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Patent fights round the world hit Qualcomm’s first quarter results

Qualcomm announced a mixed set of first quarter results, hit by “legal and regulatory challenges” which drove net profits down 36% year-on-year to $700m.

Most of the decline was down to one-off items such as the recent ruling on historical royalty payments to BlackBerry, and the $868m file imposed by South Korea’s antitrust authorities. An arbitration ruling has ordered a payment of $815m in repayments to Blackberry and Qualcomm also cited another ongoing royalty payments dispute with an unnamed customer.

And more such financial blows may follow, depending on the outcome of Qualcomm’s current legal battle with Apple, and probes of its business practices in the US, European Union and Taiwan.

Qualcomm CEO Steve Mollenkopf said on the analyst call that the company has “more opportunities ahead of it than at any time in the company’s history” but has had “a series of legal and regulatory challenges that have unfortunately overshadowed otherwise strong operating performance”.

Also on the call, Qualcomm president Derek Aberle enlarged on some aspects of the Apple fight, claiming that the iPhone maker encouraged ODMs to underpay royalties owed to Qualcomm for sales during the fourth calendar quarter of 2016. Apple – which pays its royalties via these manufacturers rather than directly – then withheld part of its fees to those companies, totalling almost $1bn – the amount Apple claims it is owed by Qualcomm in rebates under another deal.

“Despite Apple’s claims against Qualcomm, Apple suppliers remain contractually obligated to pay royalties to Qualcomm under their licence agreements with us, including for sales of iPhones to Apple,” Aberle said. And Mollenkopf was keen to distinguish the licensing battle with Apple from chip sales, saying: “Considering the strength of both our product roadmap in R&D investments, we expect to continue to be an important supplier to Apple now and into the future.”

On BlackBerry, Aberle commented: “We strongly disagree with the ruling, but it is binding and not appealable. It is worth noting that this was a specific contract provision that was unique to BlackBerry’s agreement, so this outcome has no impact on agreements with any other licensee.”

He provided some updates on the various ongoing antitrust probes round the world. Qualcomm has initiated the legal process to appeal against the Korean fine, and has filed a motion to dismiss a complaint brought in January by the US Fair Trade Commission. He said the firm is also continuing to cooperate with an ongoing Taiwan FTC investigation.

Qualcomm reported sales of $5bn for the quarter ended on March 26, down 10% year-on-year. Excluding the one-off charges, sales would have been $6bn, up 8% on the year-ago quarter, and net income of $2bn, up 28%. For the current quarter, which closes in June, Qualcomm expects sales to be between $5.3bn and $6.1bn, which would be somewhere between a 12% year-on-year decrease and a 1% increase.

“We are very focused on resolving the challenges to our licensing business and business model and we are confident we will be able to successfully navigate through this environment,” Mollenkopf said. “At the same time, this is an extremely exciting and transformative time for our company as the technologies and products are well positioned to expand into a growing set of opportunities and will be further enhanced with the completion of our pending acquisition of NXP.”

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