Huawei to pay Qualcomm $1.8 billion lump-sum – see why

Chinese manufacturing giant, Huawei and American chip maker, Qualcomm has been at loggerheads over licensing dispute. However, both companies have finally decided to lay the issue to rest as they sign a long-term deal. Despite the increasing tensions between the U.S. and China, Qualcomm and Huawei was able to reach a compromise. According to reports, Huawei will have to pay Qualcomm $1.8 billion lump-sum. This payment covers previously unpaid licensing fees. In addition, the settlement also covers a license which allows Huawei to use Qualcomm technologies.

These funds boost Qualcomm’s fourth-quarter revenue earnings. According to Qualcomm, its Q4 2020 revenue will be much higher than Wall Street’s expectations. Many thanks to the lump-sum payment from Huawei. Qualcomm’s stock price rose 13% in after-hours trading. The company said that it has resolved the licensing dispute with Huawei. 

Huawei remains banned from purchasing Qualcomm chips

Qualcomm said that although Huawei is still banned from purchasing Qualcomm chips, the latter has now resumed paying for wireless technology licensing fees. Thus, transaction does not mean that the ban on Huawei is no longer active. Qualcomm is fierce when it comes to licensing disputes – Apple’s case last year readily comes to mind. 

Qualcomm’s CFO, Akash Palkhiwala, in an interview with Reuters said

“We’re seeing a partial impact from the delay of a flagship phone launch. And so what we’ve seen is a slight delay that pushes some of the units out from the September quarter to the December quarter for us,”

Qualcomm’s fiscal fourth-quarter adjusted earnings moved from $1.05 to $1.2. Its revenue also shifted from $7.3 billion to $8.1 billion, including the $1.8 billion from the settlement. Just like other companies, the coronavirus pandemic badly hit Qualcomm. The COVID situation hurt the company’s per-share profit by about 25 cents. Basically, this is as a result of the approximately 15% year-on-year reduction smartphone shipment. In addition, the delay in the launch of 5G smartphones (probably from Apple) also affected the company.

Qualcomm CEO, Steve Mollenkopf, said

“As 5G continues to roll out, we are realizing the benefits of the investments we have made in building the most extensive licensing program in mobile and are turning the technical challenges of 5G into leadership opportunities and commercial wins,”…“We delivered earnings above the high end of our range, continued to execute in our product and licensing businesses, and entered into a new long-term patent license agreement with Huawei, all of which position us well for the balance of 2020 and beyond.”