Qualcomm’s strong fiscal third quarter results were overshadowed by the abandoning of its attempt to acquire NXP Semiconductors, as well as its admittance it does not expect to be a supplier for the next generation of iPhones.
Future without NXP
Shortly after the results call, Qualcomm confirmed it was dropping its bid to acquire NXP.
The deal, first announced in October 2016, was approved by eight of the nine global regulators required, but China remained a roadblock. The tie-up was caught in the crosshairs of an ongoing spat between China and the US, with the technology sector a major bone of contention between the two countries.
Qualcomm will use $30 billion of the $40 billion it planned to spend on the Netherlands-based chipmaker to buy back shares. It is also paying a $2 billion break-up fee to NXP.
Mollenkopf said the decision was the result of a cost-benefit analysis that took into account risks related to continued uncertainty around the deal and the chance for improvement in a difficult geopolitical climate. He added the company concluded it was not clear the macro environment would change in the near future, or in a timeframe that would allow Qualcomm to move quickly in key segments.
But Mollenkopf argued Qualcomm is in a strong position to progress without NXP. He noted the company has achieved significant scale in the automotive sector and sees opportunities in IoT, though it may need to augment growth in the latter market through acquisitions.
Qualcomm highlighted a growing backlog in automotive orders, which now total $5 billion, a figure that was up by $2 billion from January. Mollenkopf said infotainment solutions made up more than half of that $5 billion pipeline.
He added industrial IoT product revenues are growing rapidly, on pace to double in Qualcomm’s fiscal 2018 compared to two years ago.
One area Qualcomm isn’t expecting to play in – at least in the short term – is Apple phones.
Qualcomm general counsel Donald Rosenberg noted those cases are expected to move through hearings and trials later this year and early next year.
But Qualcomm may not be cut out of the iPhone forever. Company president Cristiano Amon said decisions are made “as the industry moves and design by design,” adding “if the opportunity presents itself, I think we will be a supplier of Apple.”
Even without Apple, though, Moor Insights and Strategy principal analyst Patrick Moorhead told Mobile World Live Qualcomm’s licensing business can thrive, pointing to the company’s announcement that it has signed multi-year 5G agreements with more than 10 OEMs, including Xiaomi and Sharp. He noted a previous 5G announcement from Samsung suggested it is another of Qualcomm’s partners.
Moorhead said that development, along with Qualcomm’s receipt of a partial payment of $500 million from another major OEM (believed to be Huawei) disputing a patent license, demonstrated to him that “aside from Apple, Qualcomm’s licensing business is sound…. Apple is now the outlier and risks being late to market with smartphone 5G.”
And Moorhead isn’t alone in thinking the loss of the iPhone deal is no company killer. “While Apple iPhone design-loss is likely to hit Qualcomm’s baseband volume to some extent, Strategy Analytics believes that Qualcomm is unlikely to be affected in terms of revenue, thanks to improved product mix with higher priced baseband-integrated applications processors,” wrote Sravan Kundojjala, Market Consultant at Strategy Analytics. “In recent quarters, Qualcomm has significantly improved its Snapdragon product mix with higher priced 600, 700 and 800 series of chips, which support advanced LTE modem features and also drive demand for Qualcomm’s RF front-end components.”
Qualcomm posted better-than-expected revenue of $5.6 billion for the quarter ended June 24, a figure that was up 4 per cent year over year. Net income of $1.2 billion was up 41 per cent year over year.
Despite the absence of business from Apple, Alex Rogers, president of Qualcomm’s licensing business, said growing strength in the Snapdragon 700 and 800 tiers in China helped moderate “what otherwise would have been a more difficult market story”.
Licensing revenue, inclusive of the $500 million partial payment, was $1.47 billion, up 25 per cent year on year from $1.17 billion.