QUALCOMM CRUSHED. “..acted illegally for years by charging exorbitant fees to phone makers that license & use its technology..” By Todd Horwitz, Bubba Trading.

 

Disaster for Qualcomm

The most important technology company most people have never heard of just got a disastrous court ruling that could upend the way the smartphone industry does business. Qualcomm, the world’s largest maker of smartphone chips and modems, has acted illegally for years by charging exorbitant fees to phone makers that license and use its technology, a federal judge ruled Tuesday. The ruling could drastically reduce the amount of money phone makers pay for their smartphones to perform basic functions, including placing calls and connecting to the internet. 

Qualcomm’s technology is ubiquitous in smartphones, and the company has ambitions to become the leader in 5G connectivity. The San Diego company makes computers and modems for smartphones, but it makes most of its money from licensing technology it patented years ago that allows phones to connect to cell phone towers. Qualcomm makes tens of billions of dollars every year on licensing, because phone makers pay Qualcomm a percentage of the total value of each phone they sell, up to $400.

The reversal comes a little more than a month after Qualcomm celebrated one of its largest triumphs: a deal with Apple that ended years of bitter litigation and positioned it to supply critical chips for future iPhones running on next-generation wireless networks. Qualcomm’s shares sank nearly 11% Wednesday on the ruling, shearing off another chunk of the chip maker’s more than 50% run-up in the weeks after the Apple deal.

Qualcomm has weathered thorny royalty disputes before. But Judge Koh’s ruling could be far-reaching, undercutting Qualcomm’s business while at the same time affecting U.S. national competitiveness in next-generation wireless technologies. As one of only a handful of companies capable of making cutting-edge versions of phone connectivity chips called modems, Qualcomm could be forced to negotiate less lucrative deals with existing customers and extend its intellectual property at less favorable terms, gutting a business that historically represented most of the company’s value.

“If you were to hold them to the letter of the law and what Koh has put forth, it’s devastating to their [licensing] business,” Susquehanna International Group analyst Christopher Rolland said.

Todd “Bubba” Horwitz

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Financial Markets and Political Commentary
 

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About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.