Tech Licensing Boosts Qualcomm's Revenue -- WSJ
February 06 2020 - 3:02AM
Dow Jones News
By Asa Fitch
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 (February 6, 2020).
Qualcomm Inc. said revenue rose 5% in its first fiscal quarter,
as stronger sales of smartphones bolstered its technology-licensing
business, though the spread of the coronavirus could take some
shine away from a year that includes many high-end phone
launches.
The San Diego-based company, which designs and markets
semiconductors mostly for mobile-communications equipment, on
Wednesday said sales were $5.08 billion in the quarter ended in
December, up from $4.84 billion a year ago.
Profit fell 13% to $925 million, or 80 cents a share. The
previous year's first quarter included a more than
half-billion-dollar tax benefit recorded from U.S. tax law
changes.
On an adjusted basis, earnings fell to 99 cents, though that
figure came in higher than analysts surveyed by FactSet had
expected.
Like its peers in the cellphone supply chain, Qualcomm grappled
with lower global smartphone sales last year.
Many consumers are waiting to purchase new handsets to take
advantage of superfast fifth-generation cell networks that
operators are building out. But Chief Executive Steve Mollenkopf
said Qualcomm was reaping early gains from the rollout of 5G
networks.
Even though the company forecasts selling fewer cellphone chips
this quarter, partly as the result of seasonal fluctuations, it is
expecting to make more money per chip as the year progresses.
Finance chief Akash Palkhiwala said cellphone makers are
dedicating resources to introducing new high-end phones, including
5G smartphones for which Qualcomm makes more expensive chips.
Part of that upswing will likely come from Apple Inc., which
Qualcomm reached a chip-supply agreement with last year after
settling a long-running licensing dispute. Qualcomm chips are
widely expected to go into Apple's first 5G-capable phones when
they are introduced, likely in September.
Apple also provided a boost to Qualcomm during the last three
months of 2019, when it reported bumper sales of its latest
iPhones. Qualcomm collects royalties from patents it licenses to
Apple and other handset makers.
Qualcomm's licensing arm generated $1.4 billion in sales in the
quarter, up 38% from a year ago as Apple resumed royalty payments
following their legal settlement. Qualcomm's chip division's sales
fell 3%.
Risks lie on the horizon, however. Qualcomm has yet to resolve a
licensing dispute with Huawei Technologies Co., after it reached an
interim agreement with the Chinese telecom giant in late 2018 under
which Huawei made $150 million quarterly payments to Qualcomm. That
agreement has since expired, with no indication that it will be
renewed.
Qualcomm has also started to see a decrease in orders of chips
from customers in China as a result of the outbreak of coronavirus
there, Mr. Palkhiwala said in an interview. Manufacturers have been
bracing for supply-chain disruption as the virus spreads, with the
number of confirmed cases rising above 24,000 as of Tuesday.
China accounts for around a quarter of global smartphone demand,
UBS analysts estimate, and Qualcomm is a key supplier of chips to
many Chinese handset makers.
The company cut the low-end of its earnings guidance out of an
abundance of caution, Mr. Palkhiwala said, although there has only
been a small decline in its orders so far. Qualcomm expects
adjusted earnings to be between 80 cents and 95 cents a share in
the current quarter, with Wall Street analysts forecasting 86 cents
a share.
Qualcomm said chip shipments could fall to between 125 million
and 145 million in the second fiscal quarter, from 155 million in
the first quarter.
The company forecast sales of $4.9 billion to $5.7 billion,
compared with Wall Street expectations of $5.1 billion.
Qualcomm also disclosed it is under investigation in the
European Union over whether it engaged in anticompetitive behavior
related to its 5G radio-frequency technologies. The company
received a request for information from the European Commission on
Dec. 3, the company said in a regulatory filing. Qualcomm said it
didn't believe it was violating EU competition rules.
Qualcomm has been caught in a legal tangle for years over
allegations that it leveraged its dominance as a supplier of
cellphone chips that manage communications with cell towers to
extract unfair patent-licensing terms. While the company resolved
its licensing dispute with Apple, it is appealing antitrust
decisions against it in the U.S., where a court hearing is
scheduled this month. It also is appealing an EU fine, issued in
2018, of almost a billion euros.
Shares in the company fell slightly in after-hours trading. The
chip maker's stock has gained 79% over the past 12 months through
Wednesday's close.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
February 06, 2020 02:47 ET (07:47 GMT)
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