Qualcomm Warns of Lower Profit as Apple Dispute Bites -- Update
April 28 2017 - 10:04AM
Dow Jones News
By Ted Greenwald
Qualcomm Inc. sharply cut its profit forecast, saying it no
longer expects any patent- licensing revenue from the iPhone in the
current quarter as a result of its increasingly bitter legal battle
with Apple Inc.
The new guidance reduces by a third the high end of the range
for Qualcomm's earnings a share in the current, fiscal third
quarter, the company said Friday. It reduced the low end if its
earnings estimate by more than a fifth, and said it expects revenue
to be 8% to 9% below its previous forecast.
Shares of Qualcomm fell 3.6% to $51.30 in premarket trading.
The change excludes payments owed by some companies that
manufacture the iPhone for Apple. Those contract manufacturers have
licensing agreements directly with Qualcomm. They have withheld
royalties because Apple is refusing to reimburse them amid the
legal fight, Qualcomm said.
Qualcomm said Apple informed the San Diego, Calif., chip maker
that it would continue to withhold reimbursements from the contract
manufacturers on sales in the quarter that ended in March,
Qualcomm's Friday statement said. Those underpayments would affect
Qualcomm's results in the current quarter, requiring it to change
its guidance, it said.
"We've been trying to reach a licensing agreement with Qualcomm
for more than five years but they have refused to negotiate fair
terms," an Apple spokesman said in a statement. "Without an
agreed-upon rate to determine how much is owed, we have suspended
payments until the correct amount can be determined by the
court."
The development escalates the toll for Qualcomm of a feud that
has already helped drive down its share price by more than 15%
since Apple sued it in January. That suit claimed Qualcomm was
using a monopoly position in cellular chips to impose "onerous,
unreasonable and costly" terms on customers and competitors.
Qualcomm has characterized the dispute as a commercial
disagreement in which Apple is trying to reduce its costs.
Qualcomm has developed technology deemed essential to cellular
communications, and it collects royalties from nearly every
smartphone sold world-wide -- a business that accounts for most of
its profit.
Apple said in its suit that it was withholding payments to its
contract manufacturers in retaliation for what Apple claimed was
Qualcomm's refusal to pay $1 billion it owed Apple under a previous
agreement. Qualcomm subsequently said that it expected royalties
withheld by the contract manufacturers not to exceed that
amount.
In its second-quarter earnings call just last week, Qualcomm
said it expected to receive some payments from the contract
manufacturers. Its forecasts then -- which already predicted a
decline in profit -- reflected a range of possible scenarios for
iPhone-related royalty payments, but not one in which no royalties
were paid, Qualcomm said.
But that expectation has changed. "The contract manufacturers
may make some form of partial payment, but initial indications are
that any payment would likely be insignificant," Qualcomm's Friday
statement said.
Qualcomm's revised guidance is for diluted earnings per share of
52 cents to 62 cents, down from a range of 67 cents to 92 cents.
The new guidance would mean a drop of a least 36% in profit from
the same quarter last year.
Qualcomm said it now expects revenue in the current period of
between $4.8 billion and $5.6 billion, down from a range of $5.3
billion to $6.1 billion. Revenue in the same quarter a year ago was
$6 billion.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
April 28, 2017 09:49 ET (13:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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