Qualcomm ( QCOM ) reported a strong Q2'17 on April 19th, with both non-GAAP revenue and EPS above analyst expectations. The company saw healthy year-on-year growth across all reported segments, driven by solid MSM chipset demand and strong growth in the automotive, networking, and IoT area. Despite the various licensee disputes, Qualcomm witnessed a strong quarter for its licensing business on account of the positive effect of licensing progress in China, strong 3G, 4G demand, and a focus on costs.
The company estimates that reported 3G/4G device shipments were approximately 400 million units within ASP of approximately $207 at the midpoints. Global 3G/4G handset ASPs are tracking consistent with expectations of low single-digit percentage declines year-over-year, and Qualcomm continues to see healthy growth in global 3G/4G device shipments.
Note - "The GAAP results for Q2'17 reflect a $974 million reduction of revenues associated with the BlackBerry arbitration award including estimated interest in attorney's fees. This reduced fiscal second quarter GAAP EPS by approximately $0.48 per share."
Qualcomm claims that its semiconductor business continues to benefit from a strong product roadmap for mobile handsets, as the adoption of mobile technologies and mobile computing accelerates around the world, as well as new growing markets including automotive, networking, and IoT. The company is confident that its footprint in these new segments will strengthen with the NXP Semiconductors' acquisition, which is expected to close this calendar year.
While the strong Q2'17 performance and Q3'17 guidance is encouraging, the ongoing dispute with Apple and various other lawsuits is a cause of concern and could potentially impact the company's performance in subsequent quarters.
Qualcomm Is Confident Of Sustaining Its Licensing Model
While there are serious doubts about the sustainability of Qualcomm's licensing model, the company is confident of navigating these challenges in time and has taken several steps to address the Korea Fair Trade Commission (KFTC) and U.S. Fair Trade Commission ( FTC ) matters in Q2'17. Qualcomm also recently filed an answer and counterclaims in the Apple litigation. (For more info on the lawsuits - Read)
Specifically, regarding the dispute with Apple - Apple withheld payment, to the tune of $1 billion, to their contract manufacturers who, in turn, withheld payments to Qualcomm for royalties that were owed under the contract manufacturers agreements. Effectively, Qualcomm's Q3'17 guidance assumes a range of possible payments from Apple, and from the Apple suppliers, but does not reflect a scenario that Apple suppliers pay nothing to Qualcomm for March end quarter sales. The disputed agreement with Apple ended in December 2016, so there is really no relevance or impact to what the contract manufacturers would owe the company for sales during the March quarter, according to Qualcomm.
Overall, there are a lot of uncertainties around the licensing business, so we'll have to wait and watch how it all plays out.
See our complete analysis for Qualcomm
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