“The notion that these agreements are going away actually is not a factor, because it never was an issue with this court opinion the way that came out.”
Qualcomm has posted a strong second quarter with revenue growth of five percent bringing its total to $5.21 billion (£4.1), this is despite a significant drop in handset shipments which they expect to drop by 30 percent overall in the next quarter.
Qualcomm is heavily involved in the production of chipsets that are being incorporated into most 5G devices and as such it has seen its 5G license agreements jump from five to 85 since last quarter. They have also just signed long-term license agreements with Chinese handset suppliers OPPO and Vivo to cover 5G multi-mode mobile devices.
Shipments of handsets were down by approximately 21 percent YoY. Qualcomm CFO Akash Palkhiwala noted in an earnings call that: “This decline was based on two factors. First, pronounced weakness in China in late January and February, followed by a substantial recovery exiting the quarter. And second a decline in demand in many other regions globally starting in March.”
Interestingly despite the current climate and forecasted decline in handset sales, Qualcomm has not changed its 5G device forecast as CFO Akash Palkhiwala stated that: “Launches across all regions remain on track. While we expect some minor changes to the launch timing and sell-through of certain devices, our calendar 2020 estimates remain unchanged at 175 million to 225 million units.”
While the firm posted strong revenue growth its actual net income dropped during this quarter by a whopping 29 percent to $468 (£374) YoY. Yet 5G is expected to keep the show moving as the firm shipped 129 million units of its Mobile Station Modem (MSM) chips in the year, which are tied to its 5G sales.
Qualcomm Q2 2020 COVID-19 Handling
COVID-19 remains the key concern as Qualcomm expects consumer confidence to be significantly impacted by the virus.
Within the firm itself appears to be weathering the changing work dynamic well, as CEO Steve Mollenkopf noted that: “As a result of the many operational changes we have made over the last several years, we were able to respond quickly when the work-from-home orders began in mid-March with minimal disruption to our operations. Importantly, we were able to limit our on-site essential workforce to a very small number and remain on schedule with our product commitments.”
He also states that they have implemented remote access systems to Qualcomm laboratories and employees are actively using cloud-based collaboration tools and have the ability to conduct remote device testing.
Qualcomm is embroiled in a tricky legal battle with the US Federal Trade Commission (FTC) who have accused Qualcomm of antitrust violations stating that the firm forced chip buyers to sign license and patent agreements at inflated prices.
Previously FTC lawyer Jennifer Milici commented that: “The evidence is overwhelming that Qualcomm engaged in exclusionary conduct…The effects of Qualcomm’s conduct, when considered together, are anticompetitive.” While Qualcomm have argued that the FTC hasn’t even come close to a burden of proof in the case and that: “All real-world evidence presented at trial showed how Qualcomm’s years of R&D and innovation fostered competition, and growth for the entire mobile economy to the benefit of consumers around the world.”
A court sided with the FTC and ruled that Qualcomm should renegotiate all of its existing patent licensing agreements and that it has to sell to device manufactures without the requirement that they sign detrimental licensing agreements. Qualcomm is appealing this decision and a district court ruled in its favour stating that they do not have to start the agreement negotiation process until the appeal case is heard. The district court found that if the firm was to follow the parameters set out in the injunction the changes that would be made could not be easily undone if Qualcomm won its appeal.
In this week earnings call with investors Alex Rogers president of Qualcomm Technology Licensing addressed the FTC issue noting that they are still in the negotiating process and that they have confidence in the merit of the appeal.
Rogers states that a recent district court decision did not invalidate existing agreements and that: “These agreements are not going to — the notion that these agreements are going away actually is not a factor, because it never was an issue with this court opinion the way that came out. And the licensees continue to honour their agreements. So again, I think however the FTC matter turns out that aspect of the decision is not going to change.”