Since January 2017, the Qualcomm Inc (NASDAQ:QCOM) legal battle with Apple Inc has been hurting its reputation. The public learned about its effect on the company’s financials on Wednesday. Year-over-year, QCOM revenue dropped by 11 percent over its third quarter.
While the drop in revenue is significant, Qualcomm’s quarterly income still manages to beat most analyst predictions. However, the worst effects are evident in the chipmaker’s net income. That’s down 40 percent year-on-year, putting it at $866 million with an EPS of $0.58.
Admittedly, the company says it managed to surprise itself last quarter. Steve Mollenkopf, Qualcomm’s Chief Executive, reported that the semiconductor business “delivered better than expected results” for the third quarter. The effect also pushed EPS up beyond Qualcomm’s expectations.
The company addressed concerns about its legal battle with Apple and speculation regarding its reduced influence. Ever so assuring, Mollenkopf not only quells the worries investors but offers news about Qualcomm’s headway in new markets too.
“Our product and technologies continue to enable the global smartphone industry,” said Mollenkopf. “And we are expanding into many exciting new product categories, including automotive, mobile computing, networking and IoT.”
The CEO is certain that QCOM will come out victorious in its legal spat with Apple. At Wednesday’s report, he insisted that Qualcomm held the advantage over the iPhone maker. “ We have [also] initiated new actions to protect the well-established value of our technologies.”
The problem with Qualcomm Inc and its licensing business
It seems as though every gadget maker ought to have an issue with Qualcomm. That is how Apple sees it at least. The chipmaker has built a powerful monopoly over the market of mobile devices and their cell communications. Not only does it build and sell chips to gadget makers, it licenses the technology on most of them too.
Accusations say that the company’s high influence is often used to “bully” other companies. Its hold of the telecommunications sector means it can initiate most practices with no formidable contest. Qualcomm Inc also faces allegations of abusing of its pricing power.
More companies are standing up against it in court as well. The case against its restrictive monopoly over gadget makers just grew stronger this week. On Tuesday, we learned that four more companies are filing suits similar to those of Apple Inc. These companies also claim that Qualcomm’s patent licenses are excessive in cost. They go on to accuse Qualcomm of violating antitrust laws too.
Apple Inc brings Taiwanese friends on-board
Taiwanese tech makers Foxconn, Pegatron, Compal, and Winstron have in common. They all have similar complaints about Qualcomm as Apple Inc. Apple rounded up some of its friends to bolster its case against Qualcomm. The group is made up of the iPhone maker’s trusted component producers and assemblers.
Tuesday evening features news arise about the Taiwanese tech giants’ plan to sue Qualcomm. Law firm Gibson, Dunn & Clutcher represented these claims and confirmed intentions to file a lawsuit against the chip giant.
Every one of the Taiwan-based contract partners pays royalties directly to Qualcomm. Some of those royalty payments are related to Apple Inc iPhones and iPads. When Apple decided to sue the processor juggernaut back in January, all four partners stopped payments on Apple’s behalf. But Qualcomm Inc (NASDAQ:QCOM) took measures against the coup and sued the group of four in May. This set up the chance to initiate this week’s counter suit.
Qualcomm Inc claims the Apple dispute saga is what hit the Q3 revenues the most. The event has led to numerous nonpayments from Apple Inc and its partners.
Evidence of Qualcomm Inc failure to play fair
That should not, however, overshadow the hefty legal payments made for breaking the law. Nearly $2 billion was forked out to settle licensing disputes with BlackBerry Ltd and Korea’s FTC. The three-month period leading up to June 30th has BlackBerry scoring $940 million off Qualcomm. The Korean Free Trade Commission got a near $1 billion a payout too.
The legal threat from Apple stands to change Qualcomm’s influence over the cellular communications market it dominates. Apple Inc accuses the processor giant of unfairly insisting on royalties for technology it has “nothing to do with”.
Qualcomm Inc has built a formidable empire by becoming the foremost maker of smartphone connectivity chips. Worldwide, its technology is what gives most devices, including iPhones and iPads, the capacity to link up to cellular networks. That means Qualcomm has a very lucrative revenue stream that collects royalties off just about every modern smartphone today.
In the past, nearly 70 percent of Qualcomm Inc profits came from its licensing business. In 2016, about 80 percent of Qualcomm’s pretax profits come from cellular tech-related patent licensing. Three months ago the company was forced to reduce its profit projections due to nonpayment from Apple Inc.
Is Qualcomm Inc in danger?
The chipmaker refutes the charges brought up against it by Apple Inc. In the counter suit brought forward in April, the company lays down its own accusations. Qualcomm Inc claimed that Apple is ganging up on it with the help of tech giants like Samsung and other Korean partners. The evidence provided by its contestants is said by the company to be false and intentionally misleading.
Mollenkopf repeatedly tries to put a reassuring tone on the legal situation at hand. Lower profits are a clear indicator of the threat Apple Inc poses to the Qualcomm licensing business though. Earlier this week, the CEO said he expected all of this resolved outside the courtroom. Third quarter results have Qualcomm Inc (NASDAQ:QCOM) trading in the red after markets closed this Wednesday.