity and is
presented at its amortized cost.

Inventories

Inventories are valued at the lower of cost or market using the first-in,
first-out method.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost and depreciated or
amortized using the straight-line method over estimated useful lives. Buildings
and building improvements are depreciated over thirty years and fifteen years,
respectively. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining term of the related lease. Other
property, plant and equipment have useful lives ranging from two to five years.
Maintenance, repairs and minor renewals and betterments are charged to expense.

Investments in Other Entities

Investments in corporate entities with less than 20% voting interest are
accounted for under the cost method. The Company uses the equity method to
account for ownership interests in partnerships and for investments in corporate
entities in which it has voting interest of 20% to 50% or in which it otherwise
has the ability to exercise significant influence. Under the equity method, the
investment is originally recorded at cost and adjusted to recognize the
Company's share of net earnings or losses of the investee, limited to the extent
of the Company's investment in, advances to and financial guarantees for the
investee.

Intangible Assets

Intangible assets are recorded at cost and amortized over their estimated
useful lives, which currently range from three to five years.

F-7
<PAGE> 58
Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
total amount of an asset may not be recoverable. An impairment loss would be
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount. The
Company recorded an $8.8 million non-cash pretax charge during fiscal 1997
relating to the impairment of certain long-lived assets. The $8.8 million charge
represents the total carrying value of these assets and related net disposition
costs.

Stock Options

The Company adopted Statement of Financial Accounting Standards No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation" for fiscal year 1997. Upon
adoption of FAS 123, the Company continues to measure compensation expense for
its stock-based employee and non-employee directors compensation plans using the
intrinsic value method prescribed by APB Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees" and provides pro forma disclosures of net income
and earnings per share as if the fair value based method prescribed by FAS 123
had been applied in measuring compensation expense.

Foreign Currency

Local currencies are generally considered to be the functional currency for
operations outside the United States, except in countries treated as highly
inflationary. Assets and liabilities are translated at year-end exchange rates;
income and expenses are translated at average rates of exchange prevailing
during the year. For operations in countries treated as highly inflationary,
certain financial statement amounts are translated at historical exchange rates,
with all other assets and liabilities translated at year-end exchange rates. The
effects of translating the financial position and results of operations of local
currency operations have not been significant to the Company's consolidated
financial statements.

The Company enters into foreign currency forward contracts to hedge foreign
currency transactions and probable anticipated foreign currency transactions.
The principal currency hedged is the Japanese yen over periods of up to three
months. Gains and losses arising from foreign currency forward contracts offset
gains and losses resulting from the underlying hedged transaction.

Forward contracts designated to hedge foreign currency transaction exposure
of approximately $7.8 million were outstanding as of September 30, 1997, which
also approximated their fair value. The Company had no foreign currency forward
contracts outstanding as of September 30, 1996.

During fiscal 1997 and 1996, the Company had net foreign currency transaction
gains included in the Company's statement of income of approximately $0.6
million and $1.4 million, respectively. During fiscal 1995, net foreign currency
transaction gains and losses were not significant.

Income Taxes

Current income tax expense is the amount of income taxes expected to be
payable for the current year, prior to the recognition of benefits from stock
option deductions. A deferred tax asset and/or liability is computed for both
the expected future impact of differences between the financial statement and
tax bases of assets and liabilities and for the expected future tax benefit to
be derived from tax loss and tax credit carry forwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be "more likely than not" realized in future tax returns. Tax rate changes
are reflected in income in the period such changes are enacted. Investment tax
credits are reflected as a reduction of income tax expense using the flow
through method in the year in which they are earned.

F-8
<PAGE> 59
Net Earnings Per Common Share

Primary earnings per common share are calculated by dividing net income by
the weighted average number of common and, when dilutive, common equivalent
shares outstanding during the reporting period. Common equivalent shares are
shares issuable from exercises of outstanding stock options and warrants. The
number of common equivalent shares is determined by the treasury stock method,
using the average market price of the Company's common stock during the
reporting period. Fully diluted earnings per share reflect the additional
dilutive effect of common stock equivalents using the market price of the
Company's common stock at the end of the reporting period. The conversion of the
Trust Convertible Preferred Securities (Note 7) is not assumed for fiscal 1997
since its effect would be anti-dilutive.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share"
which the Company will be required to adopt in the first quarter of fiscal 1998.
At that time, the Company will be required to change the method currently used
to compute earnings per share ("EPS") and to restate all prior period EPS data
presented for comparative purposes. FAS 128 supersedes APB Opinion No. 15 ("APB
15"), "Earnings per Share" and replaces the primary and fully diluted earnings
per share computations pursuant to APB 15 with basic and diluted EPS. Basic EPS
excludes the dilutive effect of stock options and warrants and will therefore be
higher than primary EPS. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB 15. Respective pro forma basic and diluted EPS amounts
calculated under FAS 128 amounted to $1.37 and $1.28 in fiscal 1997, $0.32 and
$0.30 in fiscal 1996, and $0.56 and $0.52 in fiscal 1995.

Reclassification

Certain prior year amounts have been reclassified to conform with the current
year presentation.

NOTE 2. INVESTMENTS

At September 30, 1997 and 1996, all marketable debt securities were
classified as held-to-maturity and carried at amortized cost. Investments
consisted of the following (in thousands):

<TABLE>
<CAPTION>
CURRENT LONG-TERM
------- ---------
<S> <C> <C>
1997
U.S. government securities..................... $ 7,998 $ 64,863
Commercial paper............................... 209,828 --
Certificates of deposit........................ 211,604 --
Corporate medium-term notes.................... 18,805 46,923
-------- --------
$448,235 $111,786
======== ========
1996
U.S. government securities..................... $ -- $ 5,000
Commercial paper............................... 157,070 --
Certificates of deposit........................ 70,064 --
Corporate medium-term notes.................... 8,995 3,009
-------- --------
$236,129 $ 8,009
======== ========
</TABLE>

At September 30, 1997, maturities for long-term securities were between one
and two years. At September 30, 1997 and 1996, the estimated fair value of each
investment approximated its amortized cost and, therefore, there were no
significant unrealized gains or losses.

F-9
<PAGE> 60
NOTE 3. FINANCE RECEIVABLES

Finance receivables result from sales under arrangements in which the Company
has agreed to provide customers with the option to issue long-term interest
bearing notes to the Company for the purchase of equipment and/or services. At
September 30, 1997, the finance receivables of $111.5 million primarily resulted
from sales to one customer having the ability to convert outstanding amounts
into loans receivable with interest at selected market rates plus applicable
margin and with an eight year principal amortization term. During fiscal 1997,
the Company entered into an agreement to sell loans receivable from the customer
to a financial institution at par value on a non-recourse basis. Pursuant to
this agreement, the Company sold approximately $17 million of such customer
loans during fiscal 1997. During October 1997, the Company sold approximately
$76 million of the $111.5 million finance receivables outstanding as of
September 30, 1997. The Company expects to realize the remaining finance
receivables within one year from September 30, 1997.

Unfunded commitments to extend long-term financing under sales arrangements
at September 30, 1997, including amounts in finance receivables at September 30,
1997, aggregated approximately $257 million. Such commitments are subject to the
customers meeting certain conditions established in the financing arrangements.
Commitments represent the estimated amounts to be financed under these
arrangements, however, actual financing may be in lesser or greater amounts.

Wireless network operators increasingly have required their suppliers to
arrange or provide long-term financing for them as a condition to obtaining
equipment and services contracts. As such, the Company may continue to enter
into significant future commitments to provide or guarantee long-term financing
for its customers.

NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts Receivable, net:
Trade, net of allowance for doubtful accounts
of $18,892 and $8,223, respectively.............. $343,619 $181,732
Long-term contracts:
Billed......................................... 53,159 12,363
Unbilled....................................... 32,230 20,052
Other............................................. 16,374 3,286
-------- --------
$445,382 $217,433
======== ========
</TABLE>

The Company's trade receivables at September 30, 1997 and 1996 included 12%
and 31%, respectively, from customers in the trucking industry. Predominantly
all of the remaining trade receivables at September 30, 1997 and 1996 were from
customers in the wireless telecommunications industry.

Unbilled receivables represent costs and profits recorded in excess of amount
billable pursuant to contract provisions and are expected to be realized within
one year.

F-10
<PAGE> 61
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials .................................... $118,516 $ 97,779
Work-in-progress ................................. 55,088 35,686
Finished goods ................................... 51,552 38,046
-------- --------
$225,156 $171,511
======== ========
Property, Plant and Equipment, net:
Land ............................................. $ 32,904 $ 29,955
Buildings and improvements ....................... 165,850 135,239
Computer equipment ............................... 232,119 158,165
Machinery and equipment .......................... 153,483 131,485
Furniture and office equipment ................... 20,904 10,314
Leasehold improvements ........................... 20,764 4,877
-------- --------
626,024 470,035
Less accumulated depreciation and amortization ... 200,934 117,336
-------- --------
$425,090 $352,699
======== ========
Other Assets:
Intangible assets, net of accumulated amortization
of $6,697 and $9,975, respectively ............... $ 2,473 $ 10,690
Investments in other entities (Note 10) .......... 99,826 41,939
Due from minority partner in QPE (Note 10) ....... 10,647 16,808
Deferred tax assets .............................. 32,969 --
Stadium naming rights, net of amortization of
$375 in 1997 .................................... 17,625 --
Deferred offering costs (Note 7) ................. 17,906 --
Other ............................................ 6,763 3,995
-------- --------
$188,209 $ 73,432
======== ========
Accounts Payable and Accrued Liabilities:
Trade payables ................................... $216,660 $163,599
Accrued payroll and related benefits ............. 58,297 33,591
Accrued warranty ................................. 48,626 9,286
Other accrued liabilities ........................ 85,573 23,323
-------- --------
$409,156 $229,799
======== ========
</TABLE>

NOTE 5. INCOME TAXES

The components of income tax provision (benefit) for the years ended
September 30 are as follows (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current provision:
Federal................................ $ 71,891 $ 1,301 $ 8,946
State.................................. 2,288 695 1,459
Foreign................................ 4,407 3,604 2,295
-------- -------- --------
78,586 5,600 12,700
-------- -------- --------
Deferred benefit:
Federal................................ (51,186) -- (3,000)
State.................................. (10,900) -- --
-------- -------- --------
(62,086) -- (3,000)
-------- -------- --------
$ 16,500 $ 5,600 $ 9,700
======== ======== ========
</TABLE>

F-11
<PAGE> 62
The following is a reconciliation from the expected statutory federal income
tax expense to the Company's actual income tax expense for the years ended
September 30 (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected income tax expense at federal
statutory tax rate..................... $ 37,956 $ 9,316 $ 13,958
State income tax expense................. 2,288 695 1,459
Foreign taxes............................ 4,407 3,604 2,295
Income recognition differences........... 3,523 (4,866) 1,039
Tax benefit from recognition of deferred
tax assets............................. (21,531) -- (3,000)
Tax credit utilization................... (12,850) (3,575) (7,040)
Other.................................... 2,707 426 989
-------- -------- --------
Actual income tax expense................ $ 16,500 $ 5,600 $ 9,700
======== ======== ========
</TABLE>

At September 30, 1997 and 1996, the Company had total deferred tax assets as
follows (in thousands):

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Income recognition differences................ $68,788 $17,705
Stock option tax deductions................... 12,101 37,973
Tax credits................................... 298 7,628
------- -------
81,187 63,306
Less valuation allowance...................... -- 56,306
------- -------
$81,187 $ 7,000
======= =======
</TABLE>

During fiscal 1997 and 1995, the Company reduced its valuation allowance to
recognize deferred tax assets that met the "more likely than not" criteria for
recognition established by Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes." As a result, tax benefits relating
to income recognition differences and tax credits were recorded as part of the
Company's tax provision in the statement of income in those respective years.
The benefit for stock option tax deductions is credited directly to paid-in
capital for financial reporting purposes.

For tax reporting purposes, at September 30, 1997 the Company had $12.4
million of unused research and development and alternative minimum tax credits
expiring in 2011.

Cash amounts paid for income taxes were $18.2 million, $4.8 million and $6.7
million for fiscal 1997, 1996 and 1995, respectively, and exclusive of a $2.2
million refund received in fiscal 1996.

NOTE 6. DEBT AND CREDIT FACILITIES

During July 1996, QPE (Note 10) entered into two separate $100 million
revolving credit facilities, each with identical terms, expiring in July 1997.
In July 1997, QPE and its existing lenders entered into separate identical
amendments pursuant to which the expiration date of both credit facilities was
extended to July 1998. Borrowings under the facilities, which are drawn in equal
amounts, totaled $110 million and $80.7 million at September 30, 1997 and 1996,
respectively. The interest rate under the facilities is at the prime rate, or,
at QPE's option, at a mutually acceptable market rate. The weighted average
interest rate on outstanding borrowings was 6.0% and 6.1% during fiscal 1997 and
1996, respectively, and 6.0% and 6.5% at September 30, 1997 and 1996,
respectively. The credit facilities are non-recourse to the Company and the
minority interest holder in QPE and are collateralized by QPE's accounts
receivable and inventories, which at September 30, 1997, on a consolidated
basis, amounted to $100.2 million and $88.8 million, respectively. However, in
the event that QPE cannot repay the bank borrowings, both the Company and the
minority interest holder in QPE have agreed to provide subordinated loans to QPE
in proportion to their respective ownership interests, to the extent that the
sum of QPE's tangible net worth and the total loan commitments are not less than
zero. Under the terms of the credit facilities, amounts that QPE may borrow
outside of the credit facilities are limited.

F-12
<PAGE> 63
During fiscal 1996, QPE entered into an agreement for the sale and leaseback
of certain manufacturing equipment with a net book value of approximately $10.2
million. There was no gain or loss realized as a result of the sale. The lease
has an approximate five year term and is non-recourse to the Company and the
minority interest holder in QPE. It is classified as a capital lease in
accordance with Statement of Financial Accounting Standards No. 13, "Accounting
for Leases."

The annual principal installments for capital leases, long-term notes payable
and other obligations are $3.2 million in fiscal 1998, $3.4 million in 1999,
$3.5 million in 2000 and $0.9 million in 2001.

The fair value of the Company's bank lines of credit are estimated based on
comparison with similar issues or current rates offered to the Company for debt
of the same remaining maturities. At September 30, 1997 and 1996, the estimated
fair value of the Company's bank lines of credit approximated their carrying
value.

Cash amounts paid for interest were $11.3 million, $3.9 million and $2.1
million for fiscal 1997, 1996 and 1995, respectively.

NOTE 7. TRUST CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY

In February 1997, QUALCOMM Financial Trust I (the "Trust"), the Company's
wholly-owned subsidiary trust created under the laws of the State of Delaware,
completed a private placement of $660 million of 5-3/4% Trust Convertible
Preferred Securities ("Trust Convertible Preferred Securities"). The sole assets
of the Trust are QUALCOMM Incorporated 5-3/4% Convertible Subordinated
Debentures ("Convertible Subordinated Debentures") due February 24, 2012. The
obligations of the Trust related to the Trust Convertible Preferred Securities
are fully and unconditionally guaranteed by the Company. The Trust Convertible
Preferred Securities are convertible into Company common stock at the rate of
0.6882 shares of Company common stock for each Trust Convertible Preferred
Security (equivalent to a conversion price of $72.6563 per share of common
stock). Distributions on the Trust Convertible Preferred Securities are payable
quarterly by the Trust. The Trust Convertible Preferred Securities are subject
to mandatory redemption on February 24, 2012, at a redemption price of $50 per
preferred security. The Company has reserved 9,084,000 shares of common stock as
of September 30, 1997 for possible conversion of the Trust Convertible Preferred
Securities at the option of the holders.

The Company may cause the Trust to defer the payment of distributions for
successive periods of up to twenty consecutive quarters. During such periods,
accrued distributions on the Trust Convertible Preferred Securities will
compound quarterly and the Company may not declare or pay distributions on its
common stock or debt securities that rank equal or junior to the Convertible
Subordinated Debentures. Also during such period, if holders of Trust
Convertible Preferred Securities convert such securities into Company common
stock, the holder will not receive any cash related to the deferred
distribution.

Issuance costs of $18.6 million related to the Trust Convertible Preferred
Securities were deferred and are being amortized over the period until mandatory
redemption of the securities in February 2012.

As of September 30, 1997, the estimated fair value of the Trust Convertible
Preferred Securities was approximately $701 million based on the last reported
bid price in the Private Offerings Resales and Trading through Automated
Linkages market.

NOTE 8. CAPITAL STOCK

Preferred Stock

The Company has 8,000,000 shares of preferred stock authorized for issuance
in one or more series, at a par value of $0.0001 per share. In conjunction with
the distribution of Preferred Share Purchase Rights, the Company's Board of
Directors designated 1,500,000 shares of preferred stock as Series A Junior
Participating Preferred Stock and reserved such shares for issuance upon
exercise of the Preferred Share Purchase Rights. At September 30, 1997 and 1996,
no shares of preferred stock were outstanding.

F-13
<PAGE> 64
Common Stock

In August 1995, the Company completed its third public offering consisting of
11,500,000 common shares with net proceeds of approximately $485.8 million.

Common Stock Warrants

In November 1991, the Company issued seven-year warrants to purchase 782,000
shares of common stock at $5.50 per share to a company for the relinquishment of
all its claims to participation in certain future royalties, license fees and
profits. A total of 782,000 shares of common stock is reserved for issuance upon
exercise of these warrants. As of September 30, 1997, none of these warrants had
been exercised.

Preferred Share Purchase Rights Plan

During fiscal 1996, the Board of Directors implemented a Preferred Share
Purchase Rights Plan ("Rights Plan") to protect stockholders' rights in the
event of a proposed takeover of the Company. Under the Rights Plan, the Company
declared a dividend of one preferred share purchase right (a "Right") for each
share of the Company's common stock outstanding as of October 16, 1995. Similar
Rights will generally be issued in respect to common stock subsequently issued.
Each Right entitles the registered holder to purchase from the Company a one
one-hundredth share of Series A Junior Participating Preferred Stock, $0.0001
par value per share, at a purchase price of $250 (subject to adjustment). The
Rights are exercisable only if a person or group (an "Acquiring Person")
acquires beneficial ownership of 15% or more of the Company's outstanding shares
of common stock. Upon exercise, holders, other than an Acquiring Person, will
have the right (subject to termination) to receive the Company's common stock or
other securities, cash or other assets having a market value (as defined) equal
to twice such purchase price. The Rights, which expire on September 25, 2005,
are redeemable in whole, but not in part, at the Company's option at any time
for a price of $0.01 per Right.

NOTE 9. EMPLOYEE BENEFIT PLANS

Employee Savings and Retirement Plan

The Company has a 401(k) plan that allows eligible employees to contribute up
to 15% of their salary, subject to annual limits. The Company matches a portion
of the employee contributions and may, at its discretion, make additional
contributions based upon earnings. The Company's contribution expense for fiscal
1997, 1996 and 1995 was $5.9 million, $3.5 million and $1.9 million,
respectively.

Stock Option Plans

The Board of Directors may grant options to selected employees, directors and
consultants to the Company to purchase shares of the Company's common stock, at
a price not less than 100% of the fair market value of the stock at the date of
grant. The 1991 Stock Option Plan (the "Plan"), as amended, authorizes up to
28,400,000 shares to be granted no later than August 2001. The Plan provides for
the grant of both incentive stock options and non-qualified stock options.
Generally, options outstanding vest over a one to six year period and are
exercisable for up to ten years from the grant date. At September 30, 1997,
options for 3,074,000 shares were exercisable at prices ranging from $5.00 to
$52.43 for an aggregate exercise price of $84.6 million.

The Company has a Non-Employee Directors' Stock Option Plan which authorizes
600,000 shares to be granted no later than July 2003. This plan provides for
non-qualified stock options to be granted to non-employee directors at fair
market value, vesting over periods not exceeding five years and are exercisable
for up to ten years from the grant date. At September 30, 1997, options for
198,000 shares were exercisable at prices ranging from $22.75 to $34.56 per
share for an aggregate exercise price of $5.6 million.

F-14
<PAGE> 65

A summary of stock option transactions for the plans follows (number of
shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ---------------------------------------
AVAILABLE NUMBER EXERCISE PRICE PER SHARE
FOR GRANT OF SHARES RANGE AVERAGE
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1994....... 1,162 9,984 $ 0.50 - $38.78 $ 17.72
Additional shares
reserved.............. 4,000
Options granted........ (4,317) 4,317 22.87 - 52.43 31.01
Options canceled....... 506 (506) 4.00 - 46.50 24.76
Options exercised...... -- (1,458) 4.00 - 29.81 6.25
------ ------
SEPTEMBER 30, 1995....... 1,351 12,337 $ 0.50 - $52.43 $ 23.44
Additional shares
reserved.............. 6,000
Options granted........ (5,929) 5,929 31.56 - 52.25 42.69
Options canceled....... 683 (683) 5.00 - 52.43 30.98
Options exercised...... -- (1,510) 1.00 - 29.75 9.21
------ ------
SEPTEMBER 30, 1996....... 2,105 16,073 $ 0.50 - $52.43 $ 31.55
Additional shares
reserved............. 5,400
Options granted........ (4,291) 4,291 37.50 - 62.37 47.29
Options canceled....... 674 (674) 6.81 - 60.25 37.27
Options exercised...... -- (1,208) 0.50 - 46.31 16.44
------ ------
SEPTEMBER 30, 1997....... 3,888 18,482 $ 5.00 - $62.37 $ 35.99
====== ======
</TABLE>

The following table summarizes information about fixed stock options
outstanding at September 30, 1997 (number of shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES (IN YEARS) PRICE OF SHARES PRICE
--------------- ---------------------------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.00 to $ 17.87 770 1.9 $ 14.27 377 $ 11.77
$ 18.37 to $ 27.68 5,199 6.7 24.25 1,478 23.76
$ 27.75 to $ 39.81 5,397 7.7 35.08 939 30.70
$ 40.00 to $ 49.31 5,055 8.9 44.94 455 45.34
$ 49.81 to $ 62.37 2,061 9.3 54.13 23 51.29
-------- --------
18,482 7.7 $ 35.99 3,272 $ 27.57
========= ========
</TABLE>

Employee Stock Purchase Plans

The Company has employee stock purchase plans for all eligible employees to
purchase shares of common stock at 85% of the lower of the fair market value on
the first or the last day of each six-month offering period. Employees may
authorize the Company to withhold up to 15% of their compensation during any
offering period, subject to certain limitations. The 1991 Employee Stock
Purchase Plan, as amended, authorizes up to 2,000,000 shares to be granted no
later than August 2001. The 1996 Non-Qualified Employee Stock Purchase Plan
authorizes up to 25,000 shares to be granted at anytime. During fiscal 1997,
1996 and 1995, shares totaling 370,000, 326,000 and 249,000 were issued under
the plans at an average price of $33.77, $28.55 and $16.40 per share,
respectively. At September 30, 1997, 554,000 shares were reserved for future
issuance.

F-15
<PAGE> 66
Executive Retirement Plans

The Company has voluntary retirement plans that allow eligible executives to
defer up to 100% of their income on a pretax basis. On a quarterly basis,
participants receive up to a 7.5% match of their deferral in the Company's
common stock based on the then current market price, to be issued to the
participant upon eligible retirement. The income deferred and the Company match
are unsecured and subject to the claims of general creditors of the Company. The
plans authorize up to 100,000 shares to be allocated to participants at anytime.
During fiscal 1997 and 1996, approximately 11,000 and 6,000 shares,
respectively, were allocated under the plans and the Company's matching
contribution during fiscal 1997 and 1996 amounted to $0.5 million and $0.3
million, respectively. At September 30, 1997, 83,000 shares were reserved for
future allocation.

Accounting for Stock-Based Compensation

As permitted under FAS 123, the Company has elected to follow APB 25 and
related Interpretations, in accounting for stock-based awards to employees and
non-employee directors. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards.

Pro forma information regarding net income and earnings per share is required
by FAS 123. This information is required to be determined as if the Company had
accounted for its stock-based awards to employees and non-employee directors
(including stock option plans and shares issued under the Employee Stock
Purchase Plans, collectively called "options") granted subsequent to September
30, 1995 under the fair value method of that Statement. The fair value of
options granted in fiscal years 1997 and 1996 reported below has been estimated
at the date of grant using the Black-Scholes option-pricing model using the
following weighted average assumptions:

<TABLE>
<CAPTION>
EMPLOYEE STOCK
STOCK OPTION PLANS PURCHASE PLANS
------------------ ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Risk-free interest rate 6.3% 6.1% 5.1% 5.1%
Volatility 50.0% 50.0% 50.0% 50.0%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Expected life (years) 6.0 6.0 0.5 0.5
</TABLE>

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different than those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. The weighted average estimated fair value of stock options
granted during fiscal years 1997 and 1996 was $26.37 and $23.67 per share,
respectively. The weighted average estimated fair value of shares granted under
the Employee Stock Purchase Plans during fiscal years 1997 and 1996 was $13.58
and $13.74, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is assumed to be amortized to expense over the options' vesting period.
The Company's pro forma information for the years ended September 30 are as
follows (in thousands, except for net earnings per share):

<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
As reported Pro forma As reported Pro forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income ............ $ 91,934 $ 73,197 $ 21,027 $ 6,019
Net earnings per share:
Primary ............. $ 1.27 $ 1.10 $ 0.30 $ 0.09
Fully diluted ....... $ 1.27 $ 1.07 $ 0.30 $ 0.09
</TABLE>

F-16
<PAGE> 67
The Company did not recognize a tax benefit relating to pro forma
compensation expense under FAS 123 for fiscal 1996 as such benefit did not meet
the "more likely than not" criteria for recognition of deferred tax assets. Pro
forma net income for fiscal 1997 includes the recognition of the tax benefit
relating to fiscal 1997 pro forma compensation expense and the recognition of
the previously unrecognized fiscal 1996 tax benefit. The effects on pro forma
disclosures of applying FAS 123 are not likely to be representative of the
effects on pro forma disclosures of future years because FAS 123 is applicable
only to options granted subsequent to September 30, 1995.

NOTE 10. INVESTMENTS IN OTHER ENTITIES

Globalstar, L.P.

Through partnership interests held in certain intermediate limited
partnerships, the Company owns a 6.5% partnership interest in Globalstar, L.P.
("Globalstar"), a limited partnership formed to develop, own and operate the
Globalstar low-earth orbiting satellite-based wireless communications system.
The Company accounts for its investment under the equity method.

As a result of the intermediate limited partnership agreements, Globalstar
profits and losses are allocated to the Company in accordance with its
percentage ownership interest, provided that no loss shall be allocated to the
Company if such allocation would create negative balances in the Company's
intermediate partnership adjusted capital accounts. For financial reporting
purposes, the Company's investment in the intermediate partnerships had no basis
during each of fiscal 1997, 1996 and 1995, and, as a result, the Company has not
recorded any equity losses during those respective fiscal years.

Subject to certain conditions, the Company, through an intermediate
partnership, may be required to purchase approximately 97,000 additional shares
from another investor in Globalstar for up to $4.6 million, a price discounted
from the price paid by such investor. The Company is unable to predict the
likelihood of the occurrence of any of the conditions which would require the
additional investment.

In return for providing a guarantee under a Globalstar bank financing
agreement (Note 11), the Company received warrants to purchase 734,262 shares of
common stock in Globalstar Telecommunications Limited ("GTL"), a general partner
in Globalstar, at an exercise price of $13.25 per share (shares and exercise
price reflect a two-for-one stock split of GTL common stock that occurred in May
1997). On February 12, 1997, the Company and GTL entered into an arrangement
under which GTL agreed to accelerate the vesting and exercisability of the
Company's warrants to purchase GTL common stock. The Company exercised such
warrants in March 1997, and classified the GTL shares as trading securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" consistent with the
Company's intent to sell the GTL shares on a near term basis. The Company sold
the GTL common stock during the third quarter of fiscal 1997 resulting in an
aggregate realized gain of $13.4 million.

The Company and Globalstar have entered into a development agreement under
which Globalstar is funding the Company to design and develop, by 1998, the
subscriber equipment and ground communications segments of the Globalstar
system. Total receivables due from Globalstar under the development contract at
September 30, 1997 and 1996 were $50.5 million and $10.4 million, respectively.
Contract services revenues resulting from the development agreement for fiscal
1997, 1996 and 1995 were $205.1 million, $120.3 million and $72.6 million from
Globalstar, respectively. During fiscal 1998, the Company expects to finalize
negotiations with Globalstar which could result in the deferral of approximately
$100 million of remaining contract payments under the development agreement, the
majority of which relates to contract services to be provided subsequent to
September 30, 1997. Such deferrals will be interest bearing and paid by
Globalstar over a period not exceeding four years from the deferral.

During fiscal 1997, the Company entered into a contract to manufacture and
supply ground communications segments ("Gateways") and related services to
Globalstar. The Company had not recognized any revenues associated with Gateway
production as of September 30, 1997.

F-17
<PAGE> 68

QUALCOMM Personal Electronics

In fiscal 1994, a subsidiary of the Company and a subsidiary of Sony
Electronics Inc. ("Sony Electronics") entered into a joint venture general
partnership, QUALCOMM Personal Electronics ("QPE"), to develop and manufacture
CDMA subscriber equipment for cellular, PCS and other wireless applications. The
Company owns 51% of the joint venture and consolidates QPE in its financial
statements. Sony Electronics' 49% general partnership share in QPE is presented
as a minority interest in the Company's financial statements.

Under the terms of bank lines of credit, the minority interest holder in QPE
is obligated to provide subordinated loans to QPE in the event that QPE cannot
repay the bank credit facilities (Note 6). At September 30, 1997 and 1996, the
minority interest holder had outstanding subordinated loan commitments of $24.5
million to QPE. As a result of the minority interest holder's commitments to
fund QPE, the Company has included in other assets accumulated minority interest
losses in excess of equity contributions of $10.6 million and $16.8 million, as
of September 30, 1997 and 1996, respectively.

During fiscal 1997, 1996 and 1995, QPE sales to Sony Electronics amounted to
$56.6 million, $50.2 million and $1.4 million, respectively. Purchases from Sony
Electronics and other Sony affiliates for inventory and capital equipment
amounted to $92 million and $6 million, respectively during fiscal 1997, $23.9
million and $0.9 million, respectively, during fiscal 1996 and $1.6 million and
$9.9 million, respectively, during fiscal 1995. At September 30, 1997 and 1996,
outstanding accounts receivable from Sony Electronics amounted to $12.1 million
and $10.2 million, respectively, and accounts payable to all Sony affiliated
companies amounted to $21.6 million and $6.7 million, respectively.

Chilesat Telefonia Personal S.A.

In March 1997, the Company purchased $42 million of voting preferred shares
representing a 50% ownership interest in a corporate joint venture, Chilesat
Telefonia Personal S.A. ("Chilesat PCS"). The preferred shares are entitled to a
liquidation preference in an amount equal to the original purchase price per
share during a five year period (the "Preference Period") beginning with
commencement of commercial operations of the joint venture. The Company accounts
for its investment under the equity method of accounting. Chilesat PCS profits
and losses will be allocated to the Company in accordance with its percentage
ownership interest, provided that during the Preference Period, no losses shall
be allocated to the Company until the capital account of the joint venture
partner has been depleted. As of September 30, 1997, Chilesat PCS had not
completed its initial network build-out, and operational activity was not
significant during fiscal 1997.

Under an agreement with Chilesat PCS, the Company has agreed to provide a $58
million letter of credit on behalf of Chilesat PCS in which the Company may be
required to reimburse Chilesat PCS for a portion of Chilean government fines if
certain network build-out milestones are not met. The amount that Chilesat PCS
may draw on the letter of credit will decline as interim milestones are met. The
letter of credit will expire no later than December 31, 1999, and is
collateralized by a commensurate amount of the Company's investments in debt
securities.

NextWave Telecom Inc.

In November 1995, the Company paid $5 million to purchase 1,666,666 shares of
Series B Common Stock and provided a $25 million short-term note receivable to
NextWave Telecom Inc. ("NextWave"), a privately held company. As part of the
share purchase, the Company also received warrants to buy 1,111,111 additional
shares of Series B Common Stock at $3 per share. During March 1996, the Company
converted $15 million of the note receivable into 5,000,000 shares of Series B
Common Stock. The conversion was treated as a non-cash transaction for the
consolidated statement of cash flows. During June 1996, the Company collected
$9.6 million of the short-term note receivable and converted the remaining
principal balance of $0.4 million into a 3 year promissory note convertible into
1,019,444 shares of Series C Common Stock. At September 30, 1997 and 1996, the
$20 million investment is included in other long-term assets and, as the Company
estimates that it holds less than 5% of NextWave's outstanding voting shares, it
is accounting for its investment under the cost method. It is not practicable to
estimate the fair value of the investment as NextWave is a closely held
corporation and is not publicly traded.

F-18
<PAGE> 69

NextWave will require significant financing to complete its Personal
Communications Services ("PCS") network build-out and to meet its payment
obligations relating to the purchase of PCS licenses from the Federal
Communications Commission ("FCC"). NextWave's failure to obtain sufficient
financing or to meet its obligations to the FCC could adversely affect the value
of the Company's investment in NextWave. There can be no assurance that NextWave
will be successful in obtaining sufficient financing for its network build-out
or in meeting its payment obligations to the FCC.

Telesystems of Ukraine

During fiscal 1997, the Company invested approximately $8.8 million for a 49%
ownership interest in Telesystems of Ukraine ("TOU"), a Ukrainian limited
liability company. The Company may provide further equity and debt contributions
to TOU as necessary to support future build-out and operational needs. The
Company accounts for its investment under the equity method of accounting. The
Company will be allocated all of the profits of TOU until the Company's
investment has been returned, thereafter, profits will be allocated according to
the Company's ownership interest. Losses are allocated to the Company in
accordance with its ownership interest. During fiscal 1997, TOU was engaged in
project development efforts for a wireless communications network in the
Ukraine, and operational activity was not significant.

Other Joint Ventures

The Company has entered into other domestic and international joint ventures
providing advanced communications systems, products and services based on
wireless technology. The Company's combined investment in these joint ventures
as of September 30, 1997 and 1996, amounted to $29 million and $21.9 million,
respectively. At September 30, 1997, effective ownership interests in the joint
ventures ranged from 2% to 34% and unfunded equity contributions amounted to
approximately $1.3 million to be funded upon request of investees.

Predominantly all of these investments are treated under the cost method of
accounting. It is not practicable to estimate the total fair value of the
Company's investment in these other joint ventures as the investments are
predominantly closely held and not publicly traded. The Company's investees are
principally engaged in development of new products and commercial deployment and
expansion of wireless networks and services. An investee's failure to
successfully develop and provide competitive products and services due to lack
of financing, market demand or favorable economic environment could adversely
affect the value of the Company's investment in the investee. There can be no
assurance that the investees will be successful in their efforts.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Guarantees

The Company has issued a letter of credit to support a guarantee of up to
$22.5 million of Globalstar borrowings under an existing bank financing
agreement. The guarantee will expire in December 2000. The letter of credit is
collateralized by a commensurate amount of the Company's investments in debt
securities. As of September 30, 1997, Globalstar had no borrowings outstanding
under the existing bank financing agreement.

In addition to letters of credit on behalf of Globalstar and Chilesat PCS
(Note 10), the Company has $12.7 million of letters of credit outstanding as of
September 30, 1997, none of which are collateralized.

F-19
<PAGE> 70
Operating Leases

QPE has entered into an operating lease agreement, under which manufacturing
equipment may be leased under separate schedules, each with approximately five
year terms. The lease agreement is non-recourse to the Company and the minority
interest holder in QPE. Equipment under lease has both early and end of term
purchase options. If the purchase options have not been exercised by the end of
the lease term, QPE may be required to pay certain contingent payments if
proceeds from the sale of the equipment fall below specified amounts. The
maximum amount of contingent payments for equipment leased as of September 30,
1997 is approximately $61.3 million. Rental expense under this lease, including
an accrual for such contingent payments, amounted to $13.5 million and $2
million during fiscal 1997 and 1996, respectively. As of September 30, 1997 and
1996, the Company had accrued $11.4 million and $1.4 million, respectively, in
other liabilities for such contingent payments.

As of September 30, 1997, future rental payments under the lease, excluding
contingent payments, are $5.1 million in each of 1998, 1999 and 2000, $4 million
in 2001 and $0.9 million in 2002.

The Company leases certain of its other facilities and equipment under
non-cancelable operating leases, with terms ranging from two to ten years and
with provisions for cost-of-living increases. Rental expense for these
facilities and equipment for fiscal 1997, 1996 and 1995 was $6.9 million, $5.4
million and $3.3 million, respectively. Future minimum lease payments in each of
the next five years from fiscal 1998 through 2002 are $9.6 million, $9.4
million, $7.6 million, $6.3 million and $4.7 million, respectively, and $8.0
million thereafter.

Purchase Obligations

The Company has agreements with certain suppliers to purchase certain
components, and estimates its non-cancelable obligations under these agreements
to be approximately $187 million through fiscal 1999. The Company also has a
commitment to purchase communications services for approximately $11.9 million
annually through September 2001.

Litigation

On September 23, 1996, Ericsson Inc. and Telefonaktiebolaget LM Ericsson
("Ericsson") filed suit against the Company in the U.S. District Court for the
Eastern District of Texas, Civil Action No. 2-96CV183. This case has been set
for trial in October 1998. On December 17, 1996, Ericsson also filed suit
against QPE in the U.S. District Court for the Northern District of Texas, Civil
Action No. 3-96CV3373P. This latter case has been set for trial in mid-1999.
Both complaints allege that various elements of the Company's CDMA equipment
system and components infringe one or more patents owned by Ericsson. In
December 1996, QUALCOMM filed a countersuit in the U.S. District Court for the
Southern District of California. The complaint alleges unfair competition by
Ericsson based on a pattern of conduct intended to impede the acceptance and
commercial deployment of QUALCOMM's CDMA technology. The complaint also charges
that Ericsson's patent infringement claims against the Company violate a 1989
agreement between the companies. Finally, the lawsuit seeks a judicial
declaration that certain of Ericsson's patents are not infringed by QUALCOMM and
are invalid. On April 9, 1997, the suit against Ericsson in the U.S. District
Court for the Southern District of California was dismissed so that all of
QUALCOMM's claims in that case can be litigated in the action filed by Ericsson
in the U.S. District Court for the Eastern District of Texas. On September 10,
1996, OKI America, Inc. ("OKI") filed a complaint in the United States District
Court for the Northern District of California, Civil Action No. C-96=20747 RMW
(EAI), against Ericsson seeking a judicial declaration that certain of OKI's
CDMA subscriber products do not infringe nine patents of Ericsson and that such
patents are invalid. The nine patents are among the eleven patents at issue in
the litigation between the Company and Ericsson. In December 1996, the Company
filed a motion to intervene as co-plaintiff with OKI in the OKI-Ericsson case.
The court granted the Company's motion on August 25, 1997. This case has not yet
been set for trial. Although there can be no assurances that an unfavorable
outcome would not have a material adverse effect on the Company's results of
operations, liquidity or financial position, the Company believes the named
Ericsson patents are not required to produce IS-95 compliant systems and that
Ericsson's claims are without merit and will vigorously defend the action.

F-20
<PAGE> 71

On March 5, 1997, the Company filed a complaint against Motorola, Inc.
("Motorola") in the U.S. District Court for the Southern District of California,
Civil Action No. CV00372. The complaint was filed in response to allegations by
Motorola that the Company's recently announced Q phone infringes design and
utility patents held by Motorola as well as trade dress and common law rights
relating to the appearance of certain Motorola wireless telephone products. The
complaint denies such allegations and seeks a judicial declaration that the
Company's products do not infringe any patents held by Motorola. The complaint
also states that, pursuant to certain patent and technology license agreements
entered into in 1990 between the companies, Motorola is precluded from asserting
infringement of the utility patents. On March 10, 1997, Motorola filed a
complaint against the Company in the U.S. District Court for the Eastern
Division of Illinois, Civil Action No. 97 C 1616 (the "Motorola Complaint"),
alleging claims based primarily on the above alleged infringement. The Company's
motion to transfer the Motorola Complaint to the U.S. District Court for the
Southern District of California was granted on April 3, 1997. On April 24, 1997,
the court denied Motorola's motion for a preliminary injunction thereby
permitting the Company to continue to manufacture, market and sell the Q phone.
On April 25, 1997, Motorola appealed the denial of its motion for a preliminary
injunction. On June 4, 1997, Motorola filed another lawsuit in the United States
District Court for the Southern District of California, alleging infringement by
QUALCOMM of four patents. Three of the patents had already been alleged in
previous litigation between the parties. On August 18, 1997, Motorola filed
another complaint against the Company in the United States District Court for
the Southern District of California, alleging infringement by the Company of
seven additional patents. All of the Motorola cases have been consolidated for
pretrial proceedings. Although there can be no assurance that an unfavorable
outcome of the dispute would not have a material adverse effect on the Company's
results of operations, liquidity or financial position, the Company believes
Motorola's complaints have no merit and will vigorously defend the actions.

Performance Guarantees

The Company and QPE have entered into contracts that provide for performance
guarantees to protect customers against late delivery or failure to perform.
These performance guarantees, and any future commitments for performance
guarantees, are obligations entered into separately, and in some cases jointly,
with partners to supply CDMA subscriber and infrastructure equipment. Certain of
these obligations provide for substantial performance guarantees that accrue at
a daily rate based on percentages of the contract value to the extent the
equipment is not delivered by scheduled delivery dates or the systems fail to
meet certain performance criteria by such dates. The Company is dependent in
part on the performance of its suppliers and strategic partners in order to
provide equipment which is the subject of the guarantees. Thus, the ability to
timely deliver such equipment may be outside of the Company's control. If the
Company and QPE are unable to meet their performance obligations, the payment of
the performance guarantees could amount to a significant portion of the contract
value and would have a material adverse effect on product margins and the
Company's results of operations, liquidity or financial position.

F-21
<PAGE> 72
NOTE 12. SUMMARIZED QUARTERLY DATA (UNAUDITED)

The following financial information reflects all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. Summarized quarterly data for fiscal 1997 and
1996 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
Revenues .................... $388,940 $585,746 $520,260 $601,419
Gross profit(1) ............. 101,730 130,552 164,837 181,240
Operating income ............ 13,019 15,542 33,062 35,834
Net income .................. 9,126 16,745 35,945 30,118
Primary earnings per share(2) $ 0.13 $ 0.23 $ 0.49 $ 0.41
Fully diluted earnings per
share(2) .................. $ 0.13 $ 0.23 $ 0.49 $ 0.41
</TABLE>

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Revenues .................... $146,603 $149,263 $234,880 $283,104
Gross profit(1) ............. 61,548 51,747 74,317 90,377
Operating income (loss) ..... 2,697 (8,580) (5,619) 4,066
Net income .................. 10,114 1,465 1,506 7,942
Primary earnings per share(2) $ 0.15 $ 0.02 $ 0.02 $ 0.11
Fully diluted earnings per
share(2) .................. $ 0.15 $ 0.02 $ 0.02 $ 0.11
</TABLE>

- ----------

(1) Gross profit is calculated by subtracting operating expenses for
communications systems and contract services from total revenues.

(2) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net earnings per share will
not necessarily equal the total for the year.

F-22
<PAGE> 73

SCHEDULE II

QUALCOMM INCORPORATED

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS OTHER PERIOD
------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995(1)
Allowance for doubtful accounts
-- trade receivables ....... $ 2,030 $ 1,503 $ 100 $ (580) $ 2,853
-- notes receivable(2) ..... -- 1,520 -- 580 2,100
Inventory reserves ............ 6,654 10,221 -- -- 16,875
-------- -------- -------- -------- --------
$ 8,684 $ 13,244 $ 100 $ -- $ 21,828
======== ======== ======== ======== ========

Year ended September 30, 1996(1)
Allowance for doubtful accounts
-- trade receivables ....... $ 2,853 $ 7,681 $ 2,311 $ -- $ 8,223
-- notes receivable(2) ..... 2,100 -- 2,100 -- --
Inventory reserves ............ 16,875 11,090 8,933 -- 19,032
-------- -------- -------- -------- --------
$ 21,828 $ 18,771 $ 13,344 $ -- $ 27,255
======== ======== ======== ======== ========

Year ended September 30, 1997(1)
Allowance for doubtful accounts
-- trade receivables ....... $ 8,223 $ 17,980 $ 7,311 $ -- $ 18,892
Inventory reserves ............ 19,032 32,277 15,285 -- 36,024
-------- -------- -------- -------- --------
$ 27,255 $ 50,257 $ 22,596 $ -- $ 54,916
======== ======== ======== ======== ========
</TABLE>

- ----------

(1) The Company's fiscal year ends on the last Sunday of September.

(2) Included in other long-term assets.

S-1

<PAGE> 1
EXHIBIT 3.5

AMENDMENT OF THE BYLAWS
OF
QUALCOMM INCORPORATED

Upon a resolution duly adopted at a meeting of the Board of Directors of
QUALCOMM Incorporated, a Delaware corporation, (the "Corporation") held on
November 17, 1997, the corporation's Bylaws are amended in accordance with
Article XIII, Section 45 of the Bylaws as follows:

1. Article III, Section 6, paragraph (a) is amended and restated to read in
its entirety as follows:

"Section 6. Special Meetings. (a) Special meetings of the stockholders
of the corporation may be called, for any purpose or purposes, by (i) the
Chairman of the Board of Directors, (ii) the President, or (iii) the Board
of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption), and shall be held at
such place, on such date, and at such time as the President or Board of
Directors, as the case may be, shall fix."

1.
<PAGE> 2
CERTIFICATE OF SECRETARY

I, the undersigned, certify that I am the presently elected and acting Secretary
of QUALCOMM, Incorporated, a Delaware corporation, and the above amendment to
the corporation's Bylaws, consisting of one (1) page was adopted by resolution
passed at a meeting of the Board of Directors held on November 17, 1997.

/S/ FRANK ROGOZIENSKI
-----------------------------------
Secretary

<PAGE> 1
QUALCOMM INCORPORATED EXHIBIT 11.1

COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER (1)
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income................................ $ 91,934 $ 21,027 $ 30,180
========== ========== ==========
Weighted average number of
common shares outstanding............... 67,335 65,557 53,416
Common stock equivalent shares(2)......... 5,095 4,657 4,004
---------- ---------- ----------
Total number of shares for computing
primary earnings per share.............. 72,430 70,214 57,420
Incremental shares for computing fully
diluted earnings per share(3)........... 235 254 774
---------- ---------- ----------
Total number of shares for computing fully
diluted earnings per share.............. 72,665 70,468 58,194
========== ========== ==========
Primary earnings per share................ $ 1.27 $ 0.30 $ 0.53
========== ========== ==========
Fully diluted earnings per share(4)....... $ 1.27 $ 0.30 $ 0.52
========== ========== ==========
</TABLE>

- ----------

(1) The Company's fiscal year ends on the last Sunday of September.

(2) Includes the dilutive effect of outstanding stock options and warrants
for common stock, determined by the treasury stock method, using the
average market price of the Company's common stock during the reporting
period.

(3) The incremental shares for fully diluted earnings per share reflects the
additional dilutive effect of outstanding stock options and warrants
determined by the treasury stock method, using the market price at the
end of the reporting period. The conversion of the Trust Convertible
Preferred Securities is not assumed for fiscal 1997 since its effect
would be anti-dilutive.

(4) This calculation is submitted in accordance with Regulation S-K item
601(b) (11) although not required by APB Opinion No. 15 because it
results in dilution of less than 3%.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 and in the Form S-3 Prospectus contained therein (No.
33-46343) and on Forms S-8 (No. 33-45083, No. 33-78158 and No. 33-78150) of
QUALCOMM Incorporated of our report dated November 7, 1997 appearing on page F-1
of this Form 10-K.

PRICE WATERHOUSE LLP

San Diego, California
December 1, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 248,837
<SECURITIES> 448,235
<RECEIVABLES> 575,775
<ALLOWANCES> 18,892
<INVENTORY> 225,156
<CURRENT-ASSETS> 1,549,595
<PP&E> 626,024
<DEPRECIATION> 200,934
<TOTAL-ASSETS> 2,274,680
<CURRENT-LIABILITIES> 567,478
<BONDS> 19,179
660,000
0
<COMMON> 7
<OTHER-SE> 1,024,171
<TOTAL-LIABILITY-AND-EQUITY> 2,274,680
<SALES> 2,096,365
<TOTAL-REVENUES> 2,096,365
<CGS> 1,518,006
<TOTAL-COSTS> 1,518,006
<OTHER-EXPENSES> 8,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,012
<INCOME-PRETAX> 108,434
<INCOME-TAX> 16,500
<INCOME-CONTINUING> 91,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,934
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27

</TABLE>