Qualcomm chip business stays strong in midst of Apple fight

Bloomberg

Qualcomm Inc. issued a surprisingly bullish forecast for the current quarter, showing that robust demand for the company’s chips in China is making up for lost revenue from a bruising legal brawl with Apple Inc.
Sales in Qualcomm’s fiscal first quarter will be $5.5 billion to
$6.3 billion. Earnings per share, excluding some items, will be 85 cents to 95 cents, the San Diego-based company said. Analysts expected $5.92 billion and 91 cents a share, on average, according to data compiled by Bloomberg.
Chief Executive Officer Steve Mollenkopf is besieged by legal disputes with Apple, one of his largest customers, and government agencies around the world that threaten to undermine Qualcomm’s technology licensing business, which generates most of its profit. Still, the company’s chip unit, which contributes the majority of revenue, is winning market share from rivals and benefiting from demand for expensive phones in China.
“China remains strong,” said Mollenkopf. “The end market continues to grow and average selling prices—the cost of devices—is holding up very nicely.”
Consumers in China, the world’s biggest smartphone market, are increasingly turning to more expensive devices, which use pricier Qualcomm chips and also generate higher licensing revenue. Qualcomm shares rose 1 percent in extended trading. Earlier, they had closed up 4.8 percent at $53.46 in regular New York trading. The shares are down about 20 percent this year and making it the worst performer on the benchmark Philadelphia Stock Exchange Semiconductor Index. Most chip stocks are up this year, leaving the index with a gain of about 40 percent.
Qualcomm has seen off an attempt by rival MediaTek Inc. to break into the high end of the mobile chip business and taken sales from the Taiwanese company in the market for cheaper phones. Qualcomm’s ability to ride a wave of higher priced gadgets and chips counters the usual deflationary trend in the industry, according to Raymond James & Associates analyst Chris Caso. “It’s unprecedented in consumer electronics,” he said. “It’s no secret that MediaTek has had struggles this year.”
Apple and regulators are challenging the way Qualcomm charges fees for patents that cover the fundamentals of modern phone systems. The company has been fined in South Korea and Taiwan, the US government is accusing it of antitrust violations and the EU is also examining its practices.