Qualcomm’s Quarterly Profit Plummets 40% Amid Apple Legal Battle

Qualcomm's Quarterly Profit Plummets 40% Amid Apple Legal Battle
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Qualcomm’s protracted, globe-spanning legal battle with Apple has proven to be very costly for the chipmaker. The San Diego-based company has reported a steep 40 percent fall in quarterly profit to $865 million, compared to the $1.443 billion it earned last year. Qualcomm cited Apple’s contract manufacturers’ refusal to pay royalties as the primary cause for drop. It also listed a $927 million fine paid to the Korea Free Trade Commission as a factor in its third-quarter results, as well as a $940 million payment to Blackberry.

Shares of the company fell 2.3 percent on Wednesday. Revenues plunged 11 percent over the last year to $5.4 billion, beating analysts’ expectations of $5.26 billion. Qualcomm also reported earnings of 83 cents a share, beating analysts’ estimates of 81 cents.

“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 press release. “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.”

Forecasting Qualcomm’s financials has become a messy endeavor ever since its legal brawl with Apple began. Earlier this year, Apple sued Qualcomm in both the US, UK, and Beijing, accusing it of overcharging for chips under its licensing model after years of unsuccessfully attempting to renegotiate the agreement. The iPhone maker vowed to withhold hundreds of millions of dollars worth of promised rebates to its third-party manufacturers, who in turn have not paid the licensing fees to Qualcomm. Qualcomm noted in its press release that it expects that “the recent actions taken by these licensees will continue until the respective disputes are resolved.”

“You can’t pay something when there’s a dispute about the amount–you don’t know how much to pay,” Apple CEO Tim Cook argued. “I don’t believe anyone is going to decide to enjoin the iPhone based on that,” he also noted, referring to the possibility that Qualcomm might seek to have iPhone sales blocked. “I think that there’s plenty of case law around that subject, but we shall see.”

Mollenkompf’s response was that his company was charging a “fair value” for its intellectual property. Qualcomm is the world’s leading manufacturer of modem chips which allow nearly every smartphone to connect to wireless networks. Most of its profits come from the highly lucrative licensing agreements it has inked with phone-manufacturers.

Qualcomm has filed a number of lawsuits in retaliation. In April, it launched a countersuit accusing Apple of banding together with rival Samsung to induce regulatory action against it, and also claimed that the iPhone maker gave misleading statements to government officials. Qualcomm has also launched a lawsuit against four of Apple’s overseas manufacturers— Foxconn, Compal, Wistron, and Pegatron– for the unpaid royalties. In the latest salvo, Qualcomm asked the International Trade Commission to ban imports of select iPhone and iPad models into the US earlier this month.

Though neither party seems ready to back down, Mollenkompf has maintained an upbeat attitude in public. Earlier this week at Fortune’s Brainstorm Tech Conference in Aspen, Colorado, Mollenkompf expressed optimism that the dispute would eventually settle out of court.

“There’s not really anything new going on,” Mollenkopf said. “Those things tend to get resolved out of court and there’s no reason why I wouldn’t expect that to be the case here.”

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