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Qualcomm Takes Q3 Pummeling From Apple

Iain Morris
7/20/2017
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Qualcomm has blamed a succession of legal challenges for sharp falls in sales and profits during the April-to-June (third) quarter while insisting that its underlying business continues to perform strongly.

The chipmaker saw revenues fall by 11%, in GAAP terms, to around $5.4 billion, while net income tumbled 40% to just $900 million, compared with the year-earlier period.

The chief culprit was the ongoing dispute with Apple, which, says Qualcomm, has goaded its contract manufacturers into withholding royalty payments to Qualcomm.

Apple Inc. (Nasdaq: AAPL) sued Qualcomm Inc. (Nasdaq: QCOM) for $1 billion at the start of the year, claiming it had been overcharged by the chipmaker for years. Qualcomm, in turn, has accused Apple of trying to upset its agreements with licensees. It is also now seeking a ban on the import of some iPhones into the US, arguing that Apple has infringed six patents that cover various high-performance features in the smartphones. (See Qualcomm Blasts Apple for Disrupting Deals in Legal Dispute and Qualcomm Seeks Ban on iPhone Imports.)

But separate disputes with Canada's BlackBerry and the Korea Free Trade Commission (KFTC) also tore into its results, said the chipmaker in its earnings statement.

It blamed a fall in operating cash flow partly on payments of $940 million to BlackBerry and $927 million to the KFTC, and said actions taken by Apple's contract manufacturers and another unnamed licensee had also had an impact at this level.

Operating cash flow was nearly wiped out entirely in the third quarter, dropping from $1.8 billion a year earlier to just $100 million.

The chipmaker, whose technology is used in many of the world's most popular smartphones, took the rare step of withholding data on device shipments and average selling prices as a result of the litigation.

"As a result of the recent actions taken by Apple's contract manufacturers and the other licensee in dispute, we currently do not believe total reported device sales and related estimated ranges of device shipment and average selling price are meaningful in measuring our QTL business and therefore we are not providing such metrics for the fiscal third quarter," it said in its report.


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


Unsurprisingly, a breakdown of results shows that Qualcomm's licensing business bore the brunt of the damage caused by litigation. Revenues at that division fell 42%, to about $1.2 billion, compared with the year-earlier quarter.

The semiconductor unit, meanwhile, reported a 5% year-on-year increase in sales, to about $4.1 billion, thanks to rising demand across a number of vertical markets.

"Our products and technologies continue to enable the global smartphone industry, and we are expanding into many exciting new product categories, including automotive, mobile computing, networking and IoT," said Steve Mollenkopf, Qualcomm's CEO, in a statement.

Qualcomm expects earnings per share to fall by 34% to 41% in the coming fourth quarter, to between $0.75 and $0.85. Revenues are expected to be "flat" at best and to fall by 13% at worst in comparison with the year-earlier period, when the company reported sales of about $6.2 billion.

Qualcomm's share price was trading down more than 4% on the Nasdaq at the time of publication.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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kq4ym
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kq4ym,
User Rank: Light Sabre
8/3/2017 | 1:49:20 PM
Re: FWIW
One wonders where the lawyers were or were thinking when those contracts were inked or when things seemingly went south later on. It would seem that contracts are made to make it clear what one is obligated to do or not to do. Or maybe the legaleze of contracts makes it quite the opposite, forcing companies to take expensive litigation to decide the matter?
James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
7/24/2017 | 3:15:01 AM
Re: FWIW
Nokia tried and failed in 2006. Samsung is currently taking a different tack and pursuing an antitrust lawsuit against QCOM with the FTC alongside Intel. 
danielcawrey
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danielcawrey,
User Rank: Light Sabre
7/23/2017 | 2:37:39 PM
Re: FWIW
Qualcomm has played a major role in mobile devices for what seems like forever. Apple seemingly is tired of it, wanting to avoid paying Qualcomm for its tech. This is the first I've heard of a mobile device maker going after Qualcomm, so we'll see how this all works out. 
James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
7/20/2017 | 6:07:42 PM
Re: FWIW
There is a good analysis of the situation here from Dr Windsor:

http://www.radiofreemobile.com/qualcomm-fq3-17-strong-stomach/

 
bosco_pcs
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bosco_pcs,
User Rank: Light Sabre
7/20/2017 | 4:00:12 PM
FWIW
The $1B in dispute that starts the legal ball rolling is an agreed upon rebate and not overcharging per se, if I follow the saga righ. QCOM withheld the rebate in retaliation against Apple's cooperation with S. Korean authority.

I heard QCOM CEO on CNBC thinking the two might eventually settle. While it might very well be true eventually, Apple might put the foot down considering its experience with its partners, namely Google and Samsung, previously. subjective it may be That is why Apple is rather merciless with Imagination - even though Apple is the company's investor - when the latter thought it had Apple over the barrel. 

Maybe playing hardball is part of QCOM DNA but judging by the arbitration result with Blackberry, it may want to rethink its business strategy. Messing with your partners doesn't play when its partner has the wherewithal to go toe-to-toe with it legally
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