Qualcomm Investors: The Beating Will Continue Until Morale Improves

Wall St. would think that a company at the center of the global cell phone market would be growing, even if margins were hurt by falling handset prices. But, after reporting a December quarter with revenue of $2.02 billion, Qualcomm (QCOM) said that its March 07 revenue would be $2 billion to $2.1 billion.

According to The Wall Street Journal: "The company’s patent-licensing practices face legal attacks from Nokia, the highest-volume seller of cellphones, and competitors that include Broadcom Corp. (BRCM) and Texas Instruments Inc (TXN). A licensing agreement with Nokia also expires April 9, raising the prospect that the Finnish company will stop making royalty payments if the two sides don’t reach a new agreement."

Because of this battle, legal costs at Qualcomm are rising rapidly, and where its ends, no one knows. And, the deal with its largest customer, Nokia (NOK), will probably not be resolved by its expiration.

There is a temptation to see Qualcomm’s management as pig-headed in the face of so much trouble with so many competitors and customers. And, Wall St. should give into that temptation. Qualcomm’s stock has gone from just under $53 in May to under $39.

Obviously, any solution to Qualcomm’s IP and licensing issues is going to cost the company something in terms of revenue growth. It will have to give something up, probably in terms of licensing fees, to get its morass of legal and contract problems behind it. But, it may be the only way to keep the company from becoming one focused on battles it cannot win instead of its growth.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.