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Qualcomm Inc Loses Profits After Legal Team Up of Apple Inc Partners

Qualcomm Inc (NASDAQ:QCOM)
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Qualcomm Inc (NASDAQ: QCOM) is getting more companies standing up against it in court. The case against its restrictive monopoly over gadget makers just grew stronger. This week we learn 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 the chip maker of violating antitrust laws too.

Guess what 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 of a lawsuit against the chip giant.

So, what is everyone’s problem with Qualcomm? The company has built a formidable monopoly over the market of mobile devices. Not only does it build and sell chips to gadget makers, it licenses the technology on most of them too. Accusations state that Qualcomm often bullies other companies with its high influence. Its hold over the telecommunications sector means it can initiate most practices with no formidable contest. Accusations also suggest Qualcomm Inc uses its power to put high rates on its royalty charges.

Foxconn, Pegatron, Compal, and Winstron all assemble components and whole products for leading tech giants. Included in their collective client bases are giants like like Samsung, Microsoft and Qualcomm. They build iPhones and iPads for Apple too. This week sees them all going up against what they consider to be illegal practices by Qualcomm.

Qualcomm Inc Snapdragon

In light of the new legal challenges, Apple consolidated their suits in order to bolster its own. The iPhone 8 giant said it will file a motion to do so on Tuesday. Apple will be covering the fees associated with the defense of its Taiwanese partners as well.

Scandals related to Qualcomm Inc’s business model are not a rarity. In every case, though, the chip maker assures that its licensing rates fall in line with fair practice regulations. Apple finally put its foot down with a very public lawsuit in January. The filing accused Qualcomm of restrictive rates and unfair practices. This latest move comes after a long series of back-and-forths between Apple and Qualcomm Inc (NASDAQ: QCOM) .

Qualcomm’s major battles are related to its patent practices. It ensures parts that are vital to effective cellular communication go for a hefty price. Beyond that, the company also slaps extremely high royalties for gadgets not using Qualcomm chips.

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 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 (NASDAQ: QCOM) says the royalties paid by Foxconn, Pegatron, Compal and Winstron have nothing to do with Apple Inc though. Since then the company has asked several governments to limit imports of certain Apple products. It says that its licensing practices are fair and that Apple Inc only wants to cut its costs in light of slowing iPhone sales.

In Aspen, Qualcomm Inc CEO Steve Mollenkopf said he sees the battle with Apple Inc settled outside the courtroom. This would not be unlike the massive legal battle it had with Nokia in 2008. After a heated legal push by the cellphone juggernaut, the chip maker proposed a settlement agreement.

Major Qualcomm Inc Profits Are Threatened by Apple Inc Partners

In 2016, about 80 percent of Qualcomm’s pretax profits come from cell tech-related patent licensing. Three months ago the company was forced to reduce its profit projections due to nonpayment from Apple Inc.

The Apple Inc partners made news about their move against the chip maker just ahead of today’s quarterly results. Qualcomm Inc (NASDAQ: QCOM) shares lowered after Tuesday’s closing bell. They begin Wednesday trading in the green, up 0.11 percent ahead of the opening bell. Wall Street now agrees that the processor company is should share an adjusted EPS of 81 cents. So says Market Watch, which also points out that estimates are down some 30 percent overall. EPS a year ago stood at $1.16 per share.

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Mvusi Ngubane

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