(WSJ) U.S. mobile-phone chip maker Qualcomm Inc. said it resolved a protracted licensing dispute with China’s Huawei Technologies Co. and signed a long-term deal with the smartphone maker despite heightened tensions between the U.S. and China.
The deal will drive a significant increase to future sales, Qualcomm Chief Executive Steve Mollenkopf said, declining to quantify the boost. He called the twin agreements a positive outcome for the business going forward and an issue the company was pleased to see wrapped up.
The agreement was unexpected given the backdrop of an increasingly acrimonious political battle between Washington and Beijing over technologies broadly and Huawei in particular. The Trump administration has accused China of stealing trade secrets and using technology, including Huawei’s, as a vehicle to potentially conduct espionage. China and Huawei have denied those charges.
As part of that tussle, the administration and China have imposed tariffs on each other, including on electronics. In 2018, President Trump blocked the $117 billion takeover bid of Qualcomm by rival chip maker Broadcom Inc., which was previously based in Singapore. The administration saw the deal as a threat to U.S. leadership over China in technological arenas such as the emerging field of superfast 5G communications.
Washington has imposed restrictions on sales to Huawei and several other Chinese companies. While those have all but stopped Qualcomm’s chip sales to Huawei, they don’t affect the licensing arrangement covered by the latest accord.
The San Diego-based chip maker announced the Huawei pact when reporting third-quarter earnings that saw sales almost halve from the year prior to $4.89 billion, as the coronavirus pandemic weighed on smartphone sales. Profit fell 60% to $845 million year over year. Sales and profit beat Wall Street expectations.
Qualcomm forecast sales in the current quarter of $7.3 billion to $8.1 billion, bolstered by the Huawei payment. The outlook reflects an assumed 15% year-over-year fall in smartphone shipments because of the pandemic and, the company said, the delayed launch of a flagship 5G phone. Qualcomm, which didn’t name the phone vendor, is a supplier to Apple Inc., which, people familiar with the matter have said, has delayed its launch of its first 5G phone later this year.
Qualcomm’s business is split into two parts, one that makes chips and another that collects licensing fees on its patented technologies, many of which are included in cellular communications standards that virtually all mobile phones use. Its licensing practices have come under growing dispute in recent years, however, as some customers argued Qualcomm was using its leverage as a chip supplier to extract unfair patent fees. Qualcomm is battling an antitrust case brought by the Federal Trade Commission over its licensing practices. The case, initially won by the FTC, is under appeal.
Apple last year resolved a long-running licensing dispute with Qualcomm, which got a payout of at least $4.5 billion in conjunction with a multiyear chip-supply deal. As Huawei and Qualcomm negotiated a settlement in their fight, the Chinese company made interim payments of some of the licensing fees it owed.
Source: Wall Street Journal by Asa Fitch