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Qualcomm Lowers Q3 Fiscal 2017 Guidance due to Apple Holding back Royalty Payments

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In January Patently Apple posted a report titled "Apple Sues Qualcomm for $1 Billion Claiming Unfair Exclusionary Tactics and Charging Excessive Royalties." Other Patently Apple reports followed covering both companies suing each other (One, two and three) and last week we posted a report titled "Qualcomm's Sales Decline for Baseband Modems for the iPhone 8 will hurt their Bottom Line." Today Qualcomm put out a press release titled "Apple Continues to Improperly Interfere with Qualcomm's Agreements with Contract Manufacturers."


Qualcomm's press release in part states that "Qualcomm Incorporated today 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, executive vice president and general counsel of 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.'"


Third Quarter Fiscal 2017 Guidance Update


The press release added that "As a result of the above developments, we are updating our financial guidance for the third quarter of fiscal 2017 to exclude royalty revenues from Apple's contract manufacturers.


The contract manufacturers may make some form of partial payment, but initial indications are that any payment would likely be insignificant. As a result of these actions, we are adjusting our financial guidance to assume that no payment is made, and therefore no revenues are recognized, in the quarter. This differs from our prior guidance, which considered a variety of payment scenarios (and related revenues) within the range, but did not include a scenario where no payment was made (and no revenues were recognized)."


Qualcomm's stock is down 2.74% this morning on the news. Whether the stock will be able to rebound later today is unknown at this time.


Coincidentally yesterday a report surfaced hinting that Apple's iPhone 8 may not have Qualcomm's next-gen Gigabit LTE modem putting the iPhone at a disadvantage over Samsung's S8 and other major vendors adopting the new modem later this year. Whether that was a targeted threat to Apple sent through the press is unknown at this time.


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