Qualcomm Gets Chinese Antitrust Risks out of the Way

Qualcomm had only just recently reported earnings, and the reception to the earnings news was less than flattering as China woes were weighing on the company. Many analysts were even likely starting to wonder if Qualcomm could ever get its earnings reporting right. Following Monday’s announcement, the company updated its financial guidance for its fiscal year ending in September.

Revenues were updated to a range of $26.3 billion to $28.0 billion from a range of $26.0 billion to $28.0 billion. Earnings per share were updated to a range of $4.85 to $5.05 from a range of $4.75 to $5.05. Thomson Reuters has consensus estimates of $4.96 in earnings per share and $27.10 billion in revenue for the full year.

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Some of the key terms of the rectification plan are:

• Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such offer, it will negotiate with the licensee in good faith and provide fair consideration for such rights.
• For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5.0% for 3G devices (including multimode 3G/4G devices) and 3.5% for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65% of the net selling price of the device.
• Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.
• Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement. However, this does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and it does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement.

Derek Aberle, president of Qualcomm, said:

We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology. We appreciate the NDRC’s acknowledgment of the value and importance of Qualcomm’s technology and many contributions to China, and look forward to its future support of our business in China.

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Shares of Qualcomm closed up 1% at $67.11 in Tuesday’s trading. In the after-hours, shares were up almost 2% at $68.29. The stock has a consensus analyst price target of $74.09 and a 52-week trading range of $62.26 to $81.97.