Qualcomm’s disappointing sales forecast dims enthusiasm about Apple settlement

Qualcomm Inc. gave a lackluster sales forecast for the current quarter Wednesday, citing weaker demand for smartphones in China. The disappointing outlook overshadowed the benefits of settling a prolonged legal dispute with Apple Inc. and sent the shares down in extended trading.

Fiscal third-quarter revenue will be $9.2 billion to $10.2 billion, the San Diego company said Wednesday after the close of regular trading. Excluding a one-time payment from Apple, revenue in the current period will be $4.7 billion to $5.5 billion. At the midpoint, that fell short of analysts’ average estimate of $5.26 billion, according to data compiled by Bloomberg.

“You’re going to see Chinese weakness reflected in the next couple of quarters,” Chief Executive Steve Mollenkopf said in a telephone interview. Qualcomm won’t disclose the terms of its settlement with Apple or what the iPhone maker will pay in licensing fees, but “we ended up with a resolution that’s consistent with our program,” he said.

Qualcomm stock fell about 4% in extended trading following the quarterly results and forecast. The stock has surged more than 50% since the Apple deal was announced, closing Wednesday at $86.37.

Mollenkopf had long insisted that the chipmaker’s legal troubles were just a commercial dispute that would be resolved when 5G services came along and focused the industry’s attention back on growth, and the settlement with Apple validates his view.

Investors now want to see Qualcomm, in its projected fifth year of revenue declines, convert its claimed leadership in that fifth-generation wireless technology into growth again. Before that happens, the company, like the rest of the industry, is struggling with lackluster consumer demand for smartphones.

Qualcomm is unique because the majority of its revenue is generated by selling chips that connect handsets to cellular networks, but the bulk of its profit comes from licensing patents it says cover the fundamentals of all modern, high-speed data phone systems. The licensing rights were challenged by Apple, which argued in court and in submissions to regulators that Qualcomm was unfairly jacking up rates using its strength as a supplier of chips.

In the April 16 settlement of the litigation, Apple said it would make a one-time payment to Qualcomm, and the two reached a multiyear agreement in which Qualcomm will sell chips to Apple and collect royalty payments from the iPhone maker in exchange for licensing its technology. Qualcomm said the deal will be worth $2 a share in profit when shipments of chips “ramp up.”

Qualcomm’s fiscal third-quarter forecast includes revenue of $4.5 billion to $4.7 billion from the Apple payment and “the release of our obligations to pay or refund” the iPhone maker and its contractors as a result of the litigation, the company said.

The company’s earnings and outlook also provide a window into demand for products made by some of the world’s biggest technology companies, such as Samsung Electronics Co. Like the rest of the industry, Qualcomm has struggled to grow as consumer excitement about smartphones has cooled. In the first quarter, global shipments fell 4% to 330 million, according to Strategy Analytics.

In response, Qualcomm is trying to push wireless technology into new areas such as automobiles, personal computers and connecting everyday devices to the internet.

Qualcomm reported that revenue declined 4.6% to $4.98 billion from $5.22 billion in the quarter that ended March 31. Profit was $663 million, or 55 cents a share, up from $330 million, or 22 cents a share, in the year-earlier quarter.

Analysts on average expected earnings of 47 cents a share on sales of $4.8 billion.

Qualcomm isn’t completely free of legal entanglements. A judge in California is still considering a case brought by the Federal Trade Commission accusing Qualcomm of acting like a monopoly. The company also is still in a dispute with China’s Huawei Technologies Co. about licensing fees and is receiving only partial payment.

Huawei is making some payments on royalties while the two sides work toward an agreement, Qualcomm said.