Qualcomm’s ongoing legal dispute with Apple is taking a serious toll on the company’s financials.
The San Diego, California-based chipmaker’s third quarter revenue was down 11% over the previous year at $5.37 billion, beating analyst estimates of $5.26 billion. The biggest hit, however, was in Qualcomm’s net income, down 40% year over year at $866 million, with earnings of 58 cents per shares.
“We delivered better than expected results in our semiconductor business this quarter, which drove EPS above the midpoint of our expectations versus our April updated guidance,” said Qualcomm CEO Steve Mollenkopf in a statement. “Our products and technologies continue to enable the global smartphone industry, and we are expanding into many exciting new product categories, including automotive, mobile computing, networking and IoT. We believe that we hold the high ground with regard to the dispute with Apple, and we have initiated new actions to protect the well-established value of our technologies.”
Qualcomm said its third quarter financials were hit mostly by Apple’s contract manufacturers not paying royalties typically paid for iPhone sales. Besides Apple, Qualcomm also had a few big payouts it had to make in the third quarter: $940 million went to BlackBerry over a royalty dispute settlement; and a $927 million payment related to the Korea Free Trade Commission fine.
“Estimates for Qualcomm appear very messy for the next few quarters,” wrote Bernstein Research analyst Stacy Rasgon in a note.
The legal fight with Apple began in January when the iPhone maker filed a lawsuit against Qualcomm alleging the chipmaker “has unfairly insisted on charging royalties for technologies they have nothing to do with.” Qualcomm is the dominant maker of modem chips that enable phones, including many iPhones, to hook up to cellular networks around the world, but the company has a lucrative licensing business that collects fees on nearly every modern phone in the world. Historically, around two-thirds of the company’s profit have come from licensing its technology.
In Qualcomm’s countersuit, filed in April, the company denied the charges and brought a number of its own accusations, including that Apple mounted a large-scale regulatory attack against the company with the help of companies like Samsung. To get regulators to act against the company, Apple provided false and misleading statements to government regulators, Qualcomm claimed.
The latest in Qualcomm’s legal fight is that four of Apple’s manufacturers have banded together to accuse Qualcomm of violating United States antitrust law. In May, Qualcomm sued the four contract manufacturers — Foxconn, Compal, Wistron and Pegatron — for not paying royalties.
The company tries to maintain a sunny disposition even in the face of such huge legal fights it has in front of it. Earlier this week at the Fortune Brainstorm Tech conference in Aspen, Colorado, Mollenkopf predicted the Apple dispute would be resolved out of court. “Those things tend to get to resolved out of court and there’s no reason why I wouldn’t expect that to be the case here,” he said.
Qualcomm is down 1% in after-hours trading.