Company / division: Qualcomm
Qualcomm reported its results for the June 2017 quarter today, and revenues and profits were both down, in large part because of the various antitrust and other disputes and legal proceedings in which it’s involved. Shortfalls in revenue from Apple, several of its suppliers, and a Chinese customer each caused problems, but it also had to pay out to both BlackBerry and the Korean government over separate disputes. It’s impossible to look at Qualcomm today without noticing the massive cloud of uncertainty and potential financial liability associated with these various cases. On a non-GAAP basis, the company’s results are holding up rather better, though still not stellar. As with Samsung, its semiconductor business was an area of strength, but its core MSM chip sales continue to decline over time as the smartphone market matures, while the broader opportunity it has in CDMA and related technologies continues to grow. Meanwhile, Apple, its suppliers, and Qualcomm all filed new suits over the last couple of days in relation to their dispute, even as Qualcomm’s CEO was quoted earlier this week as saying he expected the case eventually to end in a settlement.
via Financial Times
Apple Adds New Claims to Qualcomm Lawsuit (Jun 20, 2017)
I’ll start with my usual caveat on so-called “gigabit” wireless services: though theoretical throughputs on devices with the new modems being discussed here can reach gigabit per second speeds, the real-world experience is going to be a fraction of that. In other words, even if the reporting in this article is correct, Apple isn’t going to be missing out on true gigabit speeds any more than the other device vendors will have them. The second caveat is that even the more realistic speeds will only be available where carriers have upgraded their networks to support them, which will be far from everywhere for the near future. With those caveats out of the way, though, Apple will be one of the few device vendors out there without these faster modems in its devices over the next year. However, as the article rightly points out, Apple has rarely been willing to put cutting edge new modem technology in its devices at the same time as others, generally preferring to wait for the technology to mature before deploying it, as it notably did with both 3G and LTE. There is, of course, this time also the added complication of Qualcomm being the only supplier with a gigabit modem ready to go, and the fact of Apple’s very adversarial relationship with Qualcomm and its decision last year to introduce Intel modems. I’m inclined to believe the reporting here is accurate, but I’m not sure it’s really all that significant – in real-world experience, there will be very little difference for many customers over the next couple of years, and Apple will almost certainly jump on the gigabit modem bandwagon next year, likely through Intel.
Apple Hires Senior Qualcomm Engineer as Wireless SoC Lead (May 29, 2017)
Though Google spent much of its I/O keynote talking about apps and features like Photos and the Assistant, it did devote a few minutes to the topic of AR and VR, which will have a second deeper-dive keynote of their own tomorrow. On the VR side, the key announcement is that Google is extending the Daydream platform beyond mobile VR to standalone headsets, which in the first instance will be built by partners Lenovo and HTC and supported with chips from Qualcomm. Daydream so far has been limited by the fact that the biggest Android smartphone vendor has its own competing platform, so the news that Samsung’s Galaxy S8 phones will support Daydream through a software update in the summer is a big deal. My guess is that Samsung will still favor its own Gear VR system with its usual bundling and discounting deals, but the fact that Daydream View and other compatible headsets will now work with Samsung devices should increase its appeal. Daydream’s system is better than Samsung’s in a number of ways, though the recent Gear VR update closes the gap a bit, so the playing field should be a leveled a little going forward. Also worth noting are a couple of AR announcements, including a new “Tango phone” to support Google’s indoor mapping technology, and VPS, an indoor equivalent of GPS which will enable precise directions within large stores and the like. Neither of those feels remotely mass market yet, which means Google’s AR efforts are far more marginal than the phone-based efforts from Facebook and Snapchat (and likely soon Apple too). Interestingly, VR head Clay Bavor outlined his vision for the space in a blog post today too, and it’s remarkably similar to Microsoft’s in that it envisions a continuum or spectrum that includes both VR and AR, though Bavor’s favored term is immersive computing rather than mixed reality and he’s less pejorative about the VR and AR terms everyone is already using.
Microsoft Announces Details Around Windows 10 on ARM (May 12, 2017)
In commenting on Qualcomm’s recent earnings report, I mentioned that if Apple and its suppliers continued to hold back royalty payments as part of their dispute, Qualcomm would be affected more severely in future quarters than in Q1, and that has now proven to be the case. In Qualcomm’s original guidance for this quarter, it had said that its guidance range didn’t include a scenario where it received no payments at all from these companies, but it now appears that’s the scenario that’s playing out. Apple has said it won’t make any payments until the dispute is resolved and new royalty rates set, which is a great way to put pressure on Qualcomm to either settle quickly or at least move the court case along swiftly, but means Qualcomm will be severely impacted in the meantime. It’ll be very interesting to hear Apple’s commentary on all this on its earnings call next Tuesday because it will have to set aside at least some of the amounts due as a contingency, and I’m curious to see how that affects its reported costs and margins.
ARM-Based Windows 10 PCs to Arrive in Q4 2017 (Apr 21, 2017)
Qualcomm has just reported its earnings for the March quarter, and one of the most interesting aspects is its commentary on its dispute with Apple. It says that Apple’s suppliers reported but did not pay around $1 billion in royalties in the quarter, which exactly offset the $1 billion Qualcomm is refusing to pay Apple under the Cooperation Agreement the two companies have, and which Qualcomm says Apple breached. Importantly, that Agreement ended in December, so there are no more payments to be withheld, which means if Apple suppliers continue to withhold royalty payments, they’d affect Qualcomm financially going forward in a way they didn’t this past quarter. As such, it’s given a wider EPS guidance range (25 cents) than usual (it was 10 cents in the last two quarters, for example) because of the uncertainty over these royalty payments (the math here is tricky but I reckon that’s about a $400m range in net income terms). Beyond the Apple dispute, the results are a little tricky this quarter because on paper they look terrible, with revenues and profits way down over the same quarter last year. But that’s partly because Qualcomm had to reduce from its GAAP revenues the nearly one billion dollars it’s due to pay BlackBerry as a result of arbitration between the two companies. The actual results are much better, in keeping with recent trends at Qualcomm, lawsuits aside.
Qualcomm Files Response to Apple Lawsuit (Apr 11, 2017)
Qualcomm has now officially filed a response to Apple’s lawsuit over anticompetitive practices and breach of contract, including both answers to the specific allegations in the suit and a number of counter-claims. One of the main counterclaims is that, by “inducing” regulators to look into Qualcomm, Apple breached the companies’ “Cooperation agreement” and therefore was no longer entitled to certain payments it had received previously. The document further alleges that Apple made many false statements in the course of both its own suit and the discussions it had with regulators, and tried to insert itself into relationships between Qualcomm and other Apple suppliers. Perhaps most interestingly, Qualcomm brings to light something which was covered in the press at the time but didn’t get much attention: the allegation that Apple deliberately hamstrung the Qualcomm chips in the iPhone 7 such that performance would be consistent with those models that had Intel modems, and then prevented Qualcomm from talking about it. On the face of it, that allegation has nothing to do with the broader allegations, but it’s an area where Apple’s public reputation could be vulnerable, and I’m guessing it’s been included in the suit to garner more attention than Qualcomm would get through focusing on the patent and other issues alone.