Qualcomm Profit Slides as Royalty Dispute Continues

By Ted Greenwald 

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.

Meanwhile, Apple has withheld fees it owes for its use of Qualcomm's intellectual property as it battles for lower royalty rates. The conflict has overshadowed Qualcomm's financial performance since Apple filed suit in January.

Revenue from licensing intellectual property, which typically contributes well more than half of Qualcomm's pretax earnings, plummeted 36%.

Sales of chips for mobile devices rose 13%, continuing their steady growth in recent quarters.

Over all, 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 one of the largest providers 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.

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.

Qualcomm's shares were up 0.8% in after-hours trading, 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.

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.

Write to Ted Greenwald at [e-mail]

(END) Dow Jones Newswires

November 01, 2017 17:01 ET (21:01 GMT)

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