UPDATED 19:04 EDT / NOVEMBER 06 2019

INFRA

Royalty flush: Qualcomm beats earnings targets

Business at Qualcomm Technologies Inc. is humming along nicely again as the smartphone chipmaker reported fourth-quarter financial results that beat Wall Street’s expectations.

Qualcomm reported a profit before certain costs such as stock compensation of 78 cents per share on revenue of $4.8 billion, down 17% from a year ago. Wall Street had pegged the company’s earnings at 71 cents per share on revenue of $4.7 billion.

The star performer this quarter was the company’s licensing business segment, Qualcomm Technology Licensing, which makes most of its money from licensing patents. The business generated $1.15 billion in revenue, up 4% from the same period last year, helped in no small part by the conclusion of Qualcomm’s legal wrangles with major customers Apple Inc. and Huawei Technologies Co. Ltd. earlier in the year.

Qualcomm’s legal fight with Apple was concluded earlier this year when the companies agreed a new six-year patent licensing and chip supply agreement.

Qualcomm’s other business segment, Qualcomm CDA Technologies, reported revenue of $3.61 billion, down 22% from a year ago. The unit suffered a drop in sales from the ban on U.S. firms selling certain products and services to Huawei, and also a more general pivot by smartphone makers from 4G to 5G handsets. That pivot means many of Qualcomm’s customers are working through their existing 4G inventory and holding off buying new chips, at least until the New Year.

Nonetheless, Qualcomm had an “exceptional quarter” overall and things are likely to get even better, said Patrick Moorhead of Moor Insights & Strategy.

“The 5G outlook appears positive, particularly in China by the end of 2020 where there’s likely to be a million 5G base stations,” Moorhead said. “Qualcomm appears to be well-positioned for volume given its mainstream choosers and end-to-end RF capability. Beyond mobile 5G I believe is an even bigger opportunity, potentially five to 10 times, when massive IoT and automotive 5G comes online.”

Analyst Charles King of Pund-IT Inc. said Qualcomm’s strong quarter is an example of what happens when a good company that ha been operating under a cloud finally steps into the sunshine.

“For Qualcomm, the cloud was largely due to what many in the silicon community saw as bogus patent/royalty litigation from Apple,” King said. “By working out a surprise settlement with Apple, and then entering into a wireless patents/chips royalty agreement with Huawei, Qualcomm was set to deliver a solidly profitable quarter.

Moreover, he added, “given the depth of Qualcomm’s portfolio and its strength in many key markets and sectors, the company should be able to look forward to more good times.”

Investors appeared to share the analysts’ enthusiasm, as Qualcomm’s stock jumped almost 6% in after-hours trading.

“We exit the fiscal year having successfully executed on our strategic priorities: helping to drive the commercialization of 5G globally, completing a number of important anchor license agreements and executing well across our product roadmap,” Qualcomm Chief Executive Officer Steve Mollenkopf (pictured) said in a statement. “Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020.”

For its first fiscal quarter, Qualcomm said it’s expecting revenue of $4.4 billion to $5.2 billion, squarely in line with Wall Street’s $4.8 billion estimate.

Qualcomm also announced a new chief financial officer: Akash Palkhiwala, who was previously serving as senior vice president of Qualcomm’s QCT business. Palkhiwala is Qualcomm’s third CFO this year, following David Wise, who retired in August, and George Davis, who quit the company to take up the CFO role at rival Intel Corp.

“Akash’s deep understanding of our business both operationally and strategically makes him the ideal individual to lead our finance function as we embark on a period that I believe may present the biggest opportunity for growth in Qualcomm’s history,” Mollenkopf said.

Photo: Fortune Brainstorm TECH/Flickr

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