SAN JOSE, Calif. – Qualcomm’s latest quarterly earnings showed first blood in a set of five court actions now alleging its patent licensing terms are unfair. Wall Street analysts fear it could be just the beginning of financial hits in disputes Qualcomm said are driven by Apple.
The company reported $700 million in quarterly profits, a 54% decline year-over-year based on GAAP measures. Under the accounting principles, Qualcomm must take nearly a billion dollars off its bottom line to account for a fine it will dispute from the Korea Fair Trade Commission in one of the cases.
Under non-GAAP rules, Qualcomm reported a 21% year-over year rise in its quarterly profits to $1.8 billion. The company had quarterly revenues of $6 billion, up 4% year-over-year. It forecasts 7% revenue growth next quarter based on moderating declines in average selling prices in smartphones.
Wall Street analysts calculate Qualcomm’s earnings per share could fall 25-30% if it stops getting royalty payments due to the disputes. In an earnings call, Qualcomm executives repeatedly assured analysts they expect to receive royalty payments while they fight the cases.
Foxconn, Apple’s main contract manufacturer, has found itself the man-in the-middle in patent disputes between Apple and Qualcomm. Apple is withholding from its ODMs such as Foxconn the billion dollars listed in its suit against Qualcomm.
Qualcomm executives said they have licensing deals with and get paid royalties from Apple’s ODMs, not Apple itself. The royalties of 2.9% per handset are said to be 5-10 times higher than licensing deals with other large mobile patents holders such as Ericsson and Nokia.
The licensing agreement with Apple’s ODMs technically expired at the end of 2016. “We expect and hope our licensees will continue to comply and Apple will not interfere with those relationships,” said Derek Aberle, Qualcomm’s president said on a quarterly earnings call.
Qualcomm’s two largest customers--Apple and Samsung--make up 40% of the company’s total revenue, said George S. Davis, Qualcomm’s CFO.
“We see customers continue to pay during disputes in many cases,” said Davis. “We have a strong balance sheet so when things like this happen we are able to sustain ourselves and continue acquisitions and other initiatives,” he said.
Next page: Apple seeks component-level licensing
Stablizing smartphone SoC ASPs will lead to estimated 7% revenue growth next quarter despite falling unit shipments, Qualcomm forcasted.