Qualcomm will take at least $4.5 billion from Apple after settling mammoth legal battle

'We look forward...to continuing to support them as a customer'

Qualcomm’s future is looking pretty rosy as its expected to pocket more than $4bn in extra revenue for its next quarter, after settling with Apple in a legal battle over chip patents.

“We are pleased to have reached multi-year agreements with Apple, and look forward to continuing to support them as a customer,” Qualcomm’s CEO Steven Mollenkopf, said in an earnings call with analysts on Wednesday.

Dave Wise, Qualcomm’s CFO, announced that as part of the settlement agreements, it was expecting somewhere between $4.5bn to $4.7bn as a one time payment from Apple that will go towards the third quarter of its fiscal year.

That’s a hefty sum that will boost its earnings to record rates, considering Qualcomm made $5bn in revenue for its second quarter. It’s the first time the fine's figures have been revealed - Apple CEO Tim Cook kept quiet about such details during Apple’s earnings call earlier this week.

As part of the settlement deal Apple also entered a six-year patent license deal for multiple chips with Qualcomm starting from the beginning of April 2019. Apple can then choose to extend this option for another two more years if it wishes.

But that’s not all. The battle with Apple may be over, but Qualy is still legally feuding with Huawei. Mollenkopf and the team are optimistic, however. “We feel that the Apple resolution enhances our ability to resolve issues with Huawei,” said Alex Rogers, Qualcomm’s patent licensing chief.

Qualcomm has predicted to receive $150m in royalties from Huawei for its Q3 revenue projections. “It represents a minimum, non-refundable amount for royalties due by Huawei while negotiations continue. This payment does not reflect the full amount of royalties due under the underlying license agreement,” according to a statement.

Here's the relevant text from that blurb:

On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties. We also entered into a six-year global patent license agreement with Apple, effective as of April 1, 2019, which includes an option for Apple to extend for an additional two years, and a multi-year chipset supply agreement with Apple.

While we continue to assess the accounting impacts of the agreements, our financial guidance for the third quarter of fiscal 2019 includes estimated revenues of $4.5 billion to $4.7 billion resulting from the settlement (which will be excluded from our Non-GAAP results), consisting of a payment from Apple and the release of our obligations to pay or refund Apple and the contract manufacturers certain customer-related liabilities.

In addition, our financial guidance for the third quarter of fiscal 2019 includes estimated QTL revenues for royalties due from Apple and its contract manufacturers for sales made in the June 2019 quarter. Our financial guidance for the third quarter of fiscal 2019 also includes $150 million of QTL revenues from Huawei, which represents a minimum, non-refundable amount for royalties due by Huawei while negotiations continue. This payment does not reflect the full amount of royalties due under the underlying license agreement.

So, with that in mind here are Qualcomm’s latest financial figures for its second fiscal quarter, the three calendar months to March 31:

  • Revenue was $5bn, a slight decline of 5 per cent year-over-year.
  • Operating income was $900m, a large jump of 135 per cent from the previous year.
  • Net income was $700m, an increase of 101 per cent from a year ago.
  • Diluted earnings per share (Non-GAAP) was $0.77, up 1 per cent year over year.

The majority of its revenues, $3.72bn came from the direct sales of Qualcomm’s products and services, whereas $1.12bn came from patent licenses.

The San Diego based company is also expected to snaffle money from licensing its 5G-enabled Snapdragon chips to smartphone makers. The global sales of handsets is expected to fall, however, as growth in China, the largest mobile market, falls.

Qualcomm's shares are up 0.28 per cent and are trading at $86.37 at the time of writing. ®

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