By Ted Greenwald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 2, 2017).
Qualcomm Inc.'s quarterly profit plunged 89%, crippled by a $778
million charge related to a fine by Taiwanese regulators and Apple
Inc.'s continued withholding of patent royalties on iPhones and
iPads.
The penalty imposed by Taiwan in October was Qualcomm's third
since 2015, fallout from a wave of international regulatory
challenges to the company's business practices. Qualcomm is
appealing Taiwan's decision.
Meanwhile, Apple has withheld fees it owes for its use of
Qualcomm's intellectual property as it battles for lower royalty
rates. The escalating conflict has overshadowed Qualcomm's
financial performance since Apple filed suit in January.
Qualcomm on Wednesday reported revenue from licensing
intellectual property, which typically contributes well more than
half of Qualcomm's pretax earnings, dropped 36%.
Sales of chips for mobile devices rose 13%, which Qualcomm
attributed to strong performance in China, higher prices and
success in markets beyond smartphones, such as automotive and
networking.
In an interview, Chief Executive Steve Mollenkopf said
Qualcomm's chip-sales results "cap off six quarters of good
continued growth" and that the company's forecast "shows we expect
that to continue."
For the current quarter ending in December, Qualcomm forecast
adjusted per-share earnings between 85 cents and 95 cents on
revenue between $5.5 billion and $6.3 billion.
Overall, Qualcomm on Wednesday reported fourth-quarter revenue
of $5.91 billion, down 4.5% from the same period a year earlier.
Profit was $168 million in the fourth quarter, down from $1.6
billion.
Qualcomm is the largest provider of communications chips for
smartphones, and its products form the heart of many higher-end
Android phones. As a holder of patents essential to implementing
cellular standards, Qualcomm collects royalties on nearly every
smartphone sold world-wide, regardless of whether they include the
company's chips.
However, its business is embattled on several fronts. Apple and
Qualcomm are locked in an escalating war over royalty rates, and
Apple has directed the Taiwan-based companies that assemble Apple
devices not to pay royalties for their use of Qualcomm's
technology.
The tussle now threatens to spill into chip sales. Apple uses
Qualcomm's communications chips in a portion of recent iPhones and
iPads, but it has taken steps to eliminate Qualcomm's products from
its next generation of devices, The Wall Street Journal reported
earlier this week.
On its call with investors, Qualcomm declined to discuss any
particular media reports but said it is confident in its modem road
map, and said it continues to work at being a good supplier to
Apple.
The company counseled investors to be patient as the dispute
continues. "It's important to keep in mind that litigation of this
size and magnitude takes a while," said Don Rosenberg, chief legal
officer, on a conference call with investors.
A previously disclosed second licensee, which Qualcomm hasn't
named, also has been withholding royalty payments. Qualcomm on
Wednesday said that disagreement began before its dispute with
Apple, and involves unrelated issues.
Regulators in some countries, meanwhile, have determined
Qualcomm uses its dominant position in chips to thwart competitors
and charge exorbitant royalties, bringing fines and demands that
the company change its business practices.
Qualcomm is banking on its pending acquisition of NXP
Semiconductors NV to broaden its product line and give it an avenue
into the automotive industry, where the dollar value of chips built
into cars is growing rapidly. The $39 billion deal has been held up
by European regulators, though, and some NXP owners are holding out
for a higher price.
In its conference call, Qualcomm for the first time acknowledged
its schedule for closing the deal, which it consistently has said
would occur by the end of the year, could slip into 2018. It said
the original offering price stands and continues to be attractive
to NXP.
Qualcomm's shares were up marginally after-hours trading at
$53.80, after finishing 4 p.m. trading in New York up 4.8% to
$53.46. As of Wednesday's close, the stock's price has fallen
roughly 17% since Apple first took legal action against Qualcomm in
January.
The San Diego, Calif., chip maker reported per-share earnings of
92 cents on an adjusted basis, omitting share-based compensation
and other items. Analysts had expected 81 cents a share on $5.8
billion in revenue, according to a survey by Thomson Reuters.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
November 02, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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