L.L.C.

2

wireless terrestrial-based networks to permit this communication. Our customers use these products to communicate with drivers, monitor vehicle location and performance and provide automated driver logs, fuel tax reporting, security and enhanced customer service.services. Our products, which collect and transmit this data, are also integrated with our customers’ operations software, such as dispatch, payroll and accounting, so our customers can better manage their information and operations.

Using our asset tracking and messaging infrastructure, we also provide a managed wireless data service, QConnect, to other service providers. For example, we provide the QConnect service to CardioNet, a provider of outpatient cardiac telemetry technology services, where we manage the wireless data service connectivity between CardioNet mobile monitoring devices and the CardioNet Monitoring Center.

We also provide QChat, which enables push-to-chat functionality on CDMA-based wireless devices, and QPoint, which enables operators to offer enhanced 911 (E911) wireless emergency and other location-based applications and services.

through 41 CDMA operators.

chipsets as we continue to identify and integrate other complementary wireless technologies into our chipsets.

benefits. Our acquisition of Trigenix complements our BREW product offerings by enhancing the capabilities of our BREW uiOne user interface and providing other benefits. In August 2005, we completed the acquisition of ELATA, Ltd. (ELATA), a developer of mobile content delivery and device management software systems, which systems we have integrated into our “deliveryOne” family of BREW product offerings. In August 2005, we announced our intention to acquire Flarion Technologies, Inc. (Flarion), a developer of Orthogonal Frequency Division Multiplexing Access (OFDMA) technology. This acquisition is anticipated to close in the first half of fiscal 2006, pending regulatory approval and other customary closing conditions. Our acquisition of Flarion is intended to broaden our ability to effectively support operators who may prefer an OFDMA or a hybrid OFDM/CDMA/WCDMA network alternative for differentiating their services. The addition of Flarion’s intellectual property and engineering resources will also supplement the resources that we have already dedicated over the years towards the development of OFDM/OFDMA technologies.

4

standards.

     Neither

free from unfair discrimination (and, in some instances, whether the patent holder is willing to license royalty free).

5

the benefits of roaming due to its wider worldwide deployment, and, for the near term, lower priced low-end handsets.

.

upon CDMA:

6

experience and operator profitability. The price differential between low-end third generation CDMA2000 handsets and GSM handsets is diminishing.

     Commercial deploymentsa commercial basis to more than 15 million subscribers. The rapid growth of CDMA2000 1xEV-DV are expected to begin in the year 2005. CDMA2000 1xEV-DV will offer mobile peak data rates equal to a version of 1xEV-DO whichsubscribers is expected to become commercially available aroundcontinue as more operators begin to offer the same time or earlier.

service and the cost of providing the wireless broadband service becomes more affordable and attractive through lower cost handsets, additional network enhancements, the embedding of the technology into laptops and increased competition between operators. Recently, three major laptop computer companies, Lenovo, Dell, and HP, have announced laptop products incorporating 1xEV-DO technology.

     Knowing that many GSM operators would not have access to WCDMA spectrum and most of those that do may not be ready to offer WCDMA services until 2004, we developed a soft-switch based technology called GSM1x. GSM1x allows GSM operators to begin offering revenue-generating 3G services (while preserving their existing capital investment in GSM) by overlaying the commercially proven CDMA2000 radio access network on top of their GSM network. GSM1x combines the increased voice and high-speed data capacity offered by the CDMA2000 air interface with the familiar features and services offered by the existing GSM-MAP core network. Commercial deployments of GSM1x are expected to occur within the next year.

     The TD-SCDMA mode is the least developed of the 3G CDMA alternatives. Support for the development of this version of the 3G technologies has been provided by the Chinese government, which hopes this technology will provide a path to the development of a stronger wireless industry in China.

     The three 3G CDMA wireless operating modes discussed aboveinterfaces are all based on the underlying core principles of CDMA technology; however, each has different features which some technologists believe enable a clearer migration path from the existing second generation technologies. The CDMA2000 mode enables a direct and relatively more economical conversion for current cdmaOne networks. We believeWhile the WCDMA wireless air interface does use CDMA technology, the core network has been specifically designed to be compatible with the GSM core network, which is why it also offers an economical transition from currentis expected that most GSM networks. While we believe that theoperators will migrate to WCDMA rather than to CDMA2000 mode offers a quicker path to third generation services and offers a number of technical advantages, we actively support each of these 3G CDMA modes. .We will continue to develop integrated circuits for CDMA2000 and WCDMA and expect to develop integrated circuits for all modes of the 3G standardversions based on CDMA.CDMA when commercially worthwhile. In addition, our intellectual property rights include core and primary patents utilized byessential to implementation of each of the 3G CDMA alternatives,alternative standards, and the royalty rate to be paid to us by a licenseeeach of our current 3G subscriber unit licensees for sales of its licensed 3G CDMA (regardless of whether it is CDMA2000, WCDMA, TD-CDMA or TD-SCDMA) subscriber products has not differed fromis no less than the rate that asuch licensee will pay for second-generationits licensed second generation cdmaOne subscriber products.

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

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

     We have developed

     Our MSM series integrated circuits are the primary integrated circuits in a CDMA wireless phone. Our Cell Site Modem (CSM) series integrated circuits are the primary integrated circuits in a wireless service provider’s base station equipment. The MSM5000, CSM5000, MSM5010, MSM5105 and MSM5100 integrated circuits and system software are the world’s first integrated circuits and software implementations of the 3G CDMA2000 standards. The MSM5000 digital baseband product is designed to support CDMA2000 1X for operation in a single 1.25 MHz channel. The CDMA2000 1X standard is fully compatible with current cdmaOne networks, allowing carriers to

8

deploy 3G networks while maintaining existing coverage for all subscribers, eliminating the expense of moving to a new network. The MSM5000 provides up to a 50% increase in handset standby time and is feature- and pin-compatible with our MSM3000 integrated circuit, allowing manufacturers currently producing handsets using the MSM3000 to rapidly implement CDMA2000 1X technology in their handsets. QCT’s CSM5000 base station product is the industry’s first to support the CDMA2000 1X standard, based on IS2000 for CDMA base stations as specified by the ITU. The CSM5000 product provides carriers with up to twice the overall voice user capacity of IS-95A and IS-95B systems. The MSM5010 CDMA2000 1X chipset is an entry-level product offering improved voice capacity for applications where high-speed data rates are not required. The MSM5105 CDMA2000 1X product offers improved voice capacity and the introduction of new 3G data services for mainstream subscribers. The MSM5100 is the first CDMA2000 1X integrated circuit with advanced position location capabilities and has integrated Universal Serial Bus and Bluetooth functionality, as well as other features of the Launchpad suite including multimedia.

     The CSM5500 and MSM5500 integrated circuits offer 1xEV-DO handset and infrastructure modems for high-speed data. These products support the 1xEV-DO standard, as well as CDMA2000 1X, and offers compatibility with IS-95 A/B CDMA systems.

     QCT’s MSM6xxx family of products, incorporating radioOne technology, enables tiered products for CDMA2000 1X, 1xEV-DO, WCDMA and GSM/GPRS networks. The MSM6000 CDMA2000 1X integrated circuit is an entry-level product optimized for voice applications. The MSM6025 provides voice and limited data capabilities to support demand by carriers worldwide for lower-tier handsets that also support data services. The MSM6050 integrated circuit offers multimedia applications with optimized gpsOne for mainstream users. We currently ship MSM6100 integrated circuit and system software, a highly integrated CDMA2000 1X multimedia product enabling lower system costs for manufacturers developing handsets with advanced multimedia applications. There are in excess of 20 separate handset designs expected to come to market based on this platform in the next 12 months.

     Extending the MSM6xxx family of integrated circuits, we have also announced the development of the MSM6150 integrated circuit and system software for CDMA2000 1X and the MSM6550 integrated circuit and system software for CDMA2000 1X, 1xEV-DO and multimode GSM/GPRS. These highly integrated products address global market requirements for higher quality video and graphics performance on wireless devices. We began providing samples to customers of the MSM6300 in September 2002, a single-baseband 3G product for multimode and multiband CDMA2000/GSM/GPRS. The MSM6300 and accompanying radioOne radio frequency integrated circuits comprise the first world-phone integrated circuit enabling global roaming across wireless networks. In March 2003, Samsung was the first customer to announce its adoption of this product. In fiscal 2003, we began providing initial samples to customers of the high-capacity, high-speed MSM6500 integrated circuit and system software that supports CDMA2000 1X, CDMA2000 1xEV-DO and roaming on GSM/GPRS systems. We also announced the CSM6700 integrated circuit and the MSM6700 integrated circuit and system software supporting integrated voice and simultaneous high-speed packet data. These products for infrastructure and handset manufacturers support 1xEV-DV and 1xEV-DO standards. 1xEV-DV enables wireless carriers to provide voice and bi-directional high-speed packet data services simultaneously on a single radio frequency carrier. We also announced the CSM6800 integrated circuit and the MSM6800 integrated circuit and system software for the wireless technology standard CDMA2000 1xEV-DO to provide cost-competitive products for both infrastructure and multimedia-enabled devices.

     In July 2003, we began providing samplesterrains: Hybrid Mobile Station-Assisted GPS (Global Positioning System) enables a location fix whenever a call can be placed; Mobile Station-Assisted GPS provides extreme sensitivity to customersGPS signals across a broad range of environments; Mobile Station-Based GPS provides repetitive fix capabilities that are ideal for navigation, tracking and games; and Standalone GPS enables positioning in off-network scenarios. Compatible with all major air interfaces, the MSM6250 integrated circuit, for which LG ElectronicsgpsOne technology is the firstindustry’s only fully-integrated wireless baseband and GPS product, and has enabled CDMA system operators to cost-effectively meet the FCC’s E911 mandate.

9

Downlink Packet Access (HSDPA), a next-generation feature of the WCDMA/UMTS standard, as well as roaming on GSM and GPRS systems.

WCDMA networks.

The QIS division provides technology to support and accelerate the convergencegrowth of the wireless data Internet and voice services.market. The BREW (Binary Runtime Environment for Wireless) platform is an application execution environment that provides an open platform for wireless devices, which means that BREW can

     In November 2001,

China.

     We provideThe QWBS division provides satellite and terrestrial-based two-way data messaging and position reporting services to transportation companies, private fleets, and construction equipment fleets.fleets and other enterprise companies. The satellite-based OmniTRACS mobile

10

communications system was first introduced in the United States in 1988. Through September 2003,2005, we have shipped nearly 489,000 OmniTRACS TruckMAIL, OmniExpress, GlobalTRACS and LINQover 566,000 satellite-based mobile communications systems (OmniTRACS, EutelTRACS and TruckMAIL) and over 85,000 terrestrial-based mobile communications systems (OmniExpress, T2 Untethered TrailerTRACS and GlobalTRACS), which currently operate in over 39 countries. Message transmission and position tracking for the OmniTRACS and TruckMAIL systems are provided by use of leased Ku-band and C-band transponders on commercially available geostationary earth orbit satellites. The OmniExpress, T2 Untethered TrailerTRACS, GlobalTRACS and LINQOmniOne systems use wireless digital terrestrial networks for messaging transmission, and the GPS constellation for position tracking. These mobile communications systems help transportation companies, private fleets and construction equipment fleets improve the utilization of assets and increase efficiency and safety by improving communications between drivers, machines and dispatchers. System features include status updates, load and pick-up reports, position reports at regular intervals, and vehicle and driving performance information.

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

Government Technologies (QGOV).The QGOV division (formerly known as QUALCOMM Digital Media, (QDM)

     The QDM division is comprised of the Government Systems and Digital Cinema businesses.

     The Government Systems businessor QDM) provides development, hardware and analytical expertise to United States Governmentgovernment (USG) agencies involving wireless communications technologies. We have developed, aproduced and shipped second generation CDMA Type 1 secure wireless terrestrial phonephones for the USG the QSec-800, that operatesoperate in enhanced security modes (referred to as Type 1) and incorporatesincorporate end-to-end encryption. DuringIn fiscal 2003, QSec-800 phones were2005, QGOV adapted, integrated and shipped CDMA2000 1X deployable base stations to the USG. In fiscal 2003, the next generation Type 1 secure phone development was launched with USG funding. Additionally, OmniTRACS products and services are being marketed and soldused for USG worldwide applications.

     We develop technologiesapplications and were sold to support the processing, transmission and managementUSG during fiscal 2005. Based on the percentage of content forQGOV revenues to our total consolidated revenues, the USG is not a variety of media applications, including the delivery of digitized motion pictures. In fiscal 2002, we released an end-to-end Digital Cinema System product which combines our expertise in advanced image compression, electronic security, network management and integrated circuit design to provide the secure delivery of digitized motion pictures to theatres worldwide. In May 2000, we entered into a strategic alliance with Technicolor Digital Cinema, Inc. (Technicolor) and formed a joint venture, Technicolor Digital Cinema, LLC (TDC), in which we owned a 20% interest. The joint venture has marketed the QUALCOMM Digital Cinema System and worked with the motion

11

picture industry as a technology enabler and service provider while supporting open standards for the digital delivery of motion pictures. In August 2003, we jointly announced with Thomson, the parent company of Technicolor, that we sold our equity interest in TDC to Thomson, a move that results in sole Thomson ownership of the venture. As part of the sale, Technicolor has acquired exclusive rights to manufacture, sell and service the multi-screen Theatre Management System, a key component of the Digital Cinema System. This sale arrangement does not preclude us from continuing to develop and market core digital cinema products and technologies, including decoder modules, encoders and conditional access systems that are based on our compression and decryption technology.

major customer.

Other Businesses

QUALCOMM Consumer Products (QCP)

     In February 2000,mobile device using the CDMA2000 1X, 1xEV-DO or WCDMA wireless link. Furthermore, the MediaFLO MDS can seamlessly integrate multicasting services provided over 3G operator networks with such services provided over a stand-alone FLO network.

spin-off transaction.

     Under now-terminated contracts with Globalstar L.P. (Globalstar), we designed, developed and manufactured subscriber. The QWS division sells products and ground communications systems utilizing CDMA technologyprovides services under new commercial agreements to Globalstar LLC (New Globalstar) and provided contract development services.its service providers and other customers. New Globalstar was formed to design, construct and operateoperates a worldwide, low-Earth-orbit satellite-based telecommunications system (thesystem. We received membership interests in New Globalstar System). We currently holdin fiscal 2004 as a result of its emergence from bankruptcy related to our claims as a creditor. On October 5, 2004, we received an approximate 6.3%additional ownership interest in New Globalstar through certain limited partnerships and other indirect interests.

     On January 16, 2001, Globalstar announced that, in order to have sufficient funds availableas partial consideration for the continued progress of its marketing and service activities, it had suspended indefinitely principal and interest payments on all of its debt, including its vendor financing obligations. Globalstar also announced its intent to restructure its debt. Globalstar filed for Chapter 11 bankruptcy protection during fiscal 2002. On April 25, 2003, the U.S. Bankruptcy Court in Delaware approved the sale of Globalstar’s assets tomobile phones. At September 25, 2005, we held an approximate 6.7% interest in New Globalstar in our QSI segment.

     We continuethin film optics, is expected to provide servicessubstantial performance, power consumption and sell productscost benefits as compared to Globalstar service providerscurrent display technologies. We expect the iMoD product to deliver a vivid and other customers involvedrealistic display image quality that can withstand extreme temperatures and be viewed in virtually any environment, including bright sunlight. Displays have become a key factor in the overall power consumption of wireless devices, with the Globalstar System. In addition, we areincreasing use of vibrant color screens and multimedia applications that generate rapidly changing images. The iMoD product is expected to offer significantly lower power consumption than existing display products, thereby extending the battery life of wireless devices. With the inclusion of color displays in negotiations with potential acquirersall types of wireless phones, including models at the low end of the market, the cost of the display has become an even more significant factor in the overall cost of the handset. An iMoD display should cost less to provide productsmanufacture than a comparable liquid crystal display because it requires fewer components and services to the new operating company.processing steps, thus enabling advanced multimedia capabilities on all tiers of mobile devices.

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has a strong and proven track record of innovation in wireless communications technologies. Our research and development expenditures in fiscal 2003, 20022005, 2004 and 20012003 totaled approximately $523 million, $452$1.01 billion, $720 million and $415$523 million, respectively. Research and development expenditures in fiscal 2003, 20022005, 2004 and 20012003 were primarily related to integrated circuit product and other initiatives to support lower cost phones, multimedia applications, high-speed wireless Internet access and multimode, multiband, multinetwork products and technologies, including CDMA2000 1X/1xEV-DO/1xEV-DV,1xEV-DO, WCDMA, HSDPA, GSM/GPRS, WLAN, WCDMAGPRS/EDGE and radioOneOFDMA, and the development of our FLO technology, MediaFLO MDS and iMoD display products using MEMS technology.

The markets in which our QCT segment operates are intensely competitive. QCT competes worldwide with a number of United States and international manufacturers.semiconductor designers and manufacturers in the United States and internationally. As a result of the trend toward global expansion by foreign and domestic competitors and technological and public policy changes, we anticipate that additional competitors will enter this market. We believe that the principal competitive factors for CDMA integrated circuit providers to our addressed

.As part of our strategy to generate new and ongoing licensing revenues, significant resources are allocated to develop leading edge technology for the telecommunications industry. In addition to licensing manufacturers of subscriber and network equipment, we have made licenses to our essential CDMA patents available to competitors of our QCT segment. We face competition in the development of intellectual property for next-generationfuture generations of digital wireless communications technology and services. There are no guarantees that our technologies will continue to be adopted or we will be able to secure patents for our technology to subsequently

14

license. Furthermore, there are no guarantees that existing systems and applications cannot or will not be replaced by competitors’ technologies, thereby jeopardizing our existing royalty and licensing revenues.

purchase Flarion, a major developer and patent holder of OFDMA technology.

Existing competitors of our QWBS division offering alternatives to our OmniTRACS, TruckMAIL, OmniExpress, GlobalTRACS, QConnect, EutelTRACS and LINQ system products are aggressively pricing their products and services and could continue to do so in the future. In addition, theseour domestic markets, we face over ten key competitors to our OmniTRACS, TruckMAIL, OmniExpress, T2 Untethered TrailerTRACS, QConnect and OmniOne products and services, as well as over six key competitors to our GlobalTRACS system. Internationally, we face several key competitors each in Europe and Mexico. These competitors are offering new value-added

     Competitors to

15

fiscal 2005, and the other sharing obligation will expire in fiscal 2006.

16

17

Employees

17

We cannot assure you that our strategic investments (either those we currently hold or future investments) will generate financial returns or that they will result in increased adoption or continued use of CDMA technologies.

We depend upon a limited number of third party manufacturers to provide subassemblies and parts for our products. Any disruptions in the operations of, or the loss of, any of these third parties could harm our ability to meet our delivery obligations to our customers and increase our cost of sales.

     QCT Segment

     We subcontract all of the manufacturing and assembly, and most of the testing, of our integrated circuits. We depend upon a limited number of third parties to perform these functions, some of which are only available from single sources with which we do not have long-term contracts. IBM, Taiwan Semiconductor Manufacturing Co. and United Microelectronics are the primary foundry partners for our family of baseband integrated circuits. IBM, Motorola and Texas Instruments are the primary foundry partners for our family of radio frequency and analog integrated circuits. Our reliance on a sole-source vendor primarily occurs during the start-up phase of a new product. Once a new product reaches a significant volume level, we typically establish alternative suppliers for technologies that we consider critical. Our reliance on sole or limited-source vendors involves risks. These risks include possible shortages of capacity, product performance shortfalls, and reduced controls over delivery schedules, manufacturing capability, quality assurance, quantity and costs. We have no firm long-term commitments from our manufacturers to

23

supply products to us for any specific period, or in any specific quantity, except as may be provided in a particular purchase order. As a result, these manufacturers may allocate, and in the past have allocated, capacity to the production of other products while reducing deliveries to us on short notice.

     Our operations may also be harmed by lengthy or recurring disruptions at any of the facilities of our manufacturers and may be harmed by disruptions in the distribution channels from our suppliers and to our customers. These disruptions may include labor strikes, work stoppages, widespread illness, terrorism, war, fire, earthquake, flooding or other natural disasters. These disruptions could cause significant delays in shipments until we are able to shift the products from an affected manufacturer to another manufacturer. The loss of a significant third-party manufacturer or the inability of a third-party manufacturer to meet performance and quality specifications or delivery schedules could harm our ability to meet our delivery obligations to our customers.

     In addition, one or more of our manufacturers may obtain licenses from us to manufacture CDMA integrated circuits that compete with our products. In this event, the manufacturer could elect to allocate scarce components and manufacturing capacity to their own products and reduce deliveries to us. In the event of a loss of or a decision to change a key third-party manufacturer, qualifying a new manufacturer and commencing volume production or testing could involve delay and expense, resulting in lost revenues, reduced operating margins and possible loss of customers.

     QWI Segment

     Several of the critical subassemblies and parts used in our QWBS division’s existing and proposed products are currently available only from third-party single or limited sources. These include items such as electronic and radio frequency components, and other sophisticated parts and subassemblies which are used in the OmniTRACS, OmniExpress and GlobalTRACS products. These third parties include companies such as Tyco International (M/A Com), Rakon, Mini-Circuits, Cambridge Tool & Mfg., Andrew Corporation, American Design, Deutsch ECD, PCI Limited, KeyTronic EMS, Seavey Engineering Associates, Symbol Technologies, Navman NZ, Thomson-Airpax Mechatronics, Eagle-Picher Industries and Sony/Ericsson. Our reliance on sole or limited source vendors involves risks. These risks include possible shortages of certain key components, product performance shortfalls, and reduced control over delivery schedules, manufacturing capability, quality and costs. In the event of a long-term supply interruption, alternate sources could be developed in a majority of the cases. The inability to obtain adequate quantities of significant compliant materials on a timely basis could have a material adverse effect on our business, operating results, liquidity and financial position.

A reduction or interruption in component supply or a significant increase in component prices could have a material adverse effect on our business or profitability.

     Our ability to meet customer demands depends, in part, on our ability to obtain timely and adequate delivery of parts and components from our suppliers and internal manufacturing capacity. We have experienced component shortages in the past, including components for our integrated circuit products, that have adversely affected our operations. Although we work closely with our suppliers to avoid these types of shortages, we may continue to encounter these problems in the future. Component shortages could adversely affect our ability and that of our customers and licensees to ship products on a timely basis and our customers’ or licensees’ demand for our products. Any such shipment delays or declines in demand could reduce our revenues and harm our ability to achieve or sustain acceptable levels of profitability. Additionally, failure to meet customer demand in a timely manner could damage our reputation and harm our customer relationships.

24

customers or licensees may also experience component or software failures or defects which could require significant product recalls, reworks and/or repairs which are not covered by warranty reserves and which could consume a substantial portion of the capacity of our third-party manufacturers or those of our customers or licensees. Resolving any defect or failure related issues could consume financial and/or engineering resources that could affect future product release schedules.

Additionally, a defect or failure in our products or the products of our customers or licensees could harm our reputation and/or adversely affect the growth of 3G wireless markets.

     Our competitors include companies

25

those offering low cost terrestrial-based products and current as well as future satellite-based systems,which may impact margins, and intensify competition in new markets. Similarly, some original equipment manufacturers of trucks and truck components are beginning to offer built-in, on-board communications and position location reporting systems that may impact our margins and intensify competition in our current and new markets. Some potential competitors of our QWBS business, if they are successful, maymarkets and harm our ability to compete in certain markets.

Our cash investments represent a significant asset that may be subject to fluctuating or even negative returns depending upon interest rate movements and financial market conditions in fixed income and equity securities.

In addition, stock volatility may be precipitated by failure to meet earnings expectations or other factors, such as the potential uncertainty in future reported earnings created by the adoption of option expensing and the related valuation models used to determine such expense.

27

introduction or shipment of our products and technology in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technology could decrease, and our competitive position could be damaged.

We cannot be certain that the laws and policies of any country, including the United States, or the practices of any of the international standards bodies, foreign or domestic, with respect to intellectual property enforcement or licensing, issuance of wireless licenses or the adoption of standards, will not be changed in a way detrimental to our licensing program or to the sale or use of our products or technology. Any action we take to influence such potential changes could absorb significant management time and attention, which, in turn, could negatively impact our operating results.

28

business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Should additional taxes be assessed as a result of an audit or litigation,In such case, a material effect on our income tax provision and net income in the period or periods forin which that determination is made could result.

29

manner.2012. A failure to maintain adequate satellite capacity wouldcould harm our business, operating results, liquidity and financial position.

     Our OmniExpress, LINQ, GlobalTRACS, QConnect and OmniOne systems are QWBS terrestrial-based products and thus rely on various wireless terrestrial communicationscommunication networks operated by third parties. We believe these terrestrial networks will be available for our products; however, we cannot assure you that these networks will continue to be available to us or that they will perform adequately for our needs. The unavailability or nonperformance of these network systems could harm our business.

30

     For example, any changes requiring that we record compensation expense in the statement of operations for employee stock options using the fair value method or changes in existing taxation rules related to stock options could have a significant negative effect on our reported results. Several agencies and entities are considering, and the Financial Accounting Standards Board has announced, proposals to change generally accepted accounting principles in the United States that, if implemented, would require us to record charges to earnings for employee stock option grants. This pending requirement would negatively impact our earnings. For example, recording a charge for employee stock options under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” would have reduced our net income by $260 million and $234 million for fiscal 2003 and 2002, respectively, and increased our net loss by $167 million for fiscal 2001.

31

new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.time. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to complyComplying with evolving laws, regulationsinterpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and standards,procedures, and this investment may result in increased general and administrative expenses and a diversion ofdivert management time and attention from revenue-generating activitiesrevenue generating to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may also be harmed. In addition, it has become more difficult and more expensive for us to obtain director and officer liability insurance, and we have purchased reduced coverage at substantially higher cost than in the past. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business.

to seek litigation costs against them.

34

by Zoltar and denied summary judgment motions by us with leave to renew the motions at trial. The court is also considering further claim construction and will consider further evidence on invalidity prior to trial. Trial is currently set for February 24, 2004. Although there can be no assurance that an unfavorable outcome of this dispute would not have a material adverse effect on our operating results, liquidity or financial position, we believe the claims are without merit and will vigorously defend the action.

district court.

We have not recorded any accrual for contingent liability associated with the legal proceedings described above based on our belief that a liability, while possible, is not probable. Further, any possible range of loss cannot be estimated at this time. We are engaged in numerous other legal actions arising in the ordinary course of ourits business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position. In addition, some matters that have previously been disclosed may no longer be described because of rulings in the case, settlements, changes in our business or other developments rendering them, in our judgment, no longer material to our operating results, liquidity or financial position.