Q’comm Profits Dive Amid Patent Disputes

　　You know when you hear as many as five executives on a quarterly conference call, times are challenging. So it was when Qualcomm Inc. reported results for the end of its fiscal 2017.

　　Quarterly and annual revenues of $5.9 billion and $22.3 billion were both down 5 percent compared to 2016 results, using GAAP figures. Given the loss of licensing revenues from Apple and another unnamed customer, it was not surprising profits took a bigger dive to $200 million for the quarter and $2.5 billion for the year, down 89 percent and 57 percent from 2016, respectively.

　　The forecast is for continued grim weather. The mobile chip giant expects flat revenues for its next quarter despite a 5 percent expected rise in its chip set unit sales. Overall cellular device unit sales could rise 8 percent  next year, but their average selling prices may drop given a growing share are going into more cost-sensitive systems in cars, networking and the Internet of Things.

　　Qualcomm’s CEO and CFO were joined on the call by two of its legal experts and its chip set group manager. They fielded several questions on a delayed merger with NXP and multiple legal disputes with Apple but provided few new details.

　　Executives said they are hopeful the NXP deal will be approved soon by four regulators still reviewing it, but it might take until early 2018. They suggested they see no immediate resolution for the many legal disputes over patent licensing with Apple. Separately they provided no meaningful insights on a separate dispute with an unnamed customer that stopped paying royalties in the second quarter.

　　Speaking of the multiple court cases with Apple, Qualcomm general counsel Donald Rosenberg said, “litigation of this magnitude takes a while, you can’t focus on any particular short-term event.”

　　Cases Qualcomm brought against Apple with the U.S. International Trade Commission and in Germany may move more quickly than others with some results expected by mid- to late 2018. However, “until then, I don’t think you will see much of consequence in terms of an ultimate outcome, and it will play out like most complex litigation,” he added.

　　Apple and Samsung are still battling over a massive patent infringement suit that goes back to 2012 that even had a hearing at the Supreme Court in 2016.

　　In related issues, CEO Steve Mollenkopf said Qualcomm plans to appeal rulings of unfair licensing practices earlier this year by antitrust officials in South Korea and Taiwan. Fines from those decisions wiped $868 million and $778 million off Qualcomm’s revenues this fiscal year.

　　The patent dispute with the unnamed customer has “unique issues to that licensee” and got started before Apple took legal action in January, said another Qualcomm executive. The customer will remain unnamed unless a court case is filed. Its resolution “will have its own pace [not tied to] the Apple dispute,” he said.

　　Qualcomm did not comment on reports Apple may start designing its baseband processors out of future iPhones. Nor did it speak to reports that European regulators want to see concessions about its licensing practices from Qualcomm before approving the NXP merger.

　　China and the EU are among four regulators yet to OK the deal, the largest proposed merger in the semiconductor industry to date. “The clock stopped in the EU, but there’s nothing surprising in that process for an acquisition of this size,” said Mollenkopf, noting executives on both sides still publicly say the $110-per-share offer is attractive.

　　On the bright side, Qualcomm expects 6 percent growth in 3/4G cellular device sales in 2017 could rise to an 8 percent increase in device units next year. However, it projects flat average selling prices as more of those sales are for more cost-sensitive systems than smartphones.

　　Mollenkopf said 41 operators are supporting the company’s Gbit-LTE modems now shipping or being designed into 120 products. In addition, “there’s another LTE update after Gbit” and first commercial products for 5G could ship in 2019, he added.

　　“We think we will all be pleased by the speed people go to 5G,” he said.

　　Korean operators hope to demo pre-standard 5G at the Winter Olympics early next year, and Verizon and AT&T are working on last-mile 5G services for 2019. However, market watchers say significant rollouts of 5G base stations are not expected until 2021.