Qualcomm Inc. sharply cut its profit forecast, saying it no longer expects any patent- licensing revenue from the iPhone in the current quarter as a result of its increasingly bitter legal battle with Apple Inc.
The new guidance reduces by a third the high end of the range for Qualcomm's earnings a share in the current, fiscal third quarter, the company said Friday. It reduced the low end if its earnings estimate by more than a fifth, and said it expects revenue to be 8% to 9% below its previous forecast.
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Shares of Qualcomm fell 3.6% to $51.30 in premarket trading.
The change excludes payments owed by some companies that manufacture the iPhone for Apple. Those contract manufacturers have licensing agreements directly with Qualcomm. They have withheld royalties because Apple is refusing to reimburse them amid the legal fight, Qualcomm said.
Qualcomm said Apple informed the San Diego, Calif., chip maker that it would continue to withhold reimbursements from the contract manufacturers on sales in the quarter that ended in March, Qualcomm's Friday statement said. Those underpayments would affect Qualcomm's results in the current quarter, requiring it to change its guidance, it said.
"We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," an Apple spokesman said in a statement. "Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court."
The development escalates the toll for Qualcomm of a feud that has already helped drive down its share price by more than 15% since Apple sued it in January. That suit claimed Qualcomm was using a monopoly position in cellular chips to impose "onerous, unreasonable and costly" terms on customers and competitors.
Qualcomm has characterized the dispute as a commercial disagreement in which Apple is trying to reduce its costs.
Qualcomm has developed technology deemed essential to cellular communications, and it collects royalties from nearly every smartphone sold world-wide -- a business that accounts for most of its profit.
Apple said in its suit that it was withholding payments to its contract manufacturers in retaliation for what Apple claimed was Qualcomm's refusal to pay $1 billion it owed Apple under a previous agreement. Qualcomm subsequently said that it expected royalties withheld by the contract manufacturers not to exceed that amount.
In its second-quarter earnings call just last week, Qualcomm said it expected to receive some payments from the contract manufacturers. Its forecasts then -- which already predicted a decline in profit -- reflected a range of possible scenarios for iPhone-related royalty payments, but not one in which no royalties were paid, Qualcomm said.
But that expectation has changed. "The contract manufacturers may make some form of partial payment, but initial indications are that any payment would likely be insignificant," Qualcomm's Friday statement said.
Qualcomm's revised guidance is for diluted earnings per share of 52 cents to 62 cents, down from a range of 67 cents to 92 cents. The new guidance would mean a drop of a least 36% in profit from the same quarter last year.
Qualcomm said it now expects revenue in the current period of between $4.8 billion and $5.6 billion, down from a range of $5.3 billion to $6.1 billion. Revenue in the same quarter a year ago was $6 billion.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
April 28, 2017 09:49 ET (13:49 GMT)