Qualcomm Sees Steep Profit Decline Amid Apple Legal Scuffle

Qualcomm Sees Steep Profit Decline Amid Apple Legal Scuffle
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Qualcomm, the biggest maker of chips used in mobile phones, forecast steep declines in profit and licensing sales, underscoring its dependence on the royalties that one of its largest customers, Apple, has stopped paying, according to Bloomberg.

Sales in the company’s licensing division, which collects fees for use of its mobile technology, will sink as much as 47 percent in the current period to as little as $1 billion, the company said. That will drag down overall revenue by as much as 13 percent in the quarter, which ends in September. The guidance excludes patent fees related to products from Apple and another customer whose contract is in dispute.

Adjusted profit in the current period may fall to 75 cents to 85 cents a share, less than the average analyst estimate for 91 cents. Overall sales in the fourth quarter will be $5.4 billion to $6.2 billion, the company said Wednesday. That compares with average analysts’ projections for sales of $5.52 billion, according to data compiled by Bloomberg.

In the June quarter, Qualcomm’s sales were in line with forecasts the company had given in late April, when it revised projections it had made less than two weeks earlier as it tried to gauge the impact of its feud with Apple.

Qualcomm’s net income in the third quarter fell to $865 million, or 58 cents a share. Excluding certain items, profit was 83 cents a share, compared with an average estimate of 81 cents. Adjusted sales fell 11 percent to $5.37 billion. Analysts had predicted revenue of $5.26 billion.

While demand has been growing for Qualcomm’s chips, which provide the bulk of revenue, CEO Steve Mollenkopf is grappling with a bigger set of problems in the licensing business, his most lucrative unit. The company is facing antitrust inquiries from governments around the world and financial results have become harder to predict since payments related to the iPhone were halted earlier this year. The two companies are now locked in escalating rounds of lawsuits and counter-moves.

Demand from China led generally strong order for chips in the third quarter, which ended in June, Mollenkopf said in a phone interview following the report. Qualcomm likes its position in the legal disputes, he said, and thinks defending itself is in the best long-term interests of the company and its shareholders.