SAN JOSE, Calif. — The world's largest maker of cellphone chips and the China government appear to be eyeball-to-eyeball in a patent dispute, waiting for someone to blink.
Qualcomm turned up the heat in its quarterly financial report today, saying it believes phone makers in China are not reporting hundreds of millions in cellphone unit sales to avoid royalty payments. The news was part of the company's one sore spot as it reported another quarter of solid growth and upbeat guidance for its coming fiscal year.
Qualcomm believes 1.3 billion handsets were sold using its intellectual property this year and 1.5 billion will be sold next year. But handset makers are on track only to report sales of 1.04 to 1.13 billion devices this year, leaving a gap of 170 to 260 million devices unreported, the company claims.
Meanwhile the China National Development and Reform Commission (NDRC) continues to investigate Qualcomm's business practices.
"Certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee)…[and] unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing," Qualcomm said in a statement.
Qualcomm has long made a significant share of its revenues in patent licensing, a fact that has drawn it into numerous patent disputes but none with a party as powerful as the China government. Time will tell whether its strategy to air charges of significant non-compliance among China's mobile OEMs will help resolve the dispute.
Meanwhile, the company continues on a steady growth path despite the dispute. Sales for the next quarter and the next fiscal year could be up as much as 9%, Qualcomm said.
Chip set sales next quarter are expected to be up 17% to 27% next quarter, implying a decline in average selling prices. For the next fiscal year, Qualcomm expects chip set sales up 1% to 11%, implying the ASP declines will level out.
Qualcomm expects earnings per share for the coming fiscal year could be up 3% to 12%. it added.
The guidance for the coming quarter and fiscal year "does not include sales that we believe may not be reported to us or may be in dispute but does include an estimate for some prior period activity that may be reported to us during fiscal 2015," Qualcomm said. "We are taking steps to address these issues, although the outcome and timing of any resolutions are uncertain," it added.
The guidance also did not take into account details of its pending acquisition of CSR.
The company reported revenues of $6.69 billion and net income of 1.89 billion for its latest quarter in which it sold 213 million of its MSM chip sets. The numbers fell well within Qualcomm's guidance.
Qualcomm forecasts significant growth for its coming fiscal year (above) and solid results in its past one (below).
— Rick Merritt, Silicon Valley Bureau Chief, EE Times