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Qualcomm (QCOM)
Qualcomm Settles Patent Lawsuit and Swings to a Loss
As the global economic slowdown continues, some companies are continuing to do well while others are struggling to remain even slightly profitable. During a time of tremendous budget cuts and decreased productivity, the last thing a company wants to do is have negative elements decreasing the company's earnings. Unfortunately, Qualcomm was unable to escape it and as a result the company announced a steep second-quarter loss. The San Diego based company announced that it lost $289 million in the second-quarter and cited a legal settlement with rival chip maker Broadcom Corp. as the reason for the loss being so high. Did the settlement with Broadcom Corp. really cause this huge loss or is the company trying to pull the wool over investors' eyes? How optimistic is the company about its future?
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Qualcomm has been around since 1985 and during that time the company has established an impressive list of products. The company has been one of the leaders in the telecommunications industry and over the course of many years has introduced a number of revolutionizing products to the market. During the company's history, a number of companies have accused Qualcomm of stealing certain technologies or basing their designs off of a previous patent. Broadcom Corp. (BRCM: Charts, News, Offers) was one of those companies and it appears that the company was able to get the restitution that it was seeking. Qualcomm agreed to pay its rival Broadcom Corp. $891 million over a four year period to settle a lawsuit over patent infringement. This agreement makes another one of those patent infringement battles which Qualcomm has lost to Broadcom in the past few years. Qualcomm can't seem to learn its lesson. However, Broadcom Corp. and Qualcomm have decided to license each other's patents to prevent more legal issues and elevated costs in the future. There is no doubt that this settlement did push the company deeper in red, but would the company have posted a profit if it didn't have to pay restitution?
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The answer is probably no. Current economic conditions have altered demand for Qualcomm's products and the company lost money on other investments. Qualcomm's overall loss for the second quarter is a dramatic change from the net income of $766 million it recorded in the year-ago quarter. Revenue also fell 5.8 percent from the year-ago quarter. Qualcomm is still suggesting that it will be able to deliver better results going forward. Qualcomm CEO Paul Jacobs said "Our second quarter revenues were at the high end of prior guidance, and I am pleased with the strong operating performance of our business. The recent settlement with Broadcom will resolve all pending litigation between the parties, and while this settlement adversely impacted our second-quarter results, eliminating uncertainty, employee distraction and cost related to protracted litigation is a positive for our stockholders, customers, partners and the wireless industry." Qualcomm reiterated its confidence in the future by releasing upbeat predictions.
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Qualcomm raised its revenue target for its fiscal year 2009 to a range of $9.85 billion to $10.25 billion from its earlier estimate for revenue of $9.3 billion to $9.8 billion. The company is confident that demand for its products will remain strong despite the challenging economy. Only time can tell if the company will be able to deliver the type of results that they are hoping for. Qualcomm appears relieved that they will not have to face any additional legal battles with Broadcom in the near future.
It's good to see that some companies are committed to surviving this economic downturn. Qualcomm's expectations for the future may be a little overly optimistic, but as long as demand continues to increase, the company may be able to deliver. Investors appeared confident in the company because shares of the chip maker rose more than 3 percent to $42.75 in early trade after closing at $41.36 in regular Nasdaq trade on Friday.
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