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Qualcomm’s Q3 profit edges lower; S. Korea slaps co. with fine

Thu, 07/23/2009 - 8:05am
Barbara Ortutay, AP Technology Writer

NEW YORK (AP) – Qualcomm Inc. posted a slight decrease in its fiscal third-quarter profit Wednesday, though CEO Paul Jacobs said the chip maker had a strong quarter and healthy demand – a sign of recovery in the wireless market.

Nonetheless, the company's sales outlook for the current quarter seemed to disappoint investors, who sent shares lower in after-hours trading.

For the March-June period, San Diego-based Qualcomm earned $737 million, or 44 cents per share. This is down 1.5 percent from $748 million, or 45 cents per share, in the same period a year earlier.

Adjusted earnings were 54 cents per share, slightly ahead of Wall Street's expectations.

Revenue edged marginally lower, to $2.75 billion from $2.76 billion.

Analysts, on average, had expected a profit of 52 cents per share on sales of $2.73 billion, according to a poll by Thomson Reuters.

Qualcomm makes chips for cell phones and licenses its technology to chip and handset makers. These royalties on patented technologies account for most of its profit.

Jacobs, who also serves as chairman, said the quarter saw strong licensing and royalty revenue, stemming from healthy demand in the previous quarter. Shipments of mobile chip sets were also strong, pointing to a recovery in the mobile phone market.

"I'm very pleased with our strong operating performance in this uncertain economic environment," Jacobs said in a conference call with analysts.

Despite the economic turmoil, Qualcomm said it expects a healthy fourth quarter and raised its 2009 revenue forecast.

For the current quarter, the company expects revenue in the range of $2.55 billion to $2.75 billion, the midpoint of which is below analysts' expectations of $2.71 billion.

For the full year, Qualcomm expects revenue between $10.25 billion and $10.45 billion. This is an increase from its earlier outlook of $9.85 billion to $10.25 billion. Analysts expect $10.39 billion.

BMO Capital Markets analyst Tim Long called the results and forecast solid and reiterated an "Outperform" rating on Qualcomm's shares.

Shares fell $2.45, or 5.1 percent, to $46 in after-hours trading. The stock had closed up 47 cents at $48.45 in the regular session.

Meanwhile, on Thursday, South Korea's fair trade regulator said it was slapping Qualcomm with a record fine over what it said was abuse of market dominance. The company vowed to fight the decision.

The Korea Fair Trade Commission said that it was fining the company 260 billion won ($208 million), the largest such levy ever in South Korea.

The commission, which had been investigating Qualcomm since 2006, said the company abused its dominant position in CDMA mobile phone chips by charging higher royalties for companies that used rival chipsets. It also said that Qualcomm favored customers who used its products by offering rebates.

The commission also ordered Qualcomm to correct the practices.

Donald Rosenberg, Qualcomm executive vice president and general counsel, said the company "strenuously" disagreed with the decision and called the fine "overly excessive and unwarranted."

After receiving a formal written decision, which could take several months, Rosenberg said the company's options included fighting the ruling in South Korean courts.

Qualcomm developed CDMA, or code division multiple access, a rival standard to the dominant cellular standard GSM, or global system for mobile. The company controls most of the key patents.

CDMA is used in the United States and South Korea. Every handset in South Korea has a CDMA chip, and manufacturers of handsets have to pay royalty fees to Qualcomm.

Qualcomm, which licenses technology for mobile phones and manufactures semiconductor chips that run them, earns money by licensing the CDMA technology to other chip makers, handset manufacturers and wireless technology companies.

The previous highest fine was one of 113 billion won slapped on a South Korean telephone operator in 2005, the commission said.

Microsoft Corp. was fined 32.5 billion won in 2006 for what the commission ruled was the company's abuse of its dominant market position by tying certain software to its Windows operating system. Microsoft initially fought the decision, but eventually withdrew its appeal.

Last year, semiconductor giant Intel Corp. was fined 26.6 billion won over rebates to South Korean computer companies. Intel said it would fight the decision in court.

– AP Business Writer Kelly Olsen and Associated Press writer Jae-soon Chang contributed to this report

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