Qualcomm says Broadcom ruling to hurt short-term

NEW YORK Wed Jan 2, 2008 1:53pm EST

The headquarters of Qualcomm Inc. in San Diego is seen December 5, 1997. Wireless chip maker Qualcomm Inc. said on Wednesday new chipsets, designed to comply with a court's patent infringement ruling, were now available and expected to be in handsets before the end of March. REUTERS/J T Lovette

The headquarters of Qualcomm Inc. in San Diego is seen December 5, 1997. Wireless chip maker Qualcomm Inc. said on Wednesday new chipsets, designed to comply with a court's patent infringement ruling, were now available and expected to be in handsets before the end of March.

Credit: Reuters/J T Lovette

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NEW YORK (Reuters) - Wireless chip supplier Qualcomm Inc (QCOM.O) said on Wednesday it would be hurt in the short term by a court injunction on the sale of chips infringing rival Broadcom Corp's (BRCM.O) patents, but it promised to have alternative products in phones before the end of the quarter.

Broadcom shares rose as much as 5 percent after the news and Qualcomm shares fell 1.7 percent, but the trading reflected by some investor relief that Qualcomm appeared to have a technology workaround.

A federal judge in California on Monday barred Qualcomm from selling products infringing three Broadcom patents in the United States, but said it could sell some chips using the patents through the end of January 2009 if it paid royalties.

The judge also issued an immediate injunction on Qualcomm chips based on WCDMA, a high-speed wireless technology, that were found to infringe Broadcom's video encoding patent.

Qualcomm, which is also embroiled in legal battles with leading phone maker Nokia (NOK1V.HE), said it was looking at legal options such as an appeal and promised to have new WCDMA chips in U.S. phones before the end of March.

Analysts said the short-term impact of the ruling did not appear to be severe.

"The injunction is probably a bit wider than anticipated, but that is offset by faster availability of workaround chips than expected," said Cowen & Co analyst Matthew Hoffman.

Hoffman estimates that about 30 percent of Qualcomm's total revenue is generated in the United States, with only a small portion of U.S. revenue coming from WCDMA, a wireless high-speed Internet technology used by No. 1 U.S. mobile service AT&T Inc (T.N).

Tim Long of Banc of America said in a research note that he expects a nominal earnings per share impact on Qualcomm.

Analysts have forecast Qualcomm earnings of $2.11 per share, before items, on revenue of $9.84 billion for its fiscal year ending in September, according to an average compiled by Reuters Estimates.

Qualcomm said it has taken immediate actions to comply with the ban and plans to disclose any financial impact when it reports quarterly earnings on January 23.

"While Qualcomm will attempt to obtain further relief and clarity from the court on certain aspects of its order, the inability to obtain such relief will have an immediate short-term impact as handset customers transition to new designs for WCDMA products," Chief Executive Paul Jacobs said on an analyst call.

SPRINT SEES NO QCHAT DELAYS

Qualcomm said it is still examining the impact of the ruling for U.S. customers, which also include Sprint Nextel Corp (S.N) and Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L).

Qualcomm said newer chips that do not infringe Broadcom patents are already available to device manufacturers for the United States and are expected to be commercially available in handsets by the end of the quarter.

The ruling provides a stay until the end of January 2009 on the ban for some Qualcomm chips supporting EV-DO, a high speed wireless service used by Sprint and Verizon Wireless, and QChat, a walkie-talkie style service.

The stay is limited to products Qualcomm was already selling by the end of May 2007. Sprint Nextel had been counting on a first-quarter launch of QChat to help revive its cellular service, which has suffered from customer defections.

Sprint spokesman Matthew Sullivan said the company does not see any delay to its QChat service from the ruling as it believes that its handset providers are covered by the stay.

Qualcomm is already appealing an International Trade Commission ban on the U.S. sale of some of its chips that were found to infringe patented Broadcom technology.

That case led Verizon Wireless to forge a technology licensing pact with Broadcom in July. Qualcomm said it believes that agreement should protect Verizon against the latest ruling but said it is still seeking clarification on that point.

Qualcomm is also in arbitration proceedings with Nokia as the companies failed to renew a technology license agreement that expired in April 2007.

Qualcomm shares were down 69 cents, or 1.8 percent at $38.66 on Nasdaq and Broadcom shares rose 24 cents or 0.9 percent to $26.38.

(Additional reporting by Ritsuko Ando; Editing by Steve Orlofsky and Gerald E. McCormick)

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