QUALCOMM, Inc. (NASDAQ: QCOM) has posted better than expected results in the fourth quarter of FY 17 due to the strength in its smartphone chips business was complemented by demand for chips used in automobiles and for the Internet of Things (IoT). However, the chipmaker remains entangled in a costly legal battle with Apple over licensing terms for chips used in the iPhone and iPad. The results were negatively impacted due to the actions taken by Apple and its contract manufacturers. Meanwhile, QCOM has issued a bullish projection 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. The consumers in China, which is the world’s biggest smartphone market, are increasingly turning to more expensive devices, use pricier Qualcomm chips and also generate higher licensing revenue.
3d illustration of a glowing blue Qualcomm logo sitting on top of a glossy microchip
Moreover, as per the sources, Apple is designing iPhones and iPads for 2018 that don’t use components from Qualcomm. As per Raymond James & Associates estimates, if that business went away it would cut Qualcomm revenue by about 7.5 percent.
QCOM in the fourth quarter of FY 17 has reported the adjusted earnings per share of 92 cents, beating the analysts’ estimates for the adjusted earnings per share of 81 cents, according to Thomson Reuters. The company had reported the adjusted revenue growth of $5.96 billion in the fourth quarter of FY 17, beating the analysts’ estimates for revenue of $5.8 billion. In the year-ago quarter, the chipmaker reported earnings per share of $1.07 on $6.2 billion in revenue.
On the other hand, Apple and regulators are challenging the way QCOM charges fees for patents that cover the fundamentals of modern phone systems. QCOM has been fined in South Korea and Taiwan, the U.S. government is accusing it of antitrust violations and the European Union is also examining its practices. Further, Apple and its backers want to change the way Qualcomm patent royalties are calculated. Therefore instead of charging fees based on the price of phones, Apple wants it based on the cheaper price of modems. Modems usually costs about $20, while phones cost hundreds of dollars or more. To get their point across, these crucial customers are withholding payments to Qualcomm.
Additionally, QCOM is trying to close its $47 billion purchase of NXP Semiconductors NV. The deal is facing regulatory examination in Europe and opposition from some shareholders. However, the deal is still on track but may close next year.