Qualcomm Profit Plunges Without Royalties From Apple -- Update
July 19 2017 - 6:37PM
Dow Jones News
By Ted Greenwald
Qualcomm Inc. on Wednesday said profit plunged 40% in its latest
quarter, the first in years that didn't include patent royalties on
devices from Apple Inc.
The San Diego company reported profit in the three months
through June 25 of $865 million, on total revenue of $5.37 billion,
which fell 11% from a year earlier. In the patent-licensing
division, revenue fell 42%, to $1.17 billion.
Qualcomm, the leading producer of smartphone chips, is embroiled
in an escalating legal dispute with Apple, which has blocked
licensing payments that previously flowed to Qualcomm for iPad and
iPhone sales. Apple's manufacturing partners late on Tuesday sued
the chip maker in U.S. court on allegations that it uses unlawful
means to boost its royalty rate.
Qualcomm previously had warned that the Apple dispute would
sharply reduce its earnings in the latest period. Its results on
Wednesday came in above the expectations of analysts, with the
company citing better-than-expected results in its semiconductor
business.
The results excluded revenue from an unnamed customer that is
withholding royalties, Qualcomm said, in a dispute first revealed
along with last quarter's disclosure.
On an adjusted basis that excludes items including stock-based
compensation, Qualcomm reported per-share profit of 83 cents, down
28% from the year-earlier quarter. Analysts polled by Thomson
Reuters on that basis had expected earnings of 81 cents a share on
revenue of $5.3 billion.
Shares fell 1.3% after hours Wednesday, following an advance of
0.9%, to $56.78, in regular trading. The stock price has fallen
roughly 9.7% through Wednesday's close since Apple filed its
initial suit in January against Qualcomm.
Results for the quarter shed little light on a point of major
concern to investors: The place of Qualcomm chips in future
versions of the iPhone. Apple puts Qualcomm's communications chips
in roughly half of its iPhone 7 units, the other half of which use
chips from Intel Corp. Anticipation is high for a coming,
presumably a premium-priced iPhone celebrating the brand's 10th
anniversary, but it is not clear whether Apple will choose Qualcomm
for that model. Qualcomm's estimate of chip shipments in the fourth
quarter exceeded the tally of Northland Securities Inc. analyst Tom
Sepenzis by roughly 10 million units -- a good bump in expected
chip shipments, but not enough to make a decisive call about
Qualcomm's participation in next-generation iPhone models, he
said.
Qualcomm declined to include information it usually provides
regarding device sales, citing the litigation with Apple's
manufacturing partners. "We currently do not believe total reported
device sales and related estimated ranges of device shipment and
average selling price are meaningful" in assessing Qualcomm's
patent-licensing business in the quarter, the company said in a
statement.
Qualcomm dominates the market for smartphone chips and collects
patent royalties on nearly every smartphone globally, including
those that don't use its chips. However, in recent years, Qualcomm
has faced an international wave of opposition from regulators,
customers, and competitors who say that it unfairly extracts
exorbitant royalties. The company is also accused of violating its
obligation, as an owner of patents deemed essential to cellular
communications, to license its intellectual property widely.
Qualcomm has denied these allegations and has sued Apple and the
contract manufacturers that assemble iPhones. It moved earlier this
month to block imports of some Apple devices into the U.S., and
today it took a similar action in Germany.
Another question that weighs heavily on Qualcomm's future is the
fate of its $39 billion bid to buy NXP Semiconductors NV. Many
investors are optimistic that the deal would bolster Qualcomm by
combining its expertise in digital processing with NXP's in
automotive chips -- a hedge against threats to the patent-licensing
business and a welcome boost in the absence of royalties from Apple
devices.
Regulators in four jurisdictions including the U.S. have
approved the tie-up. But European Union authorities recently
suspended their inquiry while waiting for Qualcomm to deliver
information they had requested and may impose fines of $665,000 for
every further day of delay. Meanwhile, rumors have surfaced that
some NXP shareholders are pushing to raise the price.
Qualcomm on Wednesday reiterated that it expects the deal to
close by the end of the year.
Over all, Qualcomm reported per-share earnings of 58 cents for
the quarter, down from 97 cents a year ago.
On an adjusted basis that excludes items including stock-based
compensation, Qualcomm reported per-share profit of 83 cents, down
28% from the year-earlier quarter. Analysts polled by Thomson
Reuters on that basis had expected earnings of 81 cents a share on
revenue of $5.3 billion.
For the fourth quarter ending in September, Qualcomm forecast
adjusted earnings per share between 75 cents and 85 cents on
revenue of between $5.4 billion and $6.2 billion.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
July 19, 2017 18:22 ET (22:22 GMT)
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