Qualcomm Gets Pelted by Apple
April 28 2017 - 1:27PM
Dow Jones News
By Dan Gallagher
For two companies in the phone business, Qualcomm and Apple
didn't communicate very well.
A week ago, Qualcomm left out of its fiscal third quarter
forecast the possibility that Apple, a huge customer, would
withhold more royalty payments while the two were battling in
court. On Friday, Qualcomm said it was later informed by Apple that
it effectively would withhold the payments by not paying its
manufacturers for Qualcomm's royalties.
This adds up to a 22% reduction in earnings per share for the
June quarter. Having formally recognized its worst-case scenario,
Qualcomm's main challenge now will be convincing investors there is
nowhere to go but up.
Apple's move should have come as no surprise. Apple has a strong
interest in lowering its costs and protecting its high iPhone
margins. And its financial contribution to Qualcomm is substantial
-- giving the company a lot of near-term leverage to bring to
bear.
Note that Qualcomm reduced its June quarter revenue forecast by
$500 million, which would be based on Apple devices sold during the
March quarter. IDC estimates that Apple sold 51.6 million iPhones
during the period. That works out to a bit under $10 per
iPhone.
It also indicates Apple is responsible for a little over
one-quarter of Qualcomm's entire royalty business, which in turn
accounts for the vast majority of the company's operating profit.
The mid-point of Qualcomm's adjusted per-share earnings forecast
for the June quarter came down by 22% compared with a 9% reduction
in its revenue outlook. Stacy Rasgon of Bernstein estimates that
Apple accounts for more than $1 of Qualcomm's annual per-share
earnings. Last year Qualcomm made $4.44 in adjusted earnings per
share.
The gamble now -- even with Qualcomm's stock now near a 52-week
low -- is that things can't get worse. But these cases are highly
unpredictable, and can take years to resolve. And the timing on
Qualcomm completing its merger with NXP is also uncertain. Apple
has shown that it can bite down hard. Qualcomm will need to show it
can bite back.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
April 28, 2017 13:12 ET (17:12 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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