Apple pays out big to Qualcomm in settlement

Apple pays out big to Qualcomm in settlement

In mid-April, Qualcomm and Apple sent shockwaves through the semiconductor industry by settling their long-running legal dispute. As part of the agreement, the chipmaker will provide Apple with its patented components, and Apple consented to pay royalties on its Qualcomm-based chipsets. However, the two corporations came to an accord without revealing how much money actually changed hands.

The hardware manufacturer provided some insight into the unexpected deal during its second quarter investor call. Though the firm received a multibillion-dollar settlement, it got far less than it was seeking in court. Qualcomm sought $7 billion in unpaid license fees from Apple but settled for around $4.5 billion dollars

The $4+ billion settlement

On May 1, Qualcomm made its Q2 2019 earnings report and revealed how much its old partner will pay to resume their business relationship. The company revealed that Apple will make a one-time payment of $4.5 billion to $4.7 billion in Q3 2019. The San Diego-based corporation also projected earnings of $9.2 billion to $10.2 billion during that quarter.

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Qualcomm expects to make between $4.7 billion to $5.5 billion next quarter in standard income.

If the chipmaker’s predictions prove accurate, its revenues will increase substantially in the latter half of this year. Qualcomm’s stock price has risen by 74 percent since its last earnings call. Plus, as Intel announced its withdrawal from the 5G market last month, it will be the sole vendor for Apple 5G iPhone modems.

A Storm’s on the Horizon

In the short term, Qualcomm’s financial future is all sunshine and roses. Its settlement with Apple provided it with a sizable cash injection and its new licensing agreement will provide a solid revenue stream for years to come. But the company’s long-term future isn’t as bright.

During its quarterly earnings call, Qualcomm forecasted shipping 150 million to 170 million in cellular chipsets in Q3 2019. The Wall Street Journal noted that it’s a 25 percent year-to-year decrease. As with the rest of the mobile telecom sector, the corporation’s revenues are being hurt by the global slowdown in smartphone sales.

The firm expects business to pick up in the next decade though. Qualcomm believes the forthcoming adoption of 5G technology will spark a next boom period in the tech industry. In fact, the company offered guidance that the next generation mobility market will be worth $3.5 trillion by 2035. Unfortunately, the organization doesn’t expect a significant uptick in revenues until fifth generation telecom tech is widely adopted.

The semiconductor giant also has a legal dark cloud hanging over its head. In 2017, the Federal Trade Commission (FTC) brought Qualcomm up on charges that it was a cellular modem monopoly. The government alleges the corporation’s array of component patents allows it to charge its clients exorbitant licensing fees. The FTC’s case finally went to trial in January and a verdict is pending.

If the courts find Qualcomm guilty of violating antitrust laws, its current robust market position will evaporate. And its place within the predicted halcyon post 5G period will be in doubt.