cdmaOne®

1

2

to permit this communication. Our customers use these products to communicate with drivers, monitor vehicle location and performance, provide automated driver logs, fuel tax reporting and enhanced customer service. 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.

Our phone software and related services business.Related Services Business.We provide our BREW (Binary Runtime Environment for Wireless) productproducts and services to support the development of over-the-air wireless applications and services. We provide BREW to wireless network operators, handset manufacturers and application developers and support for developing and delivering over-the-air wireless applications and services.software developers. The BREW productproducts and services include the BREW SDK (softwaresoftware development kit)kit (SDK) for developers,developers; the BREW applications platform (i.e. software programs) and interface tools for device manufacturers,manufacturers; and the BREWuiOne customized user interface product and services and the deliveryOne Content Distribution System that enables networkto wireless operators to getenable the distribution of content and applications from developers to the market, and coordinatewhile also providing the settlement of the billing and payment process. The BREW platform is a software application that provides an open, standard platform for wireless devices, which means that BREW can be made to interface with many software applications, including those developed by others. We make the BREW SDK available, free of charge, to any qualified person or company interested in developing a new productsoftware application for wireless communications. BREW leverages the capabilities available in integrated circuits and system software, enabling our customers to develop feature-rich applications and content while reducing memory and maximizing system performance of the wireless phone itself. In addition to CDMA2000, BREW can be used on wireless phones and other devices that support other wireless technologies, other than CDMA, such as GSM/GPRS (GeneralGSM, General Packet Radio System)System (GPRS), Enhanced Data Rates for GSM Evolution (EDGE) and WCDMA.

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

cdmaOne and CDMA2000 subscribers through 47 commercial operators.

and the CardioNet Monitoring Center.

     We are devoting significant research and development resources to developing high-speed wireless dataUniversal Serial Bus (USB), Forward Link Only (FLO), Orthogonal Frequency Division Multiplexing (OFDM), Global System for Mobile Communications-Mobile Application Port (GSM-MAP), American National Standards Institute 41 (ANSI-41) and Internet accessProtocol-based (IP-based) core networks. We continue to support multiple mobile client software environments in our multimedia and convergence chipsets, such as BREW, Java, Windows Mobile, PalmOS and Linux.

annual revenues per user.

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

4

standards.

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

5

     Our second generation CDMA technology offers 10 to 20 times the capacity of analog systems and more than three times the capacity of TDMA- and GSM-based systems through more efficient utilization of wireless carriers’ licensed spectrum.

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

.

6

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

     Commercial deployment ofOctober 2000. CDMA2000 1xEV-DO beganwas first commercially launched in January 2002 in South Korea with the introduction of SKT’s high-speed mobile multimedia and broadcast service. As of August 2003, SKTservice called “June,” and KTF reported more than 2 million CDMA2000also launched 1xEV-DO subscribers worldwide, with more than 65% oflater the CDMA market in various stages of 1xEV-DO deployments and trials. For example,same year. Other prominent carriers, such as Verizon Wireless began offering 1xEV-DO servicesand Sprint Nextel in the United States, on October 1, 2003, and KDDI in Japan, has announced that it will begin offering 1xEV-DO-based services on November 28, 2003. Several other operators with non-publicly announced trialsVIVO in Brazil and Telecom New Zealand, have deployed 1xEV-DO network equipment in numerous markets and are in the process of rolling outexpanding coverage nationwide. CDMA2000 1xEV-DO commercially over the next 18 months.

     Commercial deployments of CDMA2000 1xEV-DVsubscribers are expected to continue to grow as more operators begin into offer the year 2005. CDMA2000 1xEV-DV will offer mobile peak data rates equal to a versionservice 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. Currently, major laptop computer companies, including Lenovo, Dell, HP, Toshiba and Panasonic, have products incorporating 1xEV-DO which is expected to become commercially available around the same time or earlier.

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 for communications between the wireless device and the network, the infrastructure network has been specifically designed to be compatible with the GSM 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 primarya valuable patent portfolio that includes patents utilized byessential to implementation of each of the 3G CDMA alternatives,alternative standards and patents that are useful for commercially successful product implementations. Generally, we have licensed substantially all of our patents to our CDMA licensees. Under each of our existing license

7

     QCT sells products to both wireless phone and infrastructure manufacturers. For wireless phone manufacturers, QCT’s products include baseband and system software,analog, radio frequency, intermediate frequency and power management devices. These highly integrated circuits. We continue to add foundry suppliers and have recently begun volume manufacturing with Chartered Semiconductor Manufacturing Ltd., Samsung Electronics Co., and Semiconductor Manufacturing International Corporation. Our fabless model provides us the flexibility to select suppliers that offer advanced process technologies to manufacture, assemble and test our integrated circuits at a competitive price.

     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.

terrains: 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 GPS 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 gpsOne technology is the industry’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,which supports our FLO technology, as well as roaming on GSMDigital Video Broadcasting-Handheld (DVB-H) and GPRS systems.

one-segment Integrated Services Digital Broadcasting-Terrestrial (ISDB-T), creating a common platform that handset manufacturers can leverage to address multiple standards. The Universal Broadcast Modem product will interface with integrated circuits from the Enhanced Multimedia and Convergence Platforms for both CDMA2000 and WCDMA networks, and we expect to ship samples in the second quarter of fiscal 2007.

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 environmentproducts and services facilitate the delivery of data services. BREW customers can benefit from several offerings which include: uiOne for rich, integrated user experiences with fast access to services on mobile phones; deliveryOne for differentiated and integrated, operator-managed support and delivery of advanced wireless data content and services; and marketOne for a quick-to-market, hosted, scalable content delivery service that provides an open platform for wireless devices, which means thatincludes media titles, flexible management and monetization, content provider settlement and business intelligence services. QIS offers this comprehensive set of BREW can be madeofferings to interface with many software applications, including those developed by others.meet the distinct needs of companies delivering mobile products and services around the world. The BREW platform is part of a complete package of products for wireless applications development, device configuration, application distribution and billing and payment. The BREW platform currently leverages the capabilities available in QCT’s integrated circuits and system software, enabling development of feature-rich applications and content while reducing memory overhead and maximizing system performance. The BREW product and services include the BREW SDK (software development kit) for developers, the BREW applications platform (i.e. software programs) and interface tools for device manufacturers, and the BREW Distribution System that enables network operators to get applications from developers to market and coordinate the billing and payment process. This includes BREW extensions, such as virtual machines, browsers and other interpreters that process executable content, such as JAVA midlets, XHTML, HTML, JavaScript and Flash. Commercial BREW-based services enable consumers to customize their handsets by downloading applications over-the-air from an operator’s application download server.

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. QWBS wirelessly enables businesses to assist in tracking and managing their assets through backend platforms and services which provide information to the businesses and their employees on a real-time basis. The satellite-based OmniTRACS mobile

10

communications system was first introduced in the United States in 1988. Through September 2003,2006, we have shipped nearly 489,000 OmniTRACS TruckMAIL, OmniExpress, GlobalTRACS and LINQapproximately 609,000 satellite-based mobile communications systems (OmniTRACS, OmniVision, EutelTRACS and TruckMAIL) and approximately 125,000 terrestrial-based mobile communications systems (OmniExpress, T2 Untethered TrailerTRACS and GlobalTRACS), which currently operate in over 3940 countries. Message transmission and position tracking for the OmniTRACS, OmniVision and TruckMAIL systems are provided by use of leased Ku-band and C-band transponders on commercially available geostationary earth orbit satellites. The OmniExpress, GlobalTRACST2 Untethered TrailerTRACS and LINQGlobalTRACS systems use wireless digital and analog 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.

     Recently

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

     The Government Systems business 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 were2006, 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 2006. 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, we sold our terrestrial-based CDMA wireless consumer phone business, including our phone inventory, manufacturing equipment and customer commitments, to Kyocera Wireless (Kyocera).stand-alone FLO network.

only fully mobile OFDM offering. We acquired Flarion Technologies, Inc. in January 2006 to expand our already extensive portfolio of OFDMA intellectual property and enhance our research and development organization with expertise in OFDMA technology and products. FLASH-OFDM is an air interface technology designed for the delivery of advanced Internet services in the mobile environment. The technology is based on the OFDM airlink, a wireless access method that combines the attributes of its two predecessors, TDMA and CDMA, to address the unique demands posed by mobile users of broadband data and packetized voice applications. Through FLASH-OFDM, QFT has created an end-to-end network offering for mobile operators, which includes the RadioRouter base station product line, wireless modems, embedded chipsets and system software. The all-IP wireless network will support both broadband data and packetized voice applications.

     Under now-terminated contracts with Globalstar L.P. (Globalstar), we designed, developed and manufactured subscriber.QWS sells products and ground communications systems utilizing CDMA technologyprovides services under commercial agreements to Globalstar, Inc. (Globalstar) and provided contract development services.its service providers and other customers. Globalstar was formed to design, construct and operateoperates a worldwide, low-Earth-orbit satellite-based telecommunications system (thesystem. We received ownership interests in 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 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 to a new company to be controlled by ICO Global Communications (Holdings) Limited (ICO), however ICO has indicated as of October 2003 that it does not believe it will complete the acquisition.mobile phones. At September 24, 2006, we held an approximate 6.6% interest in Globalstar has opened negotiations with other parties with respect to an acquisition of Globalstar’s assets.

     We continue to provide services and sell products to Globalstar service providers and other customers involved with the Globalstar System. In addition, we are in negotiations with potential acquirers to provide products and services to the new operating company.our QSI segment.

12

has a strong and proven track record of innovation in wireless communications technologies. Our research and development expenditures in fiscal 2003, 20022006, 2005 and 20012004 totaled approximately $523 million, $452 million$1.5 billion, $1.0 billion and $415$720 million, respectively. Research and development expenditures in fiscal 2003, 20022006, 2005 and 20012004 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,1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA (including GSM/GPRS, WLAN, WCDMAGPRS/EDGE), HSDPA, HSUPA 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 a larger CDMA wireless market, 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 markets are product performance, level of integration, quality, compliance with industry standards, price, time to market,time-to-market, system cost, design and engineering capabilities, new product innovation and customer support. The specific bases on which we compete against alternative CDMA integrated circuit providers vary by product platform. We also compete in both single and dual-mode environments against alternative wireless communications technologies including, but not limited to, GSM/GPRS,GPRS/EDGE, TDMA, WiMax and analog.

.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.

     Competitors to

We have also informed the standards bodies that we may hold essential intellectual property rights for certain standards that are based on OFDMA technology, e.g. 802.16e and 802.20.

15

fiscal 2005, and the other sharing obligation expired in fiscal 2006.

     Louis Lupin, age 48, hasQUALCOMM Internet Services (QIS) since July 2001 and as President of QUALCOMM MediaFLO Technologies since December 2005. She served as Senior Vice President and General CounselManager of the CompanyQIS from September 2000 to July 2001. Ms. Johnson holds a B.S. degree in Electrical Engineering from San Diego State University.

suffer since we generally have not generated revenues from GSM product sales, and there is no assurance that our OFDM/OFDMA patent portfolio will be as valuable as our CDMA portfolio or that our OFDMA chipset business will be as successful as our CDMA chipset business. Further, if OFDMA technology is not adopted and deployed commercially, our investment in Flarion and OFDMA technology may not provide us an adequate return on our investment.

19

wireless network operators have commercially deployed CDMA2000 1X,and WCDMA, we cannot predict the timing or success of further commercial deployments or expansions of CDMA2000, 1X, WCDMA or other CDMA systems. If existing deployments are not commercially successful or do not continue to grow their subscriber base, or if new commercial deployments of CDMA2000, 1X, WCDMA or other CDMACDMA-based systems are delayed or unsuccessful, our business and financial

A limited number of operators have started testing OFDMA technology, but there can be no assurance that OFDMA will be adopted or deployed commercially or that we will be successful in developing and marketing OFDMA products. Although the acquisition of Flarion brings us an additional and very strong portfolio of issued and pending patents related to OFDMA technology, and, prior to the acquisition, we had hundreds of issued or pending patents relating to applications of GPRS, EDGE, OFDM, OFDMA and multi in, multi out (MIMO), there can be no assurance that our patent portfolio in these areas would be as valuable as our CDMA portfolio. Sprint Nextel has indicated that it is planning to deploy WiMax (an OFDMA based technology) in its 2.5 Ghz spectrum, also known as the Broadband Radio Services band. Other operators are investigating deployment of WiMax. Although we believe that our patented technology is essential and useful to implementation of the WiMax standard, there is no assurance that we will achieve the same royalty revenue on such WiMax deployments as on CDMA or other technology deployments or that we will achieve the same chipset market shares within a WiMax network.

     TheThree customers, LG Electronics, Motorola Inc. and Samsung Electronics Company, constitute a significant portion of QCT’s revenues such that the loss of any one of our QCT segment’s significantthese customers or the delay, even if only temporary, or cancellation of significant orders from any of these customers would reduce our revenues in the period of the cancellation or deferral and could harm our ability to achieve or sustain acceptable levels of profitability.operating results. Accordingly, unless and until our QCT segment diversifies and expands its customer base, our future success will significantly depend upon the timing and size of future purchase orders, if any, from these customers. Factors that may impact the size and timing of orders from customers of our QCT segment include, among others, the following:

Our QTL segment derives royalty revenues primarily from sales of CDMA products by our licensees. WeAlthough we have more than 135 licensees, we derive a significant portion of our royalty revenue from a limited number of licensees. Our future success depends upon the ability of our licensees to develop, introduce and deliver high volumehigh-volume products that achieve and sustain market acceptance. We have little or no control over the sales efforts of our licensees, and we cannot assure you that our licensees will be successful or that the demand for wireless communications devices and services offered by our licensees will continue to increase. Any reduction in the demand for or any delay in the development, introduction or delivery of wireless communications devices utilizing our CDMA technology could have a material adverse effect on our business. Reductions in the average selling price of wireless communications devices utilizing our CDMA technology, without a comparable increase in the volumes of such devices sold, could have a material adverse effect on our business. Weakness in the value of foreign currencies in which our customers’ products are sold may reduce the amount of royalties payable to us in U.S. dollars.

21

regions may adversely affect our operating results because our products and those of our customers and licensees may become more expensive to purchase in the countries of the affected currencies. During fiscal 2003, 43% and 15%2006, 70% of our revenues were from customers and licensees based in South Korea, Japan and Japan, respectively,China, as compared to 37% and 18%69% during fiscal 2002, respectively,2005 and 35% and 22%68% during fiscal 2001, respectively.2004. These customers sell their products to markets worldwide, including Japan, South Korea, China, India, North America, South America and Europe. A significant downturn in the economies of Asian countries where many of our customers and licensees are located, particularly the economies of South Korea, Japan and Japan,China, or the economies of the major markets they serve would materially harm our business.

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 whichthat 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-partythird 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.

     From time to time, we may repurchase our common stock at prices that may later be higher than the fair market value of the stock. This could result in a loss of value for stockholders if the shares were reissued at lower prices.

In addition, stock price 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 assumptions used for share-based compensation 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 rely primarilyability to provide accurate guidance on patent, copyright, trademarkour future reported financial results due to the variability of the factors used to estimate the values of share-based payments. If factors change and trade secret laws, as well as nondisclosure and confidentiality agreements and otherwe employ different assumptions or different valuation methods to protect our proprietary information, technologies and processes, including our patent portfolio. Policing unauthorized usein the application of our products and technologies is difficult. We cannot be certainFAS 123R in future periods, the compensation expense that the stepswe record under FAS 123R may differ significantly from what we have taken will preventrecorded in the misappropriation or unauthorized use of our proprietary information and technologies, particularly in foreign countries where the laws may not protect our proprietary rights as fully as United States laws.

     The vast majority of our patents and patent applications relate to our CDMA digital wireless communications technology and much of the remainder of our patents and patent applications relate to our gpsOne, BREW, OmniTRACS, Digital Cinema, Globalstar and Eudora products. Litigation may be required to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation, we could lose our proprietary rights or incur substantial unexpected operating costs. Any action we take to protect our intellectual property rights could be costly and could absorb significant management time and attention,current period, which in turn, could negatively impact our operating results. In addition, failure to protect our trademark rights could impair our brand identity.

Claims by other companies that we infringe their intellectual property or that patents on which we rely are invalid could adversely affect our business.

     From time to time, companies may assert patent, copyright and other intellectual proprietary rights to our technologies or technologies used in our industry. These claims may result in our involvement in litigation. We may not prevail in such litigation given the complex technical issues and inherent uncertainties in intellectual property litigation. If any of our products were found to infringe on protected technology, we could be required to redesign or license such technology and/or pay damages or other compensation to the infringed party. If we were unable to license protected technology used in our products, we could be prohibited from making and selling such products.

     In addition, as the number of competitors in our market increases and the functionality of our products is enhanced and overlaps with the products of other companies, we may become subject to claims of infringement or misappropriation of the intellectual property rights of others. Any claims, with or without merit, could be time consuming, result in costly litigation, divert the efforts of our technical and management personnel or cause product release or shipment delays, any of which could have a material adverse effect upon our operating results. In any potential dispute involving our patents or other intellectual property, our licensees could also become the targets of litigation. Any such litigation could severely disrupt the business of our licensees, which in turn could hurt our relations with our licensees and cause our revenues to decrease.

     A number of other companies have claimed to own patents essential to various proposed 3G CDMA standards. If we or other product manufacturers are required to obtain additional licenses and/or pay royalties to one or more patent holders, this could have a material adverse effect on the commercial implementation of our CDMA products and technologiesstock price and our profitability.

     Other companies or entities also may commence actions seeking to establish the invalidity of our patents. In the event that one or more of our patents are challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could harm our competitive position. If any of our key patents are invalidated, or if the scope of the claims in any of these patents is limited by court decision, we could be prevented from licensing the invalidated or limited portion of our technology and our licensees may be prevented from manufacturing and selling the products that incorporate such technology without obtaining a license to use a third party’s technology. Even if such a patent challenge is not successful, it could be expensive and time consuming, divert management attention from our business and harm our reputation.

stock price volatility.

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.

The high amount of capital required to obtain radio frequency licenses and deploy and expand wireless networks could slow the growth of the wireless communications industry and adversely affect our business.

     Our growth is dependent upon the increased use of wireless communications services that utilize our CDMA technology. In order to provide wireless communications services, wireless operators must obtain rights to use specific radio frequencies. The allocation of frequencies is regulated in the United States and other countries throughout the world and limited spectrum space is allocated to wireless communications services. Industry growth may be affected by the amount of capital required to: obtain licenses to use new frequencies; deploy wireless networks to offer voice and data services; and expand wireless networks to grow voice and data services. Over the last several years, the amount paid for spectrum licenses has increased significantly, particularly for frequencies used in connection with 3G technology. In addition, litigation and disputes involving prior and future spectrum auctions has delayed the expansion of wireless networks in the United States and elsewhere, and it is possible that this delay could continue for a significant amount of time. The significant cost of licenses and wireless networks, and delays associated with disputes over new licenses, may slow the growth of the industry if wireless operators are unable to obtain or service the additional capital necessary to implement 3G wireless networks. Our growth could be adversely affected if this occurs.

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.

Our business and operating results will be harmed if we are unable to manage growth in our business.

     Certain of our businesses have experienced periods of rapid growth that have placed, and may continue to place, significant demands on our managerial, operational and financial resources. In order to manage this growth, we must continue to improve and expand our management, operational and financial systems and controls, including quality control and delivery and service capabilities. We also need to continue to expand, train and manage our employee base. We must carefully manage research and development capabilities and production and inventory levels to meet product demand, new product introductions and product and technology transitions. We cannot assure you that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers and licensees.

30

     In addition, inaccuracies in our demand forecasts, or failure of the systems used to develop the forecasts, could quickly result in either insufficient or excessive inventories and disproportionate overhead expenses. If we ineffectively manage our growth or are unsuccessful in recruiting and retaining personnel, our business and operating results will be harmed.

     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 maymight 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.

     The classified board, transaction approval, special meeting and otherwritten consent. These charter provisions may discourage certain types of transactions involving an actual or potential change in our control.control, including those offering stockholders a premium over current market prices. These provisions may also discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices and may limit our stockholders’ ability to approve transactions that they may deem to be in their best interests.