Qualcomm’s (QCOM) shares drop as the company’s earnings forecast excluded any Apple-related sales, despite meeting expectations with its quarterly earnings report on Wednesday.
Shares of the chip maker were falling 3.1 percent to $55.01 in after-hours trading. The company reported fiscal third-quarter net income of $866 million, or 58 cents per share, on $5.3 billion revenue, against 97 cents per share in the previous year’s third quarter.
Qualcomm is expecting fourth-quarter sales between $5.4 billion and $6.2 billion, against Wall Street’s projection of $5.5 billion. Forecasted GAAP earnings per share is between 55 cents and 65 cents.
Shares declined despite the company’s stronger-than-expected third-quarter results, with adjusted earnings per share of 83 cents versus Wall Street’s expectations of 81 cents per share. The company’s generated revenue of $5.3 billion is higher than analysts’ estimate of $5.28 billion.
Qualcomm is currently caught in an ongoing legal dispute against Apple, Inc. (AAPL). In January, the iPhone maker sued Qualcomm for $1 billion, saying that the latter collected royalties for iPhone technologies not related with its business, which include cameras and Touch ID. Apple will discontinue royalty payments to the company until the matter is resolved. For this reason, Qualcomm had to cut revenue forecast and exclude Apple-related revenues.
Early last week, Qualcomm countersued over claims that Apple had infringed on six of its patents, which includes a battery-performance improvement system in smartphones. For the new lawsuit, the chip maker is pursuing to ban iPhone imports into the U.S., The Street reports.
Don Rosenberg, Qualcomm’s general counsel, said that the company adjusted its forecast for fiscal fourth quarter due to problems with contracts and licenses involving Apple. “While Apple acknowledged that payment is owned for the use of Qualcomm’s valuable intellectual property, it nevertheless continues to interfere with our contracts,” he said. “Apple’s continued interference with Qualcomm’s agreements to which Apple is not a party is wrongful and the latest step in Apple’s global attack on Qualcomm.”
Apple has been blocking licensing fees due to Qualcomm for iPhone sales. Four Taiwan-based contract manufacturers have stopped paying royalties to Qualcomm at Apple’s directive. The company has since sued the contract manufacturers for breach of contract, and the case is in a San Diego federal court, San Diego Tribune reports. The contract manufacturers filed a countersuit on Tuesday.
“It’s clear that Apple is controlling all of the contract manufacturers’ statements and actions in the litigation,” Qualcomm president Derek Aberle said in a conference call with analysts at Wall Street. “If Apple hadn’t interfered with the licenses and instructed the contract manufacturers to take these actions, the contract manufacturers would not be contesting the licenses now.”
According to reports, an unnamed smartphone manufacturer also stopped paying for patent royalties, and this is worrying Wall Street analysts, as more smartphone companies may autonomously decide to stop paying for Qualcomm’s patent royalty fees.
Qualcomm’s licensing arm is likely to battle legal issues into the next quarter and even beyond. The company is also currently facing a $900 million fine from South Korean anti-trust regulators.
“We believe that we hold the high ground with regard to the dispute with Apple,” Steve Mollenkopf, CEO of Qualcomm, said in an earnings statement. “And we have initiated new actions to protect the well-established value of our technologies.”
The company is also expecting to complete the acquisition of NXP Semiconductor by the end of the year. The deal, which cost the company $38 billion, will diversify Qualcomm’s business beyond the smartphone market. The company has been given regulatory approval in four countries.
Qualcomm is looking at a positive end-of-year, especially since its automotive and industrial internet business segments are particularly profitable, with a 30 percent increase this year.