Qualcomm inks licensing deal with Samsung but sees ‘market softness’ in smartphones

Qualcomm said its global 3G/4G device shipment estimates rose 7% from 2017 to 2018. (Image: Qualcomm)

Qualcomm announced a licensing agreement with Samsung that the company said stretches through 2023 and includes 5G technologies. However, that agreement was tempered by Qualcomm’s relatively uninspiring quarterly earnings report and its warning that it expects a continued slowdown in the smartphone market.

“Consistent with what others have been reporting, we are forecasting some short-term end market softness, driven by larger than typical sequential correction in orders from a fin modem customer and near term smartphone trends in China,” said Qualcomm chief executive Steve Mollenkopf yesterday on the company’s quarterly earnings call with investors, according to a Seeking Alpha transcript of the event. “But we continue to see favorable long term trends, including flagship handset launches later this year and the ramp of 5G device shipments beginning in early calendar 2019.”

Qualcomm’s new licensing agreement with Samsung comes at an important time for the company; Qualcomm is embroiled in a well-documented patent-licensing battle with Apple, though Qualcomm executives argued they are moving closer to a deal with the iPhone vendor.

“In our dispute with Apple, we continue to move closer toward a number of key legal milestones later this year and early next year. In various jurisdictions around the world, in cases concerning Apple's infringement of Qualcomm's patents, there will be hearings and determinations on whether Qualcomm should be entitled to injunctive relief and exclusion orders. Also, Qualcomm's case against Apple's contract manufacturers for breach of their license agreements continues to move toward resolution in the same timeframe, as does Qualcomm's case against Apple for improperly interfering with those license agreements,” Mollenkopf said. “We value Apple as a customer and would like to continue that relationship into the future, but it is in our stockholders best interest that we ensure that Apple pay a fair and reasonable royalty and operate on a level playing field with the other OEMs.”

Thus, Mollenkopf likely was keen to note that Qualcomm’s licensing deal with Samsung “is fully consistent with brand licensing practices and is consistent with our long term model.”

As for Qualcomm’s finances, the company took a $6 billion charge related to the new U.S. tax law and a $1.2 billion charge for a fine levied by the European Commission. As noted by The Wall Street Journal, Qualcomm posted a loss of almost $6 billion in the quarter due to the expenses, a dramatic reversal from the $682 million profit it reported in the year-ago quarter.

But perhaps more importantly, Qualcomm’s outlook fell short of expectations. As Bloomberg noted, the company expects to report revenues between $4.8 billion to $5.6 billion in its current quarter, which is slightly below average expectations of $5.6 billion.