Qualcomm cuts Q3 fiscal guidance as Apple holds back royalties

Key Points
  • Qualcomm lowers its revenue guidance to a range of $4.8 billion to $5.6 billion for the fiscal third quarter from $5.3 billion to $6.1 billion.
  • Qualcomm says Apple's interference is "wrongful."
  • Apple says Qualcomm's demands are "unreasonable."
Qualcomm, Apple battle heats up

Qualcomm cut its third-quarter fiscal guidance on Friday, noting that Apple has informed the company that it will withhold future royalty payments "until its dispute with Qualcomm is resolved."

The news sent shares of Qualcomm down sharply. In premarket trading Friday, shares were down more than 2 percent.

"As a result of the above developments, we are updating our financial guidance for the third quarter of fiscal 2017 to exclude royalty revenues from Apple's contract manufacturers," Qualcomm said. "The contract manufacturers may make some form of partial payment, but initial indications are that any payment would likely be insignificant."

Qualcomm lowered its revenue guidance to a range of $4.8 billion to $5.6 billion for the fiscal third quarter from $5.3 billion to $6.1 billion.

"We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," Apple said in response. "Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court. As we've said before, Qualcomm's demands are unreasonable and they have been charging higher rates based on our innovation, not their own."

Earlier this month, Qualcomm said the dispute with Apple did not affect its fiscal second quarter earnings report, but it warned that this scenario might play out.

Apple sued Qualcomm in January for $1 billion when it accused Qualcomm of insisting on "charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined."

"These license agreements remain valid and enforceable," Qualcomm executive vice president and general counsel Don Rosenberg said Friday. "While Apple has acknowledged that payment is owed for the use of Qualcomm's valuable intellectual property, it nevertheless continues to interfere with our contracts. Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade. Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. 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."