Qualcomm sees steep profit decline amid its legal scuffle with Apple

Bloomberg

Qualcomm Inc., the biggest maker of chips used in mobile phones, forecast steep declines in profit and licensing sales, underscoring its dependence on the royalties that one of its largest customers, Apple Inc., has stopped paying.
Sales in the company’s licensing division, which collects fees for use of its mobile technology, will sink as much as 47 percent in the current period to as little as $1 billion, the company said. That will drag down overall revenue by as much as 13 percent in the quarter, which ends in September. The guidance excludes patent fees related to products from Apple and another customer whose contract is in dispute.
While demand has been growing for Qualcomm’s chips, which provide the bulk of revenue, Chief Executive Officer Steve Mollenkopf is grappling with a bigger set of problems in the licensing business, his most lucrative unit. The company is facing antitrust inquiries from governments around the world and financial results have become harder to predict since payments related to the iPhone were halted earlier this year. The two companies are now locked in escalating rounds of lawsuits and counter-moves.
“I don’t think they’ve ever had this many challenges going on at the same time,” said David Heger, an analyst at Edward Jones & Co. “Ultimately they can get all of these things resolved but it’s a case of what does it look like when they do? Qualcomm, in terms of earnings, has more to lose than Apple.”
Qualcomm shares dropped as much as 4.3 percent in extended trading. Earlier, they gained less than 1 percent to $56.78 at the close of trading in New York. The stock has lagged behind other chipmakers this year, losing 13 percent and making it the worst performer on the benchmark Philadelphia Stock Exchange Semiconductor Index in that period. Demand from China led generally strong order for chips in the third quarter, which ended in June, Mollenkopf said in a phone interview following the report. Qualcomm likes its position in the legal disputes, he said, and thinks defending itself is in the best long-term interests of the company and its shareholders. “The product business delivered solid results,” Mollenkopf said. Regarding the legal conflicts, “our posture is very clear. We have a very strong case,” he said.