Qual­comm fore­cast falls short as Ap­ple sales dis­ap­pear

Business World - - World Business -

LOS AN­GE­LES — Qual­comm, Inc. fore­cast sales rev­enue for the hol­i­day shop­ping quar­ter be­low an­a­lysts’ es­ti­mates on Wed­nes­day as it took a hit from the loss of chip sales to Ap­ple, Inc., send­ing its shares down 3.4%.

The San Diego chip­maker also fore­cast its fis­cal 2019 firstquar­ter profit above an­a­lysts’ es­ti­mates, but the bet­ter-thanex­pected out­look was largely due to a one-time tax ben­e­fit of about 45 cents per share.

Qual­comm is the world’s big­gest sup­plier of chips for smart­phones but it has been bat­tered by a slow­down in the in­dus­try and the loss of ma­jor cus­tomer Ap­ple.

It has also faced re­peated chal­lenges to a patent li­cens­ing model where it takes a cut of the sell­ing price of a mo­bile phone, both from an­titrust reg­u­la­tors and from cus­tomers in­clud­ing Ap­ple, which is su­ing Qual­comm over its prac­tices.

The iPhone maker has ex­cluded Qual­comm from its new iPhones XS and XS Max and XR that launched in Septem­ber, in­stead choos­ing mo­dem chips from ri­val In­tel Corp.

Ear­lier this sum­mer, Qual­comm warned its share­hold­ers that Ap­ple would likely make that move, but the im­pact has shown up more swiftly than Wall Street ex­pected.

For Qual­comm’s fis­cal first quar­ter that ends in De­cem­ber, the chip firm fore­cast rev­enue of be­tween $4.5 bil­lion and $5.3 bil­lion and ad­justed earn­ings of $1.05 to $1.15 per share. An­a­lysts were ex­pect­ing rev­enue of $5.57 bil­lion and earn­ings of 95 cents per share, ac­cord­ing to IBES data from Refini­tiv.

Qual­comm Chief Fi­nan­cial Of­fi­cer Ge­orge Davis told Reuters that about half of Ap­ple’s chip pur­chases tended to come dur­ing the hol­i­day quar­ter. Mr. Davis said Wall Street an­a­lysts may have ex­pected the blow from the Ap­ple loss to be more spread out over the year.

On the profit side, Mr. Davis said the ad­justed earn­ings per share guid­ance of $1.05 to $1.15 in­cluded a 45-cent-per-share ben­e­fit from a tax re­struc­tur­ing that would not re­peat.

“Net-net, it’s not a dis­as­ter,” said an­a­lyst Kin­ngai Chan from Sum­mit In­sights Group. “I think Qual­comm can build from here on out with 5G and growth in its ad­ja­cent busi­nesses” such as chips for au­to­mo­biles, Chan said.

Ear­lier on Wed­nes­day, Reuters re­ported that Ap­ple is not in talks “at any level” to set­tle the lit­i­ga­tion with Qual­comm, ac­cord­ing to a per­son fa­mil­iar with the mat­ter.

Mr. Davis said there was “a lot of fo­cus both in­ter­nally and ex­ter­nally” on re­solv­ing the dis­pute with li­censees, which in­clude Ap­ple, but did not com­ment on whether the two were in talks about a set­tle­ment.

Qual­comm has tried to off­set some of the woes re­lated to Ap­ple and the law­suits by sign­ing more deals with cus­tomers that ef­fec­tively let them pay lower patent li­cens­ing rates. It has also reached new deals with large cus­tomers like Sam­sung Elec­tron­ics Co. Ltd.

Also off­set­ting the Ap­ple im­pact is a slew of new part­ner­ships be­tween Qual­comm and Chi­nese mo­bile phone mak­ers in­clud­ing Xiaomi Corp., Oppo, Vivo and OnePlus, all of which of­fer low­er­cost mod­els in emerg­ing mar­kets like In­dia.

Davis said those Chi­nese phone mak­ers are in­creas­ingly mak­ing higher-priced de­vices that use Qual­comm’s 700- and 800-series Snap­dragon chips, which helped im­prove sales.

“Even though we made some changes to the li­cens­ing pro­gram that al­lowed cus­tomers to ef­fec­tively have a lower rate, that came back to us in the form of higher (chip) unit sales,” Davis said.

Qual­comm is also seek­ing to set­tle an an­titrust law­suit brought by the US Fed­eral Trade Com­mis­sion. That ef­fort suf­fered a set­back this week when a fed­eral judge is­sued a pre­lim­i­nary rul­ing say­ing Qual­comm must li­cense its patents to chip in­dus­try ri­vals such as In­tel Corp.

In a con­fer­ence call with in­vestors, Qual­comm le­gal chief Don Rosen­berg said set­tle­ment talks with the FTC are pro­ceed­ing de­spite the rul­ing.

Ex­clud­ing items, Qual­comm earned 90 cents per share in its fis­cal fourth quar­ter ended in Septem­ber, beat­ing an­a­lysts’ es­ti­mates of 83 cents, ac­cord­ing to IBES data from Refini­tiv.

Rev­enue fell to $5.80 bil­lion for the fis­cal fourth quar­ter, but was still above es­ti­mates of $5.52 bil­lion.

Qual­comm’s loss was $493 mil­lion, or 35 cents per share, in the quar­ter ended Sept. 30, com­pared with a profit of $168 mil­lion, or 11 cents per share, a year ear­lier. —


QUAL­COMM’S LOGO is seen at its booth at the Global Mo­bile In­ter­net Con­fer­ence (GMIC) 2015 in Bei­jing, China, April 28, 2015.

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