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Qualcomm is among the biggest victims of the Huawei battle



Qualcomm Inc. is being harmed by the US trade war, just as the world's largest economies are switching to the next generation of mobile phone network technology.

Qualcomm

QCOM, -2.21%

gave a disappointing fourth quarter view on Wednesday, with much of the disappointment from two major questions related to China: trade and the switch to 5G on mobile phones. [19659002] "Huawei's export ban, along with the 4G to 5G pivot, which accelerated over the past few months, has contributed to industrial conditions, especially in China, which we expect will create major headwinds in the next two fiscal quarters," Chief Steven Mollenkopf told analysts in a conference call.

Qualcomm shares fell 5% in afternoon trading. The stock has been on a roller coaster for the past two years, as events in the royalty-seeking trial have driven major ups and downs in the stock. Most recently, however, it resolved a nasty dispute with one of its biggest customers, Apple Inc.

AAPL, + 2.04%

AAPL, + 2.04%

Third-quarter revenue includes $ 4.7 billion related to the settlement with Apple and the contract manufacturers.

Leaders added that in China, unit shipments from handset manufacturers to carriers and retailers were down 5%, but said unit sales through from carriers and retailers to consumers were more pronounced, with about 20% year over year, "reflecting in part a break from consumers ahead of 5G and an uncertain macro environment. "

It's worth remembering that last year's $ 121 billion acquisition of Qualcomm by Broadcom Inc.

AVGO, -3.19%

was pressured by the Trump administration because of national security risks, including concerns that potential cost-cutting moves would benefit Huawei Technologies Co. and contribute to Chinese dominance in 5G. This fear seems well-founded, as Huawei is poised to take the global lead in developing 5G technology.

Some Chinese original equipment manufacturers, or OEMs, are now buying from Huawei. Qualcomm said that as a result of the trade dispute, the business is being affected by a shift in OEM share against Huawei as it increases its focus on the domestic Chinese market. To a lesser extent, Qualcomm lost some direct sales to Huawei as a result of the US trade ban on the Chinese tech giant.

Qualcomm said that the fourth-quarter forecast does not include Huawei revenue. In the third quarter, Qualcomm recognized a $ 150 million interim payment from Huawei for licensing its technology. Qualcomm noted that Huawei's 5G modem is at least 50% larger than the first-generation 5G chipset.

"It's an extremely uncertain environment in the next few quarters," said Maribel Lopez, principal analyst at Lopez Research. "There are many moving parts, between legal battles, customs issues and changes in the market demand for products such as smartphones."

Lopez added that she believed the decision by some Chinese OEMs to go with Huawei's 5G modem sets because of fears that the trade war or Qualcomm's legal questions would prevent it from licensing its technology in unlike any patriotism from Chinese companies. "If you are unsure that you may not want access to a technology, nationalism or no nationalism, you must have that product in your design."

Still, as China zooms forward with 5G and the US remains behind, Qualcomm misses part of the world's largest market in its core competencies. On top of that, it still has a remaining legal question. In May, a U.S. District Court judge in Northern California ruled that Qualcomm unlawfully suppressed competition in the smartphone market and violated the antitrust law, one month after the company's settlement agreement with Apple over similar allegations. Qualcomm told investors during the call that there was a "fairly widespread agreement that the judge's court order is wrong in many, many respects." The company's appeal has received a quick assessment, Mollenkopf said.

Also read: Qualcomm is thrown back into the uncertainty that Apple settlement seemed to be curing.

As an investor noted on Twitter, it seems that Qualcomm is a company that takes one step forward and two steps back. And clouds are hanging over the stock again.


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