Qualcomm revenue drops 11% and net income dips 40 percent

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Qualcomm revenue drops 11% and net income dips 40 percent

The potential if Qualcomm loses the case, which began when the U.S. Federal Trade Commission filed an antitrust case against it, is that Qualcomm could be forced to refund billions of dollars.

Qualcomm told investors that its legal dispute with Apple harmed its Q3 revenues. If found guilty, the company could be fined up to 10% of its global turnover for each one. The two companies are now locked in escalating rounds of lawsuits and counter-moves. "Apple has interfered with our licensing agreement with contract manufacturers by instructing them not to pay", said Qualcomm president Derek Aberle. (Qualcomm has been resisting the idea of splitting the company.) He asked, "I want to understand if you think there is any correlation between your ability to maximize the value of each segment separately in light of these disputes and these arguments with customers?" We intend to continue to provide them with our industry leading products and technologies as we always have and do our best to remain a good supplier to Apple even while this dispute continues.

For those unfamiliar, Apple does not actually license anything from Qualcomm, but rather its manufacturers do, and in turn Apple pays them for it.

Hon Hai/Foxconn, Compal, Wistron and Pegatron - all manufacturing partners of Apple in Asia -have filed a counter suit claiming that Qualcomm violated two sections of the Sherman Antitrust laws that exist to maintain fair competition within the United States to benefit consumers.

Eric Gaillard
Eric Gaillard

In the USA cases, Qualcomm is targeting imports of iPhones containing cellular baseband processors (the chips that handle radio communications) other than those supplied by its affiliates.

Qualcomm's finances are taking heavy hits over its licensing dispute with Apple and analysts are expressing concern. There's no harm to Qualcomm waiting to get paid until the court determines the correct amount, they said. The debate is how much that technology is worth, especially as phones become ever more complicated. As Stacy Rasgon of Bernstein Research summed it up ahead of earnings, "Given the structural issues facing the company, potential for downward revisions to the core business, potential for higher outlay for NXP, and the (in our opinion) low probability of a near-term Apple settlement, we stay on the sidelines".

That's a key part of the arguments between the two. That's what led to the 12 percent revenue drop Qualcomm reported for the last quarter. Not only have Apple's and the FTC's respective legal complaints shined some light on potentially unscrupulous practices, but other licensees are now coming out of the woodwork. Each side contends the other failed to make good-faith negotiations for a license.

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