Qualcomm's announcement yesterday that its fourth-quarter profits rose 14 percent was overshadowed by its prediction that an impasse with Finnish cell-phone maker Nokia could have a financial impact next year.
San Diego-based Qualcomm estimated that it could lose 4 to 6 cents a share in the fourth quarter of 2007 if longtime adversary Nokia makes good on a promise to stop paying royalties when its licensing agreement expires April 9.
In a conference call with investors, Qualcomm executives were more pessimistic than previously about reaching a new licensing agreement with the world's largest cell-phone maker before then.
At stake are “tens of billions of dollars,” said Michael Walkley, an analyst with Piper Jaffray & Co., based in Minneapolis. He covers Nokia and Qualcomm.
“Last quarter, both companies were playing nice and saying, 'We're cautiously optimistic.' This quarter, they both have laid out their foundations,” Walkley said.
Qualcomm said it earned $614 million, or 36 cents per share, in its fourth quarter ended Sept. 24. Revenue rose 28 percent, to $2 billion, compared with the year-ago quarter. Qualcomm credited strong demand worldwide for cell phones using its latest technology.
Excluding its investment arm, Qualcomm earned 42 cents a share.
Analysts polled by Thomson Financial had projected net income of 41 cents a share, excluding the investment division. Qualcomm reported earnings after the markets closed yesterday. Its shares rose 63 cents, or 1.8 percent, to close at $36.36 on the Nasdaq. In after-hours trading, shares fell 5 cents to $36.31.
For the full year, Qualcomm's profits rose 15 percent to a record $2.47 billion, or $1.44 per share. Revenue also was a record, rising 33 percent to $7.53 billion.
Qualcomm developed code-division multiple access technology, which allows cell phones to surf the Web, download music and play videos at high speeds. It earns royalties from makers of cell phones, laptops and other wireless devices that use its technology. It also is the world's second-largest maker of cell-phone chips.
Paul Jacobs, Qualcomm's chief executive, who took the reins from his father in July 2005, praised Qualcomm's employees and business partners for the company's successful year. Jacobs said the year was clouded by public disputes with a handful of large players in the industry.
“I'd like to say that for the first full year of our management team, I'm extremely pleased by the results we were able to deliver,” Jacobs said.
“There were obviously a few companies that decided to attack us and certainly have attempted to flood the market with a lot of misinformation. I guess I would have hoped we had built a stronger working relationship with those companies. We are working extremely well with a large number of partners, and we are creating many new partnerships, both inside and outside of the wireless industry.
“Despite these attacks, we really have remained extremely focused on innovation, execution and partnerships,” Jacobs said.
However, the showdown with Nokia looms large. Qualcomm President Steve Altman said the company's negotiating team is “not optimistic” it will reach agreement with the cell-phone maker.
Later, answering questions from analysts, Altman said the impasse could go for “several quarters or beyond” as the battle between the wireless giants moves into the courts.
Lou Lupin, Qualcomm's senior vice president and general counsel, said he expects both companies to end up in court, suing each other for patent infringement.
One of the thornier issues is Nokia's contention that its patented technology is used in Qualcomm's chips. Qualcomm argues that its chips do not use Nokia's intellectual property, Lupin said.
Nokia is not the only adversary as Qualcomm's battlefront spans the globe from U.S. federal courts to the European Commission in Brussels, Belgium. The legal battles range from complaints that Qualcomm is overcharging for use of its patented technology to patent-infringement claims.
Bill Keitel, Qualcomm's executive vice president and chief financial officer, declined to reveal the company's legal fees for fiscal 2006. He did say they were “substantial,” even for a company of Qualcomm's size.
Keitel said higher legal bills are built into Qualcomm's 2007 earnings guidance of $1.76 to $1.81 per share – excluding the company's investment arm – on revenue of $8.1 billion to $8.6 billion.
Kathryn Balint: (619) 293-2848; kathryn.balint@uniontrib.com
