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Loss of $4.9 billion in fiscal year 2018 Qualcomm and Apple QA battle are still overweight

via:博客园     time:2018/11/9 12:02:12     readed:290


Reporter Chen Baoliang Beijing Report


Although patent disputes with Apple and Huawei continue to affect Qualcomm's revenue and profits, in Q4 in 2018, Qualcomm spent $21.1 billion on stock repurchases, raising its share price from $56 to $75. Qualcomm still holds $12.1 billion in cash flow. This move also shows that Qualcomm does not intend to compromise with the two terminal companies in the patent war.

On November 8, mobile chip giant Qualcomm released its fourth-quarter and full-year earnings for the 2018 fiscal year ending September 30, 2018.

According to the financial report, Q4 in FY18, Qualcomm's revenue was US$5.8 billion, a decrease of 2% from US$5.9 billion in Q4 in 2017, with a loss of US$493 million and a profit of US$1.567 billion in the same period last year.

From the perspective of the whole year, Qualcomm also ushered in its first loss since its listing. Qualcomm's revenue in the fiscal year of FY18 was US$22.732 billion, up 2% from US$22.291 billion in FY2017. However, for the entire FY18, Qualcomm lost $4.864 billion, while in FY2017, Qualcomm's profit was $2.466 billion. At the peak of 2014, Qualcomm had created a net profit of nearly $8 billion.

However, it should be pointed out that the main reason for Qualcomm's huge losses is not the business level, but mainly due to the failure of the US Employment and Tax Reduction Act and the acquisition of NXP. The Employment and Tax Cuts Act imposes a one-off tax on the 15.5% tax rate on US companies' overseas profits. Since most of the income comes from overseas, Qualcomm has paid a huge tax of $6 billion; in addition, NXP's The acquisition failed, and Qualcomm paid a $2 billion break-up fee. In addition, there are $1.2 billion in fines from EU antitrust penalties and $687 million in restructuring charges for corporate restructuring.

In accordance with non-GAAP, after deducting the impact of policies, acquisitions, and fines, Qualcomm's FY1818 Q4 actually earned US$1.28 billion, and the annual profit was US$5.443 billion. It is for this reason that Qualcomm believes that strong business performance in the quarter was higher than previously expected.

Although patent disputes with Apple and Huawei continue to affect Qualcomm's revenue and profits, in Q4 in 2018, Qualcomm spent $21.1 billion on stock repurchases, raising its share price from $56 to $75. Qualcomm still holds $12.1 billion in cash flow. This move also shows that Qualcomm does not intend to compromise with the two terminal companies in the patent war.

Patent battle chip

In September 2016, Apple began to introduce Intel chips in the iPhone 7 product to replace Qualcomm. Later, Apple gradually increased the proportion of Intel and began to fully use Intel chips in the latest iPhone XS.

However, although orders from Apple have gradually decreased, Qualcomm's chip business revenue continues to grow. In FY2017, Qualcomm's chip sales were 804 million, down 5% from the 864 million in FY2016; but revenue from the chip business increased from US$15.4 billion to US$16.5 billion, an increase of 7%. In FY18, Qualcomm's chip shipments reached 855 million, up 6% year-on-year, and exceeded FY16 shipments; chip business revenue was $17.3 billion, up 5% year-on-year.

The main impact of breaking up with Apple is the decline in patent income. In January 2017, Apple began to sue Qualcomm for unreasonable patent fees and claimed Qualcomm for $1 billion. In April 2017, Qualcomm began to counter Apple and sued Apple for refusing to pay royalties.

Since then, the two sides have staged a fierce patent war in the world, which the industry calls “QA Wars”. In May 2017, Qualcomm sued Apple's four major suppliers: Foxconn, Heshuo, Wistron, and Compal. Due to Apple's request, the four major manufacturers have stopped paying franchise fees to Qualcomm.

In July 2017, QA war escalated. Qualcomm launched a 337 investigation against Apple at the US International Trade Commission (ITC), demanding the ban on Apple products using Intel chips. Later, Qualcomm sued Apple in Germany and Beijing, China, demanding comprehensive Apple products are banned.

As of now, many of the above cases are under trial. According to Qualcomm's disclosure in October 2018, Apple has defaulted on US$7 billion in royalties. Since Q3 2017, Apple has not paid patent fees for more than one and a half years. This means that Apple needs to pay Qualcomm about $1 billion in patent fees every quarter.

In FY2017 Q3, Qualcomm's revenue from the patent business was only US$1.172 billion, a significant decrease of 42.5% from US$2.038 billion in Q3 2016. Beginning in September 2017, Huawei was also refused to pay Qualcomm's patent fees due to Qualcomm's patent dispute. Huawei’s Chief Legal Officer Song Liuping mentioned in a speech in November 2017 that “Qualcomm’s patent fees are too high” and believes that “the US FTC investigation and the lawsuits of Apple and Qualcomm will produce a world rule, Qualcomm’s patent fees. Will come down & rdquo;.

Apple and Huawei's mobile phone sales accounted for about 1/4 of global smartphones, and lost the two largest patent revenues. Throughout FY2017, Qualcomm's patent business revenue was US$6.445 billion, down 16% year-on-year; patent business profit was 5.175 billion. The US dollar fell 21% year-on-year, and the profit margin fell from 85% to 80%. In FY18, Qualcomm's patent revenues have fallen to US$5.163 billion, down 20% year-on-year. Profit from patent business fell to US$3.525 billion, down 32% year-on-year, and profit margin dropped from 80% to 68%.

However, Qualcomm cannot significantly reduce the patent fees in accordance with Apple's and Huawei's demands. If Qualcomm compromises too much in this quarter of the market, another 3/4 of the patent fees will inevitably be greatly affected.

Qualcomm's chips

From the current stage, Qualcomm still plans to stick to this QA war. After all, the battlefield of the QA patent war is not just a court. Qualcomm needs to wait for the chips in technology and the market to work.

Being able to get rid of Qualcomm's reliance on the chip is the basis for Huawei, Apple and Qualcomm to negotiate patent fees. Fortunately, Samsung, which also has its own self-developed chip, is still paying a stable royalty.

According to informed sources, “To stabilize Samsung, Qualcomm has handed over three consecutive generations of flagship chips to Samsung’s foundries. Qualcomm's 14nm process Snapdragon 820 and 10nm Snapdragon 835 are all produced at Samsung's chip foundry. In February 2018, the two parties reached an agreement that Qualcomm's 7nm 5G chip will also be produced at Samsung. This means that in the next few years, the patent authorization of both parties will be relatively stable.

For Xiaomi, OPPO, and vivo, which rely entirely on Qualcomm in the flagship and future 5G markets, although they all expect the QA war to reduce the patent fees, the benefits of these companies through Qualcomm open access are still far greater than the need to pay. Patent expenditure.

And then, 5G's early commercial use will become another bargaining chip for Qualcomm.

At present, almost all the important progress on 5G terminals comes from enterprises adopting Qualcomm platform. From August to September 2018, Lenovo, OPPO, Xiaomi, and vivo have successively released R&D progress of 5G mobile phones. All four companies have adopted Qualcomm's Xiaolong. X50 baseband chip, in which OPPO and Xiaomi have already opened 5G signaling and data links. And Apple has not yet sent any news related to 5G.

But the next 5G era will inevitably become the focus of competition for global smartphones.

On the afternoon of November 8, global market research organization IDC released global smartphone shipments in the third quarter of 2018. Global smartphone shipments totaled 355.2 million units, down 6% year-on-year. This is the fourth consecutive quarter of decline in the global smartphone market. . On the eve of 5G, the smartphone market is shrinking, and the terminal company needs 5G's replacement boom to boost the market.

This means that 5G is likely to change the global smartphone industry landscape again. With a long-term technology lead, Qualcomm has already stocked a lot of chips for the upcoming changes.

However, this may not be a decisive factor. In the 4G era, Apple did not support 4G until the iPhone 5S in 2013, more than two years later than HTC and Samsung. Now it is not certain that Apple's strategy for the 5G market, but before all the chips work, this QA battle Still full of variables.

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