Qualcomm (QCOM) reported earnings yesterday. Wall St. should have been happy. Revenue was up 15% to $2.31 billion. Operating income rose 84% to $1.14 billion. EPS was up 86% to $.67. All of these numbers were in line with or bested Wall St. estimates.

But, guidance for next year was light. And, to make matters much worse. a fight with Qualcomm’s largest customer, Nokia (NOK), is starting to take its toll. The company said in its earnings release:  "We have excluded from our fiscal 2008 revenue and earnings guidance our estimate of royalties which we believe Nokia is required to report and pay to us under our existing license agreement in fiscal 2008 of approximately $0.25-$0.30 diluted earnings per share."

That news made the market crazy, driving Qualcomm shares down by as much as 8% after hours. If the stock opens down that much, it will hit $37, a drop of about 15% over the last two years. The company’s shares had moved from $15 in mid-2005 to $53 in May 2006.

And, Qualcomm’s problems may not nearly be over.

The company had a market cap of over $100 billion less than two years ago. It has been a core US technology company, provide much of the guts to many of the one billion cellphones sold worldwide each year. About 400 million phones containing Qualcomm technology will ship this year.

Qualcomm is fight for its life on two fronts. One is it battle with Nokia. The world’s largest handset company believes that less of the technology in its handsets come from Qualcomm, so its wants to cut royalties to the US company. That could potentially cost Qualcomm several hundred million a year. The debate about royalties is finding its way into the legal system as an intellectual property dispute.

Qualcomm’s other tormentor is Broadcom (BRCM). The smaller chip company has claimed that Qualcomm has violated some of its patents, and has had success keeping some phones with Qualcomm technology from being shipped to the US. This has cause problems for several Qualcomm customers.

Qualcomm is beginning to admit, for the first time, that its public shareholders need to be worried about these disputes and that they could cost the company on the bottom line.

It is hard to imagine that a company that has done as well as Qualcomm could cease being a growth stock. But, its shares were below $25 in late 2005, and they could go back there again.

Douglas A. McIntyre

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