Qualcomm Beats Estimates, But Apple Dispute Takes Its Toll

Qualcomm (NYSE:QCOM), published its fiscal Q3 earnings on Wednesday, reporting a better than expected set of numbers amid a stronger performance of its semiconductor business, although the technology licensing businesses saw significant declines, on account of the firm’s current litigation with its largest customer, Apple. Below we take a look at the key takeaways from the results and what lies ahead.

Trefis has a $64 price estimate for Qualcomm, which is about 15% ahead of the current market price.

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Semiconductor Unit Benefits From Favorable Product Mix, Non-Mobile Revenue Growth 

Qualcomm’s semiconductor operations fared better than expected, with revenues coming in at $4.05 billion, marking a 5% improvement year-over-year. While Qualcomm indicated that it shipped about 187 million chips through the quarter, marking a decline of about 7% year-over-year, its product mix was comparably more favorable. The company is projecting shipments of 205 to 225 million chips for fiscal fourth quarter. Qualcomm has also been betting big on areas such as automotive, IoT, networking and mobile computing and it noted that revenue from these non-mobile opportunities was up by ~30% year-over-year. The pending acquisition of NXP Semiconductor – which is expected to close by the end of this year – could further help to bolster non-mobile revenues, given NXP’s highly complementary product line and its strong sales channels.

Apple Litigation Weighs On QTL Revenues, Near-Term Outlook Remains Challenging 

As expected, Qualcomm’s technology licensing business had a difficult quarter, with revenues declining by about 42% year-over-year to $1.172 billion, amid Apple’s decision to withhold royalty payments that its contract manufacturers owe Qualcomm until its current legal issues are sorted out. The division’s pre-tax margins also declined by 1300 basis points to 73%, as Apple is one of the firm’s most valuable customers (related: What’s At Stake For Qualcomm As Apple Expands Its Lawsuit?). Qualcomm expects to recognize licensing revenues of between $1.0 billion to $1.3 billion for Q4, marking a decline of between 31% to 47% year-over-year. While the litigation has escalated in recent weeks, with Qualcomm seeking to ban imports of certain models of the iPhone and Apple’s leading contract manufacturers – Compal Electronics Inc., Foxconn Technology Group, Pegatron Corp. and Wistron Corp. – joining the legal battle, Qualcomm recently indicated that the two companies could settle out of court.