Qualcomm secures business contracts
Qualcomm (QCOM) and Apple recently announced a surprise settlement of their epic legal dispute where they sued and countersued each other in several countries around the world. The agreement brings to an end all litigation between the companies worldwide. For Qualcomm, the settlement means more than just removing the legal challenge.
First, Qualcomm has secured a multiyear contract to supply Apple with chips. Qualcomm generates most of its revenue from selling modem chips, the type of chips that enable devices like smartphones to connect to wireless networks. The chip supply business generated $3.7 billion of revenue in Qualcomm’s fiscal first quarter, which ended in December, thereby contributing 77% of the company’s total revenue. Second, Qualcomm and Apple reached a six-year license agreement, meaning Qualcomm will receive royalty payments from Apple until at least April 2025. Technology licensing is Qualcomm’s most profitable business.
Ready to put your morning scrolling to use? Sign up for Bagels & Stox, our witty take on the top market and investment news straight to your inbox! Whether you’re a serious investor or just want to be informed, Bagels & Stox will be your favorite email.
A boost to Qualcomm’s cash reserves
On top of the chip supply contract and the license agreement, the settlement also paves the way for Qualcomm to receive a payment of an undisclosed amount from Apple. The payment should boost Qualcomm’s cash reserve and increase its financial flexibility to continue investing in driving growth in its business and returning value to shareholders.
Qualcomm returning $30 billion to shareholders
Qualcomm returns value to its shareholders through dividend payments and stock repurchases. The company returned $1.8 billion to shareholders during the December quarter, consisting of $750 million in dividend payments and $1.0 billion in repurchases. Intel (INTC) and IBM (IBM) repurchased $2.3 billion and $2.0 billion worth of their shares in the December quarter. Broadcom (AVGO) repurchased $3.5 billion of its shares in its fiscal first quarter ended in February.
Qualcomm set out to repurchase up to $30 billion of its shares after it canceled plans to acquire Dutch chipmaker NXP Semiconductors (NXPI). About $7.8 billion was remaining in Qualcomm’s existing repurchase authorization as of December 30, 2018.
Qualcomm (QCOM) and NXP Semiconductors (NXPI) nearly merged their operations last year.
In the last month the CSI 300 is down 11.5%, much more than US indices.
JCPenney (JCP) is slated to announce its results for the first quarter of fiscal 2019, which ended on May 4, on May 21.
The key point of contention in the US-China trade dispute is the large trade deficit the United States runs against China.
On May 16, the Labor Department reported jobless claims for last week. Initial jobless claims fell by 16,000 to 212,000 for the week ended May 11.
Jeffrey Gundlach recommended investors take advantage of the volatility in interest rates at the recent Sohn Conference.
Tesla (TSLA) has fallen 4.2% as of 11:55 AM EDT on May 17. While US equity markets opened in the red today, they've recouped their losses.