Qualcomm Sees Profit Decline 46% on Antitrust Fine in China

Qualcomm Inc. (NASDAQ:QCOM) posted a 46% drop in second-quarter profit, weighed down by a fine to end an antitrust probe that had hobbled the chip maker in China's big smartphone market.

The San Diego company, under pressure from activist investor Jana Partners, lowered its projection for the year, noting headwinds in the chip-making business will hurt its semiconductor sales in the second half of its fiscal year.

The company now projects profit of $4.60 to $5 a share on revenue of $25 billion to $27 billion, down from its earlier view of $4.85 to $5.05 a share on $26.3 billion to $28.0 billion in revenue.

Chief Executive Steve Mollenkopf said the company is reviewing possible cuts to improve operating margins.

In February, the company said it would pay $975 million as part of a settlement with China's National Development and Reform Commission that included some other modifications to its patent licensing practices in the country. But Qualcomm believes the deal will pave the way to license more patents and sell more chips in China, where some customers were holding off signing deals until the probe was over.

Qualcomm, which raised slightly its financial forecast for the year following the settlement, still faces other issues, such as Samsung Electronics Co.'s move to use its own chips for its new flagship smartphone.

Meanwhile, Jana Partners on April 13 disclosed that it has purchased more than $2 billion in Qualcomm shares. The investment firm has discussed options for boosting Qualcomm's share price that include spinning off the company's chip unit from its patent-licensing business, which accounts for about two-thirds of Qualcomm's profits.

Qualcomm issued a statement that day saying it welcomed input from Jana, but said it believes the company's two-part business model brings valuable business synergies. It also reiterated plans to return cash to shareholders, including buying $10 billion in shares within a year in addition to other prior capital return commitments.

For the period ended March 29, Qualcomm reported a profit of $1.05 billion, or 63 cents a share, compared with $1.96 billion, or $1.14 a share, a year earlier. Excluding items such as results from an investment unit, Qualcomm said per-share earnings rose to $1.40 from $1.31 a year earlier.

Revenue rose to $6.89 billion from $6.34 billion a year earlier.

Analysts polled by Thomson Reuters had expected per-share earnings on that basis of $1.33 on revenue of $6.83 billion.

For the quarter ending in June, Qualcomm projected per-share earnings, excluding items, of 85 cents to $1 a share on $5.4 billion to $6.2 billion in revenue, down from $1.44 a share on $6.8 billion in revenue a year earlier. Analysts had projected $1.14 a share on $6.5 billion in revenue.

Shares, down 14% over the past 12 months, fell 2% to $67.55 in recent after-hours trading.

(By Don Clark and Maria Armental)