AAPL Apple Inc

By Asa Fitch 

Qualcomm Inc. is scheduled to report fiscal second-quarter earnings after the market closes Wednesday. Analysts expect sliding revenue and profit, but their focus has shifted to the future after the chip maker settled a long-running legal dispute with Apple Inc. in mid-April, sending its shares up more than 50%. Here's what to expect:

EARNINGS FORECAST: Analysts surveyed by FactSet expect Qualcomm to report adjusted earnings of 71 cents a share. The company reported $363 million in net income for the year-ago period. Adjusted results exclude acquisition expenses, tax and other items.

REVENUE FORECAST: Analysts expect $4.8 billion in revenue. A year ago, Qualcomm reported adjusted revenue of $5.23 billion and total revenue of $5.26 billion.

WHAT TO WATCH:

IPHONE ROYALTY: Qualcomm reached a landmark legal settlement with Apple after years of wrangling with the iPhone maker over whether it used its dominance as a supplier of cellular-communications chips to extract unfairly high royalty rates for its patents. That deal, which lifted a cloud of uncertainty and sent Qualcomm's shares soaring, happened after the fiscal second quarter ended.

But investors want clarity on the future financial impact of a lump-sum payment from Apple and an agreement for Qualcomm to supply it with chips for future iPhone models. Qualcomm said the deal eventually would add $2 to its annual per-share earnings, but analysts and investors want to know how much money Qualcomm will make in royalties compared with the $7.50 a phone it had been getting.

"Royalty per iPhone will be a primary number to try to determine given its importance to the long-term sustainability of the licensing business, " Bernstein Research analyst Stacy Rasgon wrote in a research note. Analysts at UBS estimate the settlement favored Qualcomm, at $8 to $9 a phone.

SETTLEMENT DOMINOES: Qualcomm's deal with Apple put a price on the company's intellectual property that could ripple across its entire patent-licensing business in coming quarters, boosting its revenue outlook. In particular, analysts now see a higher likelihood of a settlement with Chinese electronics giant Huawei Technologies Co., which had been holding back royalty payments for Qualcomm technology while the Apple saga played out.

While Huawei had resumed making partial royalty payments in recent months, UBS estimates it owes Qualcomm around $1.5 billion. If Qualcomm can recoup that kind of money, it would provide another windfall for a licensing division analysts surveyed by FactSet expected would bring in $1.01 billion in revenue in the fiscal second quarter.

FTC OVERHANG: While the Apple settlement cleared away Qualcomm's greatest legal challenge, the company still isn't sure how the Federal Trade Commission is going to rule in a separate antitrust case against it that went to trial in January. That decision could come at any moment, but investors and analysts want to know whether it'll be settled out of court, too.

Even if the FTC rules against Qualcomm, though, it might not have a substantial impact on the company's business because the FTC case is focused on a narrower set of patents than the wide-ranging Apple dispute, Morgan Stanley analysts wrote.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

May 01, 2019 05:44 ET (09:44 GMT)

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