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Little trouble in big China: Are some of Qualcomm's chip slingers fibbing?

Patent licensee figure disputes, antitrust probe mar US biz's Q3

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Mobile chipmaker Qualcomm reported solid results for the third quarter of its fiscal 2014 on Wednesday, with revenues, earnings, and chip shipments all reaching record highs.

The California company saw its revenues reach $6.81bn for the three months ending on June 29, 2014, a 9 per cent year-on-year increase that handily beat even Wall Street analysts' most optimistic estimates.

But its profits fared even better, with net income for the quarter climbing a stunning 42 per cent from the year-ago period, to $2.24bn.

Not surprisingly, that strong performance translated into even stronger earnings. Qualcomm blew past analysts' estimates to report earnings of $1.31 per diluted share, which was 7 per cent higher than what Wall Street expected and 46 per cent higher than its earnings for the year-ago quarter.

Qualcomm said it shipped 225 million chips during the period, a 31 per cent increase from Q3 of 2013.

Beyond chip sales, however, a large portion of Qualcomm's revenues come from licensing its considerable patent portfolio. The company's licensees reported device sales worth $58.1bn for the quarter, which was a scant 3 per cent increase over last year's quarter.

Yet accurate device sales figures are hard to come by, because although Qualcomm continues to see strong sales in the Chinese market – particularly due to the ongoing rollout of 4G LTE – it also believes some of its patent licensees in China are not reporting all of their sales, despite their contractual obligation to do so.

Exacerbating the situation is an ongoing investigation by China's National Development and Reform Commission (NDRC) into whether Qualcomm's business practices violate Chinese monopoly laws, which the company believes could be discouraging Chinese firms from licensing its patents.

Based on its own estimates, however, Qualcomm expects its worldwide licensees to ship around 1.3 billion devices in calendar year 2014, even though the reported figures may be significantly lower.

What's more, the trend looks good. Qualcomm said it expects to ship between 230 million and 245 million chips in the fourth quarter of 2014 – an increase of more than 20 per cent, year over year – and it expects its total revenues to come in at between $6.5bn and $7.4bn.

Yet despite what seems like encouraging numbers from the chipmaker, Qualcomm shareholders seemed genuinely worried by the uncertainty surrounding its China woes, causing the company's share price to dip by more than 4 per cent in after-hours trading. ®

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