Slide 1: Broadcom's Highly Compelling Proposal to Acquire Qualcomm
February 22, 2018 Broadcom’s Highly Compelling Proposal to Acquire Qualcomm Filed by Broadcom Cayman L.P. Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Qualcomm Incorporated (Commission File N
Slide 2: Cautionary Note Regarding Forward-Looking and Similar Statements
Cautionary Note Regarding Forward-Looking and Similar Statements This communication contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amend
Slide 3: Broadcom Remains Fully Committed to Acquiring Qualcomm
Broadcom Remains Fully Committed to Acquiring Qualcomm Despite Qualcomm’s Unwillingness to Meaningfully Engage and its Unilateral Transfer of Value to NXP Stockholders ISS Recommends Qualcomm Stockholders Vote on the BLUE Proxy Card “FOR” Four Broadcom Nominees and States that Qualcomm Should Negoti
Slide 4: Broadcom's Nominees Are Independent and Highly Qualified
Broadcom urges Qualcomm stockholders to vote the BLUE CARD for ALL six independent, highly qualified nominees to ensure engagement with Broadcom Independent CEO / CFO Experience Technology R&D / Experience M&A / Finance Experience International Supply Chain Experience Large Cap, Public Company Board
Slide 5: Qualcomm Has Repeatedly Failed to Deliver Stockholder Value
Qualcomm Has Repeatedly Failed to Deliver Stockholder Value Qualcomm’s Standalone Plan Rehashes 2015’s Broken Promises and is Not Credible NXP Will Not Solve Qualcomm’s Problems Broadcom’s Offer Provides Significantly More Value to Qualcomm Stockholders Than Any Other Alternative Broadcom’s Offer Pr
Slide 6: Broadcom's Highly Compelling Proposal
Broadcom’s Highly Compelling Proposal Highly Compelling Value $79 per Qualcomm share $57 in cash and remainder in Broadcom shares 50% premium to Qualcomm 30-day VWAP(1) 44% premium to Qualcomm unaffected price(2) Substantial Regulatory Certainty Merger agreement includes significant commitments to a
Slide 7: I. Qualcomm Has Repeatedly Failed to Deliver Stockholder Value
I.Qualcomm Has Repeatedly Failed to Deliver Stockholder Value
Slide 8: Qualcomm's Performance is in the Bottom Decile of the S&P 500
Note:Market data as of 11/2/2017, Qualcomm’s last unaffected date Qualcomm’s Performance is in the Bottom Decile of the S&P 500 Qualcomm’s Stock Price Has Significantly Underperformed Return 8% 664% Rank 433 7 Percentile 9% 99% 5-Year Return of S&P 500 Constituents
Slide 9: Qualcomm Failed to Turn 4G Leadership Into Stockholder Value
“We are ramping investments necessary to extend our leadership position in 5G as operators and customers seek to accelerate their launch date…. The modem technology and complexity is increasing, and we believe we can continue to outperform our competitors with our level of 5G innovation. It is clear
Slide 10: Qualcomm's Poor Execution Has Resulted in Significant Revenue Declines
(2) Qualcomm’s Poor Execution Has Resulted in Significant Revenue Declines During a Period of Strong Industry Growth Qualcomm is in Decline FY2014 – FY2017 Revenue Growth CAGR Unrealistic Long-Term Revenue Growth Target (1) 2018 Plan REALITY DISCONNECT MASSIVE UNDERPERFORMANCE (1) Per Gartner QCT an
Slide 11: Qualcomm is Overstating its 5G Growth Opportunities
Qualcomm is Overstating its 5G Growth Opportunities Qualcomm’s 4G Growth Benefitted From a Unique Set of Tailwinds 39% 67% ~15 providers ~5 providers Fewer baseband / app processor providers make share increases more difficult Smartphone market has matured Unclear which 5G “killer app” or device wil
Slide 12: Qualcomm's Broken Business Model Impacts Results
Qualcomm’s Broken Business Model Impacts Results Qualcomm’s Projected 6-8% Revenue Growth Rate is Unrealistic Given These Trends ? Qualcomm Mobile Phone Application Specific Revenue is in Decline(1) Downward Pressure on Implied QTL Royalty Rate(2) ($ in billions) Qualcomm no longer discloses royalty
Slide 13: Qualcomm Failed to Create Positive Operating Leverage
Despite Rapid Revenue Growth During the 4G Transition, Qualcomm Failed to Create Positive Operating Leverage in its Business Qualcomm’s Margins Have Declined Even When Revenue Has Grown… $11.0 Revenue EBT Margin Revenue and EBT Margin ($ in billions) 2010 à 2017 EBT Margin Decline: 1,399 bps Note:No
Slide 14: Qualcomm's Inability to Manage its Cost Structure
Qualcomm’s Inability to Manage its Cost Structure Caused Profitability to Decline Precipitously …And Qualcomm Has Significantly Underperformed its Peers CAGR FY2014 – FY2017 PEERS Revenue 6% 7% Gross Profit 5% 10% EBT 10% 17% Net Income 11% 18% Note:EBT margin as reported; non-GAAP financials presen
Slide 15: $21B in Repurchases Mask a 32% Decline in Underlying EPS
$21B in Repurchases Since FY2014 Mask a 32% Decline In Underlying EPS Share Repurchases Have Masked a Dramatic Earnings Decline $5.27 $4.66 $4.44 $4.28 18% of EPS driven from buybacks Note:Non-GAAP financials presented; diluted EPS and shares presented ? Qualcomm EPS is Being Inflated by Stock Buyba
Slide 16: II. Qualcomm's Standalone Plan Rehashes 2015's Broken Promises
II. Qualcomm’s Standalone Plan Rehashes 2015’s Broken Promises and is Not Credible
Slide 17: Qualcomm's Broken Promises: Create Sustainable Value
SOX S&P 500 Qualcomm’s Broken Promises #2 QCT Growth #3 Cost Reductions #4 Operating Margins #5 Profitable Growth #1 Create Sustainable Value For Stockholders 2015 PLAN 2018 PLAN “We are poised to excel in an even larger market set of opportunities and to deliver tremendous value to Qualcomm stockho
Slide 18: Qualcomm's Broken Promises: QCT Growth
“…we are investing in adjacent opportunities that are already delivering significant revenue for QCT today, and which will — which we expect to drive meaningful growth for QCT in the coming years” “Our ability to grow the business at 6%-8% annually over time is underpinned by growth from the expansi
Slide 19: Qualcomm's Broken Promises: Cost Reductions
Qualcomm’s Broken Promises “Our estimate also reflects the benefits of a new $1 billion cost reduction program we will be implementing immediately as we move to align our cost structure toward our long term margin targets” ($ in billions) “…we are taking actions to substantially reduce costs, taking
Slide 20: Qualcomm's Broken Promises: Operating Margins
Note:Non-GAAP financials presented Qualcomm’s Broken Promises “We are continuing to target a QCT operating margin of at least 20%” “We continue to target longer term QTL margins in the range of 86% to 88%” #2 QCT Growth #4 Operating Margins #5 Profitable Growth #1 Create Sustainable Value For Stockh
Slide 21: Qualcomm's Broken Promises: Profitable Growth
Qualcomm’s Broken Promises FY2015 FY2016 FY2017 Unrealistic 2018 Plan Revenue Growth (5%) (7%) (1%) 6% – 8% Operating Margin 34% 33% 31% 40% EPS Growth (12%) (5%) (4%) 12% – 16% (2x rev growth) #2 QCT Growth #4 Operating Margins #1 Create Sustainable Value For Stockholders #3 Cost Reductions #5 Prof
Slide 22: Qualcomm's FY2019 Projections Are Not Credible
Revenue Growth 6 - 8% 3-4x semi industry estimates EPS Growth 2x Only grown EPS faster than revenue three times in 10 years Cost Reductions Unable to achieve previous commitments Licensing Resolutions Plan assumes more revenue recaptured than lost ? Qualcomm’s FY2019 Projections Are Not Credible… $6
Slide 23: Unrealistic Dispute Resolution Assumptions
…And Have Unrealistic Dispute Resolution Assumptions Midpoint of Qualcomm’s FY2019 EPS target assumes restoration of $3.25B in lost revenue from its licensing program, levels higher than when the disputes first arose (1) (1) Annualized QTL Revenue $3.1B of Estimated Lost QTL Revenue ($ in billions)
Slide 24: III. NXP Will Not Solve Qualcomm's Problems
III. NXP Will Not Solve Qualcomm’s Problems
Slide 25: NXP Has Failed to Keep Pace With Industry Growth
NXP Has Failed to Keep Pace With Industry Growth and Severely Lagged its Peers in 2017 CY2017 YoY Average Revenue Growth(1) ADI revenue pro forma for the LLTC acquisition, AVGO revenue pro forma for the BRCD acquisition, CAVM revenue pro forma for the QLGC acquisition, Intel revenue is adjusted for
Slide 26: NXP is a Savvy Seller
NXP is a Savvy Seller ANNOUNCED BUYER DEAL VALUE TRANSACTION OBSERVATIONS April 2008 $1.6 Billion Sale of 80% of Cellular Baseband business Contributed to a Joint Venture with Ericsson in 2009 Subsequently dissolved in 2013 December 2010 $855 Million Sale of Sound Solutions business In 2015, the spe
Slide 27: IV. Broadcom's Offer Provides Significantly More Value
IV. Broadcom’s Offer Provides Significantly More Value to Qualcomm Stockholders Than Any Other Alternative
Slide 28: Broadcom's Proposal Delivers Certainty of Value with Equity Upside
Broadcom’s Highly Attractive Proposal Delivers Certainty of Value with Equity Upside Potential for Qualcomm Stockholders Broadcom’s Proposal Offers a Significant Premium Qualcomm Share Price Performance Qualcomm has only traded above $79 per share for 1% of its 26+ year history as a public company N
Slide 29: Broadcom's Substantial Premium Offers Top-Performing Equity Returns
Broadcom’s Substantial Premium Offers Qualcomm Stockholders Top-Performing Equity Returns Broadcom’s Proposal is in Elite Territory + 50% premium to Qualcomm’s 30-day VWAP would rank in the top decile 50% Premiums Paid in M&A Transactions Since 2001 Source: Thomson One Note:Announced transactions gr
Slide 30: Qualcomm is Trading Well Below Peak Value
Qualcomm is Trading Well Below Peak Value Because of its Own Poor Decisions: Major customer disputes Combative regulatory relationships Diminishing market position Declining profit margins Broadcom’s Offer is Clearly Not Opportunistic Broadcom first approached Qualcomm regarding a strategic combinat
Slide 31: Broadcom's Offer Ascribes a Premium Multiple to Qualcomm
Broadcom’s Offer Ascribes a Premium Multiple to Qualcomm Qualcomm Historical NTM P / E Multiple(1) Qualcomm Historical NTM EBITDA Multiple(1) 1) Market data as of 11/2/2017, Qualcomm’s last unaffected date; based on consensus estimates, not pro forma for NXP acquisition NTM EBITDA Offer Multiple NTM
Slide 32: Upside Potential and Downside Protection
Cash component crystallizes $57 in value – on its own a premium to Qualcomm’s unaffected share price Stock component affords participation in combined company’s significant upside potential Broadcom has an unmatched track record of execution and price appreciation following M&A transactions Proposal
Slide 33: Broadcom Increased Total Enterprise Value of its Offer
Broadcom Has Demonstrated its Commitment to the Transaction by Increasing Total Enterprise Value of its Offer Throughout Every Step of the Process Broadcom Has Increased the Total Enterprise Value of its Offer Total Enterprise Value of Broadcom’s Proposal Note: Total enterprise value calculation ass
Slide 34: Broadcom's Track Record of Successfully Integrating M&A
Long-Term Operating Margin Target: 45% L-T OM Tgt: 47.5% Long-Term Operating Margin Target: 30% Long-Term Operating Margin Target: 40% Broadcom Management’s Track Record of Successfully Integrating Large, Complex M&A Significantly De-Risks Equity Component of Offer for Qualcomm Stockholders Broadcom
Slide 35: Post-Announcement Value Creation
…And Post-Announcement Value Creation / / / Broadcom Has a Proven Track Record of Considerable Share Price Appreciation Following Acquisitions Broadcom Returns Following Transaction Announcement / Rumor(1) S&P 500 S&P 500 S&P 500 1) Broadcom returns from day prior to announcement or rumor (12/13/201
Slide 36: V. Broadcom's Offer Provides Substantial Deal Certainty
V.Broadcom’s Offer Provides Substantial Deal Certainty and a Clear Path to Completion for Qualcomm Stockholders
Slide 37: Broadcom Successfully Closes Transactions in a Timely Manner
Asset Buyer Wireless IoT Business uWave $5.9B Months to Antitrust Approval 10 Months to Close 12 Asset Divestitures 6 Broadcom Successfully Closes Transactions in a Timely Manner $6.6B Months to Antitrust Approval 4 Months to Close 5 Asset Divestitures 2 $36.1B Months to Antitrust Approval 6 Months
Slide 38: Product Categories with Significant Overlap Already Addressed
Product categories with significant overlap have already been addressed Broadcom’s proposed merger agreement requires Broadcom to divest Qualcomm’s Wi-Fi networking processor and RF Front End businesses Other areas Qualcomm claims are issues, simply are not NFC: Broadcom divested its NFC business in
Slide 39: No Financing Condition: Binding Agreements to Fully Fund
No Financing Condition: Broadcom Has Signed Binding Agreements to Fully Fund the Transaction and to Fund Post-Closing Working Capital Needs $100 Billion of Commitments 12 financial institutions have agreed to provide up to $100 billion, including a $5 billion revolving credit facility, and bridge fi
Slide 40: VI. Qualcomm Stockholders Deserve Directors Who Will Secure Broadcom's Proposal
VI.Qualcomm Stockholders Deserve Directors Who Will Secure the Benefits of Broadcom’s Highly Compelling Proposal
Slide 41: Recent History of Interactions with Qualcomm
Recent History of Interactions with Qualcomm Following Broadcom’s Public Proposal: Feb 2, 2018: Broadcom CFO contacted Qualcomm’s financial advisor to provide terms of an improved proposal, in hopes of engagement No response Feb 2, 2018: Broadcom’s financial advisor contacted Qualcomm’s financial ad
Slide 42: Timing and Magnitude of the NXP Price Change
The Timing and Magnitude of the NXP Price Change is Contrary to Qualcomm’s Previous Statements and Led to a Significant Transfer of Value Away From Qualcomm Stockholders “We think $110 is a very full price, and I think, as you saw on NXP’s earnings release, the management team there is also reinforc
Slide 43: Qualcomm Board Has No Excuse if it Fails to Secure Broadcom's Proposal
Qualcomm Board Has No Excuse if it Fails to Secure Broadcom’s Value-Maximizing Proposal Qualcomm Has Massively Underperformed the S&P 500 During the Tenure of Each Independent Director Date Joined Underperformance to S&P Since Joining Barbara Alexander 7/31/2006 (47%) Thomas Horton 12/8/2008 (120%)
Slide 44: Qualcomm's Business Model Has Been Broken for a Long Time
Qualcomm’s Business Model Has Been Broken for a Long Time Unnamed Licensee Major licensing customers have halted payments ~$4B In fines in the last three years Governments view Qualcomm’s practices as anti-competitive REGULATORY ISSUES AND FINES BUSINESS CONFLICTS 2006 2014 2015 2016 2017 2012 2009
Slide 45: Qualcomm's Board Has Shown a Lack of Leadership
“It is supported by clear evidence that Qualcomm's conduct involved in its overall business model had damaged the competition in the baseband chip markets in order to secure, maintain and reinforce Qualcomm's dominant position in the baseband chip markets.” Taiwan Fair Trade Commission, 10/11/17 “Qu
Slide 46: Qualcomm's Board Has Not Brought in External Perspectives
Despite All of Its Execution Challenges and Issues, Qualcomm’s Board Has Not Brought in External Perspectives Title Tenure Paul Jacobs Executive Chairman and Board Chairman, Qualcomm 27 years Steve Mollenkopf CEO, Qualcomm 24 years Cristiano Amon President, Qualcomm 23 years Matthew Grob EVP, Techno
Slide 47: New severance plan is the epitome of entrenchment
New severance plan implemented by incumbent Qualcomm Board and management is the epitome of entrenchment If the current Qualcomm Board terminates employees, there is no penalty, but if a new Qualcomm Board takes the exact same action, it results in additional and significant costs to shareholders Th
Slide 48: Vote for independent nominees committed to maximizing value
Vote for independent nominees who are committed to maximizing value for all Qualcomm stockholders Vote for independent nominees to give Qualcomm stockholders the opportunity to obtain significant benefits of Broadcom’s value-maximizing proposal Vote for existing directors who have failed to secure f
Slide 49: Broadcom
a BROADCOM erything «