Qualcomm Profits Fall As It Struggles In China Over Licensing Deals

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Qualcomm profitability issues apparently remain to persist. The chip maker Qualcomm recorded 44% decrease in its net income in the fourth quarter having earned $1.06 billion( 67 cents per share) as net income. The revenues also fell by 18.5% to reach $5.5 billion although it beat the Wall Street estimation of $5.2 billion.

Qualcomm’s forecast of a profit of 80-90 cents per share for the current quarter also fell well below the average analyst estimate of $1.08. The main reason behind the poor financial numbers is attributed to licensing problems in China from where it earned almost half of its total revenue in 2014.

The company said that some of the Chinese customers were not paying for their licenses of its 3G and 4G technology, delaying the procedure intentionally for bargaining purposes. President Derek Aberle said that some Chinese customers were “improperly withholding” royalties on Qualcomm’s patents by changing the way they report sales.


However he further added that despite this, the company isn’t facing any cash shortage and with nearly $31 billion in hand, they are well positioned to make acquisitions of smaller chip companies. Qualcomm has already done several deals this year including  the purchase of British chip firm CSR and a networking chip company Ikanos.

Qualcomm also had to pay almost a billion dollar to the Chinese government this year after undergoing an antitrust investigation from the Chinese government around the chip company’s licensing model for its 3G and 4G modems. Apart from the problems in China, Qualcomm has been struggling on other fronts as well.

A major setback to the chip maker this year came from Samsung when the Korean smartphone manufacturer refused to use its Snapdragon 810 chips in Galaxy S6, preferring to use their own in-house developed chips. Snapdragon 810 reportedly suffered from the overheating problems. However, Samsung has not entirely ruled out Qualcomm and is expected to use the latest Snapdragon 820 chips in its upcoming phone Galaxy S7, scheduled for a launch early next year.


Qualcomm is also under the pressure of its activist investor Jana Partners who has urged the chip maker to split its business of chip unit and patent licensing. It is noteworthy that Qualcomm has often come under criticism for pursuing monopolistic business practices due to the link between its chip business and licensing business.

For now, Qualcomm is hanging on to the both but in order to improve its financial conditions, it is undergoing through a Strategic Realignment Plan which was announced in July this year. Under this program, Qualcomm is planning to cut its 30,000-person workforce by 15% in addition to other cost cutting steps.

Qualcomm is also looking forward to enter a few new areas like Internet of Things and drones, and has been developing specialized chipsets based on its Snapdragon mobile chip. In the last few months, Qualcomm has announced Snapdragon Flight for drones and another for internet-connected cameras.

Qualcomm CEO Steve Mollenkopf said –

We’re fanning out into new markets. We’re using a lot of the same technology in phones and adapting it.


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