Qualcomm Alleges that Apple Improperly Interferes with Agreements with Contract Manufacturers

In a recent release, Qualcomm Incorporated announced that it has been informed by Apple Inc. that Apple is withholding payments to its contract manufacturers for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the quarter ended March 31, 2017.  Apple has indicated it will continue this behavior until its dispute with Qualcomm is resolved.

"Apple is improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees," said Don Rosenberg, EVP and General Counsel, Qualcomm. "These license agreements remain valid and enforceable. While Apple has acknowledged that payment is owed for the use of Qualcomm's valuable intellectual property, it nevertheless continues to interfere with our contracts. Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade. Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."

As a result of this, the company has updated its financial guidance for the third quarter of fiscal 2017 to exclude royalty revenues from Apple's contract manufacturers. The contract manufacturers could potentially make some form of partial payment, but Qualcomm said that initial indications are that any payment would likely be insignificant. Therefore, the company is adjusting its financial guidance to assume that no payment is made, and therefore no revenues are recognized, in the quarter.

What this means in hard dollars is: In terms of revenue, the Q3 2016 was about $6 billion, and the prior estimate for Q3 2017 was for $5.3 billion to $6.1 billion, or a range from a decrease of 12 percent to an increase 1 percent for the quarter. Now, the new Q3 2017 estimate is for $4.8 billion to $5.6 billion, which is an expected decrease of between 7 and 21 percent. With all factors, beyond just revenues, applied, Qualcomm said it now expects the overall business financial outlook for the quarter to decrease by 27 to 35 percent from Q3 2016.