Qualcomm Expands Licensing Deal With Samsung as Charges Cut Into Profit -- 2nd Update

By Austen Hufford and Ted Greenwald 

Qualcomm Inc. entered into an expanded deal with one of its biggest customers and beat revenue estimates in its latest quarter even as it swung to a deep loss.

Qualcomm said Wednesday that it had reached a multiyear deal with Samsung Electronics Co. that covers various areas including mobile devices. In addition, it said Samsung had agreed to withdraw its support for regulatory actions against Qualcomm in South Korea and elsewhere, a shift that could give it leverage as it appeals fines brought against it in recent years.

The agreement with Samsung, which allows the two companies to share patents, doesn't bear on the agreements Qualcomm uses to license intellectual property for its smartphone chips, which are facing legal challenges by Apple Inc. and international regulators. However, the new contract is "consistent with Qualcomm's global handset-level licensing practices," which are among Qualcomm's business practices that have been under fire.

Qualcomm charges its chip customers royalties based on a percentage of the price of a whole smartphone rather than its chips. Both Samsung and Apple were responsible for more than 10% of Qualcomm revenue in the company's last fiscal year.

In its fiscal first quarter, Qualcomm took a $6 billion charge related to the new U.S. tax law and a $1.2 billion charge for a fine imposed by the European Commission, which claimed that payments made to Apple to entice it to exclusively use Qualcomm chips were anticompetitive.

The company posted a loss of $6.07 billion, or $4.03 a share, compared with a profit of $700 million, or 46 cents a share, in the same period a year earlier. On an adjusted basis, which takes out the charges, the company brought in 98 cents a share, above the 91 cents analysts polled by Thomson Reuters had expected.

Shares fell 0.4% to $68 in after-hours trading.

The chip maker, facing a hostile takeover bid by Broadcom Ltd. and continuing attacks on its business model from customers and regulators, told investors in a recent presentation that it could boost profit by fiscal 2019.

Qualcomm also said its proposed deal to buy NXP Semiconductors NV for $39 billion should close in early 2018. The companies originally announced the deal in October 2016.

In all, revenue rose 1.2% to $6.07 billion, above Wall Street estimates of $5.93 billion. For its current quarter, Qualcomm expects revenue of $4.8 billion to $5.6 billion and adjusted earnings per share of 65 cents to 75 cents.

Analysts had expected revenue for the second quarter of $5.58 billion and adjusted earnings per share of 85 cents.

Qualcomm is one of the largest providers of communications chips for smartphones, and its products form the heart of many higher-end phones. As a holder of patents essential to implementing cellular standards, Qualcomm collects royalties on many smartphones sold world-wide, regardless of whether they include the company's chips.

However, Apple has been blocking royalty payments while it pursues court cases alleging Qualcomm engages in unfair practices. Revenue from licensing intellectual property, which typically contributes significantly to Qualcomm's earnings, fell 27%.

Chip shipments rose 9% in the quarter as chip revenue rose 13% to $4.65 billion.

Qualcomm expects global shipments of 3G and 4G devices in 2018 to rise 7%, coming in between 1.85 billion and 1.95 billion.

Write to Austen Hufford at [e-mail] and Ted Greenwald at [e-mail]

(END) Dow Jones Newswires

January 31, 2018 18:51 ET (23:51 GMT)

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