Qualcomm's Profit Tumbles as Royalty Disputes Continue -- Update
April 25 2018 - 5:35PM
Dow Jones News
By Ted Greenwald
Qualcomm Inc. said its profit plunged 52% from a year earlier as
it dealt with a tangle of challenges, including Apple Inc. and
Huawei Technologies Co. continuing to withhold royalties for using
the company's patents.
The San Diego-based chip maker reported a profit of $363 million
in its fiscal second quarter. Revenue rose 4.9% to $5.26
billion.
The chip maker's shares jumped 3.8% in after-hours trading. The
stock finished Wednesday's session down 0.4% at $49.75, below its
price of $53 a year ago and well below the $79 a share offered by
Broadcom Inc. in an unsuccessful takeover effort that ended in
March.
Qualcomm reported per-share earnings of 80 cents on an adjusted
basis, omitting share-based compensation and other items. Analysts
had expected 70 cents a share on $5.19 billion in revenue,
according to a survey by Thomson Reuters.
The results included a $310 million charge resulting from the
company's efforts to save $1 billion in expenses by 2019. That
program recently resulted in 1,500 layoffs in California.
Further cost cuts will be made "over the next few months,"
Qualcomm finance chief George Davis said in an interview.
Qualcomm said revenue from the sales of chips used in mobile
devices rose 6% to $3.9 billion, continuing their steady growth in
recent quarters.
Qualcomm's revenue from licensing patents, though, tumbled 44%
to $1.26 billion, amid fallout from the company's lengthy disputes
with Apple and Huawei, which have withheld billions of dollars in
royalty payments. That part of the business typically contributes
more than half of Qualcomm's pretax earnings.
Qualcomm leads the market in chips used in smartphones. Its
products manage communications in some iPhones and they form the
heart of many Android devices. As a holder of key patents on
cellular technology, Qualcomm collects a royalty on nearly every
smartphone sold world-wide, regardless of whether they include
Qualcomm chips.
But the company in recent years has been beset by one challenge
after another, capped by Broadcom's $117 billion hostile bid in
November that was to become a relentless distraction throughout the
first quarter. The Trump administration in March ultimately
scuttled Broadcom's overture to protect Qualcomm's leadership in
the next-generation cellular technology known as 5G.
Now Qualcomm faces several tough tasks: Complete its purchase of
Dutch automotive chip maker NXP Semiconductors NV, a deal that is
stalled in China's regulatory approval process; slash $1 billion in
expenses to meet its profit goals; and settle its disputes with
Apple and Huawei.
Even as Qualcomm grapples with those challenges, the company's
former executive chairman has stated his intention to take Qualcomm
private.
Many analysts are skeptical. Paul Jacobs, the son of a Qualcomm
co-founder and the company's chief executive from 2005 to 2014, can
raise the necessary funds. But his effort looms as a further test
to Qualcomm's leadership, which received notably weak support from
shareholders in a recent vote.
"We're executing on the plan we laid out that leads to our 2019
target" of between $6.75 and $7.50 in adjusted per-share earnings
for that fiscal year, Chief Executive Steve Mollenkopf said in an
interview.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
April 25, 2018 17:20 ET (21:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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