Qualcomm deal with Huawei boosts revenues and stock soars

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Investors loved Qualcomm's long term patent and settlement deal with Huawei, sending Qualcomm stock soaring. (Qualcomm)

Qualcomm announced a long-term patent and settlement agreement with Huawei late Wednesday to boost revenues by $1.8 billion in the quarter ending in September.

The news prompted a huge jump of nearly 14% in Qualcomm stock in after-hours trading, hiking it to $106 at one point.

For the fiscal third quarter that ended June 28, the chipmaker reported non-GAAP revenues of $4.8 billion (almost identical to a year earlier) and net income of $982 million with earnings per share of 86 cents. Earnings were above Qualcomm guidance, helping boost its stock price.

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The deal with Huawei was described in a statement as a settlement agreement reached in July as well as a new long-term, global patent license agreement which involves a cross-license granting back rights to certain of Huawei’s patents covering sales since Jan. 1.  The settlement portion refers to money due from Huawei as well as new money from the March and June quarters under new patent licenses.

Chief Financial Officer Akash Palkhiwala said the $1.8 billion is in addition to two earlier settlements with Huawei valued at $1.2 billion.  The $1.8 billion will affect the current quarter, Qualcomm’s fourth fiscal quarter, but did not impact third quarter results.

 Also in the fourth quarter, Qualcomm offered guidance of a 15% reduction in handset chip shipments due to COVID-19, including a “partial impact from the delay of a global 5G flagship phone launch.”  The particular phone was not identified, but reports say Apple will delay in its first 5G iPhone launch event to late October, with sales in November.  Overall handset chip shipments will be down about 10% for the first three quarters of 2020.

However, CEO Steve Mollenkopf said third quarter 5G handset  chip shipments were higher than earlier anticipated. For the full calendar year, he said shipments will be at the higher end of the predicted range of 175 million to 225 million. 

Traction with Qualcomm 5G tech to operators is high globally, Qualcomm said, with 380 operators. Also,  120 operators are adopting mmWave technology, while mmWave support is required in all flagship smartphones.

Mollenkopf said Qualcomm’s influence in 5G extends well beyond smartphones and will benefit from the emergence of billions of edge computing devices. Qualcomm has a leadership role in 5G standards bodies including 3GPP which oversees NR 16 and NR 17 and NR 18 releases. “We are very excited about our 5G future,” he said.

Mollenkopf’s full comment on future potential for 5G follows, according to a transcript from The Motley Fool:

 “As you would expect, we are also working in parallel to position Qualcomm for similar success as 5G moves beyond smartphones. We see a significant market transition occurring as the cloud converges with 5G and AI, positioning 5G as the next evolution of the Internet. This new architecture at the edge plays directly to our strengths in low power, high-performance computing, and connectivity, where Qualcomm's wireless innovation leadership can drive new opportunities for growth as we have in 5G-enabled smartphones. Qualcomm's leadership in global standards bodies is an early indicator of how we are working with the mobile ecosystem to meet the high technical requirements to drive the adoption of 5G to new industries.

“Just this month, 3GPP completed 5G new radio Release 16, the second 5G standard that will greatly expand the reach of 5G to new services, spectrum, and deployments. It delivers key technologies spearheaded by Qualcomm, for transforming industry, such as enhanced, ultra-reliable, low latency, advanced power-saving, and high-precision positioning needed for mission-critical applications like industrial IoT. While Release 16 is now complete, our work driving 5G technology evolution to fully realize the potential of this latest release continues. In addition, we are already working with the mobile ecosystem on Release 17 projects and are researching advanced technologies for Release 18 and beyond.

“We are very excited about our 5G future and our ability to commercialize the breakthrough technologies that will drive differentiation for Qualcomm over many years.”

Palkhiwala said auto-related semiconductors have been impacted some by a 30% decline in auto sales and the general economy but described the impact as smaller than some of Qualcomm’s competitors.

RELATED: Qualcomm, Audi, Ericsson wrap three-year smart car comms test

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