Qualcomm, the company that dominates the ownership of IP in wireless communications, estimates that the decision by Nokia to refuse to pay its royalties will cost it $0.25 to $0.30 a share this year, which works out between $422m and $506m.
Because the calculation is after taxes, the amount it estimates that Nokia will owe will in fact be considerably higher, and the huge sum at issue demonstrates why the two companies are battling each other over patent issues in courts around the world.
Nokia ceased to pay royalties to Qualcomm in April after the two sides failed to reach an agreement when the existing deal ran out in April. While it will get back revenue from the world’s largest handset revenue when a a court or an arbitrator settles the dispute, it is not allowed by accountancy regulations to currently recognize a figure.
In the short term, this will take a big bite out of Qualcomm’s bottom line as on Qualcomm’s own estimates, Nokia accounts for between 15% and 18% of its net income.
Qualcomm, which has just suffered a legal defeat at the hand of long-term rival Broadcom, forecasts a dramatic slowdown in revenue this year together with the legal battles that could determine its future.
The San Diego, California-based company, which grew revenue by 18% last year, estimates that revenue in the year to September 30, 2008 will be between 7% and 12% higher in a range of $9.5bn to $9.9bn. It also faces a raft of problems from silicon shortages to falling average selling prices. With lower growth ahead, the company’s shares fell 6.29% on Friday to $37.26.