Law changes, EU fines nets Qualcomm a loss despite $6.1bn in quarterly sales
SAN FRANCISCO — Fabless chip giant Qualcomm reported better-than-expected sales for the quarter ended Dec. 24, but charges stemming from U.S. tax law changes and a $1.2 billion fine imposed by the European Union dragged the company to a significant loss.
Qualcomm reported sales for the quarter of $6.1 billion, up 3 percent from the previous quarter and up 1 percent from the year-ago quarter. But the company reported a net loss in accordance with generally accepted accounting principles of $6 billion, compared to net incomes of $200 million and $700 million in the previous and year-ago quarters, respectively.
Qualcomm's results included a $6 billion charge based on changes in U.S. tax law — including about $5.3 billion for repatriation tax on funds that Qualcomm had parked overseas. The European Commission, the European Union's legislative and regulatory arm, last week fined Qualcomm $1.2 billion related to an expired agreement with Apple that the commission ruled prevented Apple from buying LTE baseband chips from Qualcomm's rivals in violation of EU antitrust rules.
On a pro forma basis, excluding charges, Qualcomm reported a net income of $1.5 billion for its fiscal first quarter of 2018, up 7 percent compared to the previous quarter but down 18 percent compared with the first quarter of fiscal 2017.
Based on an ongoing dispute with Apple and its contract manufacturers, Qualcomm did not record any revenue for royalties for Apple in the first quarter of fiscal 2018 or the fourth quarter of fiscal 2017, Qualcomm said. Apple and Qualcomm have traded multiple lawsuits since early last year, when the the relationship between the longtime collaborators soured.
Steve Mollenkopf, Qualcomm's CEO, said in a conference call with analysts following the quarterly report that a several key milestones in the Qualcomm-Apple dispute are expected later this year and early next year, including case hearings and determinations in patent infringement suits brought by Qualcomm against Apple in several jurisdictions as well as Qualcomm's breach of contract disputes against Apple OEMs that withheld payment on Apple's instructions. Qualcomm also expects a ruling in its related suit against Apple for allegedly interfering with license agreements between Qualcomm and Apple OEMs, Mollenkopf said.
"We value our relationship with Apple and would like to continue that relationship into the future," Mollenkopf said. "However, it is in our stockholders' best interests that we ensure that Apple pay a fair and reasonable royalty and operate on a level playing field with other OEMs."
Qualcomm also remains mired in a separate licensing fee dispute with an unnamed customer. That dispute also negatively impacted Qualcomm's financial report, with the company not recording any royalty revenue from that licensee in the first quarter of fiscal 2018 or the fourth quarter of fiscal 2017.
Also Wednesday, Qualcomm announced that it expanded both its strategic relationship and patent cross licensing agreement with Samsung Electronics. Qualcomm said the deal expands upon a long-standing relationship between the two companies as technology and business partners this year and beyond, through the transition to 5G.
As an amendment to the cross-licensing agreement — which covers mobile devices and infrastructure equipment — Samsung will withdraw its opposition to Qualcomm’s appeal of an $868 million fine against Qualcomm handed down by the Korea Fair Trade Commission last year, Qualcomm said.
Qualcomm said it expects sales for the current quarter to be between $4.8 billion and $5.6 billion, a range that represents between a year-over-year decline of 4 percent and increase of 12 percent.
— Dylan McGrath is the editor-in-chief of EE Times.