Qualcomm: Chinese patent licensees still aren't playing fair

Chipmaker lowers guidance for 2015 as China thumbs nose

Qualcomm finished its 2014 fiscal year showing strong profit growth, but it cautioned investors that its ongoing disputes with Chinese customers and regulators could affect its results in the coming year.

The mobile chipmaker's revenues for the fourth quarter were $6.69bn, up 3 per cent from the year-ago period. Unfortunately, however, that sum fell short of analysts' expectations by almost 5 per cent, leaving investors none too pleased.

The company's earnings, on the other hand, were right in line with the Wall Street moneymen's prognostications, at $1.31 per diluted share.

Qualcomm's total revenues for all of fiscal 2014 were $26.49bn, which was up 6.5 per cent over 2013's haul.

And profits looked better still. Net income for Q4 climbed 26 per cent from the same period a year ago, to $1.89bn. This wasn't just a lucky quarter, either. Total net income for 2014 was $7.96bn, a 16 per cent increase versus the previous year.

For all of that good news, however, Qualcomm cautioned shareholders on Wednesday to temper their expectations for the coming year, owing in no small part to its soured business relations in China.

As in the previous quarter, the chipmaker said that it believes certain of its Chinese patent licensees are underreporting the number of devices they shipped incorporating Qualcomm's tech. Qualcomm thinks its licensees shipped around 1.3 billion devices in the quarter, but it only expects its customers to report sales of between 1.04 billion and 1.13 billion.

Those dodgy dealings appear to be cutting into the firm's bottom line, too. Sales for Qualcomm's licensing division were $1.87bn for the quarter and $7.86bn for the fiscal year – down 5 per cent and flat, respectively.

Fortunately, licensing isn't really the largest portion of Qualcomm's business; sales of equipment and services is. That segment brought in $4.82bn in Q4, a 7 per cent increase, and its sales were up 10 per cent for the fiscal year, to $18.63bn.

But dishonest business dealings aren't the only cloud hovering over Qualcomm in China. The company is also the subject of an ongoing investigation by Chinese commerce regulators, who claim it holds a monopoly on mobile chips in the Middle Kingdom and may have abused that power.

Qualcomm's inability to resolve its China problems, coupled with its gloomy outlook for its fiscal 2015, disappointed investors on Wednesday, sending the firm's share price down 5 per cent in after-hours trading. ®

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