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Manufacturers Join Forces to Tackle Qualcomm

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Manufacturers join forces to tackle Qualcomm

A group of contract manufacturers working for Apple (AAPL) recently sued Qualcomm (QCOM), claiming in their lawsuit filed in the US (SPY) that Qualcomm was charging them excessively for patent licenses. They also alleged that Qualcomm was using illegal licensing practices, according to court documents cited by the Wall Street Journal.

The contract manufacturers suing Qualcomm are Foxconn Technology, Compal Electronics, Wistron Corp, and Pegatron. These Asian companies assemble iPhones and iPads for Apple. They also work for other brands than Apple.

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Apple covering the cost of fighting Qualcomm

Apple is footing the legal bills for these contract manufacturers in their litigation against Qualcomm. For Qualcomm, the idea of Apple covering legal fees for these associates could add a twist to the legal battle. Apple has the resources to cover this endeavor, so these manufacturers may not be in a hurry to settle with Qualcomm. At the end of the June quarter, Apple had $261.5 billion in cash reserves.

The pain of fighting Apple

Qualcomm, which counts Intel (INTC) and Samsung (SSNLF) among its competitors, has claimed that the patent dispute with Apple is hurting it. Qualcomm, whose fiscal year ends in September, is currently in its fiscal 4Q17.

The company provided feeble earnings guidance for the current quarter relative to the consensus estimate, possibly because of the problems with Apple. Qualcomm is expecting adjusted EPS (earnings per share) of $0.75–$0.85, yet analysts on the average are looking for EPS of at least $0.90.

The technology licensing business contributes the bulk of Qualcomm’s profits. The attack on this business could cause problems in the company’s capital return program. As shown in the chart above, Qualcomm returned more than $6.9 billion in stock repurchases and dividends in fiscal 2016.

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