Qualcomm issues profit warning as Apple legal battle intensifies

Qualcomm said Apple has decided to withhold royalty payments to contract manufacturers until the legal dispute between the two companies is resolved.

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Qualcomm issued a profit warning Friday stemming from its escalating legal with Apple. The chipmaker said that Apple has decided to withhold royalty payments to contract manufacturers that are owed to Qualcomm until the legal dispute between the two companies is resolved.

In January, Apple filed a suit against Qualcomm accusing the semiconductor giant of overcharging for chips and withholding nearly $1 billion in contractual rebate payments.

The suit also charges that Qualcomm is "attempting to extort" Apple into obstructing an investigation by South Korean regulatory investigators into Qualcomm's monopolistic practices. Additionally, the suit claims that Qualcomm has created an "abusive licensing model" that lets the company demand excessive royalties.

In its earnings report last week, Qualcomm noted that its guidance range did not include "the case where no payments are made by Apple suppliers."

With Apple's latest move, Qualcomm says it now expects revenue of $4.8 billion to $5.6 billion for its third fiscal quarter, down from the $5.3 billion to $6.1 billion it had previously expected. Qualcomm also lowered its Q3 profit forecast to a range of 75 cents to 85 cents per share, down from 90 cents to $1.15 per share.

Qualcomm said Apple's contract manufacturers could end up making some form of partial payment, but that those payments would likely be insignificant.

"Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade," Don Rosenberg, Qualcomm's general counsel, said in a statement. "We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."

Earlier this month, Qualcomm was forced to pay BlackBerry $814.9 million in an arbitration settlement. The two companies had agreed to arbitrate a contract dispute over whether Qualcomm's royalty cap program applied to payments made by BlackBerry under a licensing deal. The arbitrator determined that BlackBerry had indeed overpaid royalty fees between 2010 and 2015.

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