SAN FRANCISCO?Fabless chip giant Qualcomm Inc. Wednesday (April 20) reported quarterly sales and profit that exceeded Wall Street*s expectations and said it resolved a dispute with South Korea*s LG Electronics Inc. over licensing terms.
Qualcomm (San Diego) said that its fiscal second quarter was also boosted by new license agreements in China, including a deal with China*s Hisense Group Co. Ltd. The company also credited stronger-than-expected performance across the company*s chipset business.
?We had a stronger than expected quarter and are executing well on our efforts to position the company for the next phase of profitable growth,§ said Steve Mollenkopf, Qualcomm*s CEO, in a conference call with analysts following the quarterly report.
According to Patrick Moorhead, president and principal analyst at Moore Insights and Strategy, Qualcomm made good progress on a key challenge for the company: securing royalties for its technology in South Korea and in China.
?They [Qualcomm] knocked out the big one in Korea with LG and knocked out the big one in China with Highsense,§ Moorhead said. ?The scenario in China is that there are people selling smartphones that aren*t paying Qualcomm royalties. It was good for them to knock out that big one.§
But Moorhead added that there is still work to be done to compel other firms in China to pay Qualcomm royalties on its technology.
On the conference call, Mollenkopf said, ?We are making good progress on the licensing side in China, and this remains a key focus area for the company."
Qualcomm reported sales for its fiscal second quarter of $5.6 billion, down 4% from the previous quarter and down 19% compared to the second quarter of fiscal 2015. For the fiscal second quarter, which ended March 27, Qualcomm reported a net income of $1.2 billion, or 78 cents per share, a decrease of 19% compared with the previous quarter but an increase of 11% compared with the year ago quarter.
Qualcomm*s sales for the quarter beat consensus analysts* expectations, which called for revenue of about $5.3 billion. The company*s pro forma earnings per share, $1.40, also exceeded analysts* expectations.
For the current quarter, which ends in June, Qualcomm said it expects sales to be between $5.2 billion and $6 billion, compared with $5.5 billion for the third quarter of fiscal 2015.
?On the whole it was a very strong report,§ said Moorhead. He speculated that the decline in Qualcomm*s stock price following the report was largely due to what he called a conservative third quarter outlook.
As a result of the resolution of the dispute with LG, which was resolved through arbitration, Qualcomm said it would recognize in the fiscal third quarter about $200 million revenue from sales to LG over the past few quarters.
Terms of the resolution were not disclosed. Qualcomm described the resolution as favorable and said it would not result in any change to revenue that was previously recognized by the company for prior quarters.
The deal with Hisense, a government-backed multinational electronics conglomerate, grants Hisense a royalty-bearing patent license to develop manufacture and sell 3G WCDMA and CDMA2000 and 4G LTE terminals for use in China. The royalties payable by Hisense are consistent with the terms of the rectification plan submitted by Qualcomm to China|s National Development and Reform Commission, Qualcomm said.
?Dylan McGrath covers the semiconductor industry for EE Times.