Qualcomm is on the verge of a major financial crisis following a $1 billion lawsuit filed by Apple for inflated royalty payments.
If recent reports are to be believed, Qualcomm could be in a state of huge catastrophe if the payment continues to get delayed.
According to the allegations leveled by Apple against the chipmaker, Qualcomm is alleged to have collected billions of dollars as royalties for technologies it is not associated with. The chip making company on its part has rejected this insinuation.
"Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program," says Don Rosenberg, Executive VP of Qualcomm.
The lawsuit happens to be filed at a time when Qualcomm is already in deep trouble with the Federal Trade Commission's (FTC) anti-trust lawsuit.
The regulators in Europe and the United States will examine the business practices of the company regarding its deep well of patents used in most of the wireless devices. Royalties from these patents contributes to about 80 percent of the company's pre-tax profit.
Lawsuit Filed By Apple And FTC
While Qualcomm has already witnessed many legal issues and challenges pertaining to its patent-driven business model, this one posed by Apple appears to be the toughest it has faced in recent times.
As Tech Times reported, in its allegations, Apple holds Qualcomm responsible for baselessly charging billions of dollars as royalty. The chipmaker has also been held responsible for withholding a payment of $1 billion for Apple's truthful response to the regulators.
FTC's allegation has further revealed Qualcomm's indulgence in unfair practices like threatening smartphone manufacturers with disruptions. It further indicated, that Qualcomm wanted to prevent the supply of chips provided if the contract was not made in a manner that would suit the chipmaker.
Qualcomm's Financial Crisis
Qualcomm's shares declined by 11 percent on Monday, registering its second biggest decline in last seven years as a result of the lawsuit filed by Apple.
Investors noted this situation with great interest, withdrawing $13 billion away from Qualcomm's market value. The decision also happened to coincide with the news on the lawsuit.
Analyst Rod Hall of JP Morgan predicts a fall of 32.5 percent in Qualcomm's earning per share this year by assuming that Apple pays a standard royalty for the iPhone modem.
The downward trend may continue for Qualcomm as this incident may spark a similar reaction among other companies using its products. If they all start filing lawsuits one after the other, the chipmaker's entire licensing model will suffer a huge jolt.
FTC South Korea has recently imposed a fine of $853 million as a penalty for Qualcomm's unfair licensing practices. Qualcomm's $39 billion deal with NXP also hangs in the balance following this lawsuit.
Qualcomm was eyeing to close the deal by the end of 2017, but now that its stock has taken a sharp dip, shareholders predict that the deal is not going to materialize anytime soon.
Photo: Jon Jordan | Flickr
