Qualcomm sees up to $4.7bn payment from Apple deal

Bloomberg

Apple Inc. will pay Qualcomm Inc. $4.5 billion to $4.7 billion to catch up on licensing fees accrued during a two-year legal battle between the companies settled last month.
Qualcomm made the disclosure in its earnings report, while Apple declined to answer questions about the settlement during its own second-quarter earnings conference call.
The figure was less than the $7 billion Qualcomm claimed Apple owed.
Apple had accused its former chip supplier of using a strong position in cellular modems to force the payment for artificially inflated technology licensing. It hadn’t made payments to contract manufacturers that get passed along to Qualcomm since the beginning of the second quarter in 2017.
The two reached a settlement April 16. In addition to Apple’s one-time payment to Qualcomm, the companies said they negotiated a multiyear agreement for Qualcomm to sell chips and license its technology to the iPhone maker in exchange for royalty payments.
Analysts and investors, particularly owners of Qualcomm’s stock, want to know what Apple will be paying the chipmaker on an ongoing basis and whether it has secured a discount compared with what is paid by other phone makers, such as Samsung Electronics Co.
Qualcomm executives declined to provide details on Apple’s future royalty payments during a conference call with analysts. Apple didn’t respond to a request for comment.
Qualcomm Inc. gave a lackluster third-quarter sales forecast, citing weaker demand for smartphones in China. The disappointing outlook overshadowed the benefits of settling a prolonged legal dispute with Apple Inc., sending the shares down in extended trading.
Fiscal third-quarter revenue will be $9.2 billion to $10.2 billion, the San Diego-based company said in a statement.
“You’re going to see Chinese weakness reflected in the next couple of quarters,” Chief Executive Officer Steve Mollenkopf said in a telephone interview. Qualcomm won’t disclose the terms of its settlement with Apple or what the iPhone maker will pay in licensing fees but “we ended up with a resolution that’s consistent with our program,” he said.
Qualcomm stock fell about 3 percent in extended trading following the quarterly results and forecast. The stock had surged more than 50 percent since the Apple deal was announced on April 16, closing at $86.37 in New York.
The stock decline was amplified by the lack of details offered by Qualcomm executives about Apple’s future royalty payments. That caused confusion among analysts and investors, who peppered executives with questions about the topic during a conference call, said Mike Walkley, an analyst at Cannaccord Genuity. “The stock’s had a huge run and the guidance at first blush was disappointing,” Walkley said. He estimates that Apple will pay about $7.50 per phone in royalties, much higher than the $5 he had projected previously. “They’ve gotten an excellent deal, better than most people thought they could salvage,” Walkley said
of Qualcomm.
Mollenkopf had long insisted that the chipmaker’s legal troubles were just a commercial dispute that would be resolved when 5G services came along and focused the industry’s attention back on growth, and the settlement with Apple validated his view.
Investors now want to see Qualcomm, in its projected fifth year of revenue declines, convert its claimed leadership in that fifth-generation wireless technology into growth again. Before that happens, the company, like the rest of the industry, is struggling with lackluster consumer demand for smartphones from consumers.
Qualcomm is unique because the majority of its revenue is generated by selling chips that connect handsets to cellular networks, but the bulk of its profit comes from licensing patents it says cover the fundamentals of all modern, high-speed data phone systems. The licensing rights were challenged by Apple, which argued in court and in submissions to regulators that Qualcomm was unfairly jacking up rates using its strength as a supplier of chips.
In the settlement of the litigation, Apple said it would make a one-time payment to Qualcomm, and the two reached a multiyear agreement.