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 (August 13, 2020).
Qualcomm Inc.'s legal victory in a high-stakes battle with the
U.S. government raises the opportunity for the smartphone chip
giant to enjoy a period of relative calm and growth propelled by
rising appetite for new 5G handsets.
The company is emerging from what, by most corporate standards,
has been an unusually tumultuous five-year period. It has faced
antitrust allegations, legal battles with its biggest customers,
U.S.-China trade tensions, an activist shareholder advocating for
the company to split up and a $117 billion hostile takeover
attempt. An appeals court's decision Tuesday to vacate an antitrust
ruling against the company resolved one of its last outstanding
issues and sent shares close to a record high.
Rather than being damaged, the San Diego, Calif.-based company
is emerging from the turmoil largely unscathed. It has also become
a kind of national champion in the Trump administration's
competition with China over technology, particularly in superfast
The appellate ruling was "the last domino to fall" after five
years of uncertainty and shareholder anxiety, said Stacy Rasgon, an
analyst at Sanford Bernstein & Co. The company can now move
forward from a more stable position, he said.
Qualcomm executives see the company, a leading supplier of the
chips powering 5G equipment, as being poised to benefit from wider
global uptake of the technology as well as new product launches
like Apple Inc.'s first 5G iPhone, which is due before the end of
the year. Last month, Qualcomm Chief Executive Steve Mollenkopf
said the company expects sales of 5G handsets will likely come in
at the high end of a projection of between 175 million to 225
million units this year.
"We are anticipating the next inflection point in our 5G ramp to
start in [the September quarter], with strong year-over-year growth
in revenue and earnings per share, leaving us well positioned for
continued growth in fiscal year 2021," he told analysts on an
While Microsoft Corp., Facebook Inc., Amazon.com Inc. and other
technology companies have faced their own periods of tumult due to
issues like antitrust scrutiny, investor activism and political
pressure, few, if any, have experienced so much in as compressed of
a timeline as Qualcomm.
The upheaval for the chip maker began in earnest in 2015, when
activist investor Jana Partners LLC bought more than $2 billion
worth of shares and pushed for the company to be split into two:
one that licenses technology patents and another that sells
wireless communications chips. Qualcomm's board, which had
previously considered a breakup, rejected Jana Partners' plan and
the investor ultimately sold its shares in 2016.
Soon after, Qualcomm tried to buy Dutch chip-making rival NXP
Semiconductors NV for $44 billion in 2016 only for the deal to fall
apart two years later after Chinese authorities didn't give their
approval. Rival Broadcom Inc. launched a hostile takeover bid for
Qualcomm in 2017, while the NXP deal was hanging in the balance.
The Trump administration blocked that deal, in 2018, after a
national-security review determined Qualcomm shouldn't be sold to
Broadcom, which was then based in Singapore.
In 2017, Apple and the Federal Trade Commission sued Qualcomm,
alleging the company abused its monopoly power in some markets for
chips that handle cellphone communications. The suits alleged
Qualcomm used its dominance to extract high royalty rates on its
To gauge Qualcomm's chances of prevailing, Kevin Cassidy, an
analyst at Rosenblatt Securities, surveyed lawyers after Apple and
the FTC sued. "I probably interviewed 10 different lawyers and I
would say eight out of the 10 said they have no chance against
Apple," he said.
The companies settled last year and dropped all litigation,
though the FTC case continued. A district-court judge ruled against
Qualcomm last year, siding with the FTC, which threatened a key
source of revenue for Qualcomm. The company appealed, leading to
Qualcomm hasn't resolved all of the regulatory issues it faces.
The FTC is examining whether to appeal and Qualcomm also faces an
antitrust inquiry over one of its businesses in Europe.
The company is also lobbying the Trump administration for
approval to sell 5G chips to Huawei Technologies Co., the world's
largest smartphone maker. Qualcomm, which has been blocked from
such sales by the U.S. government's industrywide restrictions on
the sale of some components to the Chinese company, has been
lobbying in Washington for a license to go ahead with the
Rosenblatt's Mr. Cassidy said litigation also appears to have
led to changes in Qualcomm's focus, with the company leaning more
heavily on its chip sales rather than the contentious licensing
"The good news on that side is that operating margins will go up
because they are not going to be spending money on lawyers," he
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Write to Asa Fitch at email@example.com
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August 13, 2020 02:47 ET (06:47 GMT)
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