Qualcomm Waiting to See If Apple Suppliers Hold Back Royalties


According to Qualcomm, Apple's contract manufacturers underpaid royalties in Q2 2017 in an amount equal to that which Qualcomm has not paid Apple. Earnings, adjusted for non-recurring costs and stock option expense, were $1.34 per share. The San Diego-based chipset manufacturer has just posted the results of their second fiscal quarter for the year, and alongside the $5 Billion in GAAP, the company notes that they also hit $6 Billion in non-GAAP revenues as well as $0.50 in GAAP EPS and $1.34 for non-GAAP EPS or, Earnings Per Share.

The chipmaker posted revenue of $5.02 billion in the period, missing Street forecasts.

Qualcomm's GAAP earnings per share fell to 50 cents from 78 cents per share past year. Analysts were expecting third-quarter EPS of $1.10 on revenues of $5.95 billion. Its latest high-end smartphone chip is in a portion of Samsung Electronics Co.'s flagship Galaxy S8 phones as well as flagship devices from Sony and Xiaomi, Qualcomm said, and Apple uses its communications chips in some iPhones.

The company's mobile technology also continues to expand into new markets, such as cars, which helped results.

The quarter included a $974 million reduction to revenue, or 48 cents per share, related to an arbitration over a royalties dispute with BlackBerry Ltd BB.TO . The amount withheld equaled the amount Qualcomm withheld from Apple previous year under a separate agreement to cooperate on mobile technology that has since expired. Qualcomm says this hasn't had a negative impact on revenue, but it could be an issue next quarter if manufacturers continue to underpay. Qualcomm said it expects iPhone royalties to be withheld only up to that amount.

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That's equivalent to the almost $1 billion that Apple claims Qualcomm is withholding in royalty "rebates" under a separate business agreement. Qualcomm has called Apple's claims "baseless" and has accused Apple of "encouraging regulatory attacks". Apple is now suing Qualcomm for charging excessive royalties and withholding payments.

That is below consensus for $5.9 billion and $1.09 per share.

While the lack of payments in the quarter was effectively canceled out by the money Qualcomm has withheld Apple in rebate payments, Qualcomm executives said they could not predict whether or not they will be underpaid again in the current quarter, leading to wider-than-normal earnings guidance.

Qualcomm reported results after markets closed.

Qualcomm said Wednesday the deal is on track to close by the end of the year.