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Samsung agreement helps Qualcomm ease one dispute, but Apple battle lingers

A new agreement with Samsung Electronics Co. Ltd. could help Qualcomm Inc. ease some of its regulatory and legal scrutiny, but the company remains locked in a long-running dispute with Apple Inc.

Analysts have pointed to Qualcomm's lengthy legal battles with smartphone manufacturers as a weight on shareholder value that, if resolved, could help Qualcomm fend off a takeover effort by Broadcom Corp. The rival semiconductor company is engaged in a proxy battle to elect a slate of new directors to Qualcomm's board. Qualcomm rejected an unsolicited takeover bid from Broadcom in November 2017.

Speaking during a Jan. 31, 2018, conference call to discuss earnings, Qualcomm executives said they are eager to make peace with Apple — but only on the right terms.

"We value Apple as a customer and would like to continue that relationship into the future, but it is in our stockholders' best interest that we ensure that Apple pay a fair and reasonable royalty and operate on a level playing field with the other [original equipment manufacturers]," CEO Steve Mollenkopf said on the call.

Qualcomm and Apple, formerly one of its largest customers, have been engaged in a legal battle regarding patents and licensing since last 2017, with claims and counterclaims filed on both sides in various courts. The relationship between the two companies was also the focus of a probe in Europe. The European Commission recently fined Qualcomm $1.2 billion for paying Apple to exclusively use its chips in iPhones and iPads, which the regulator said gave Qualcomm an unfair market advantage. The fine and a $6 billion tax expense related to repatriating cash held overseas after recent changes in U.S. tax laws led Qualcomm to report a net loss of $5.95 billion, or $4.03 per share, for its fiscal first quarter ended Dec. 24, 2017. Adjusting for the impact of the one-time expenses, the company reported non-GAAP net income of $1.5 billion in the 2017 period, or 98 cents per share.

In signing the new agreement with Samsung, Qualcomm executives noted that Samsung agreed to withdraw its support of a regulatory probe of Qualcomm in South Korea. South Korea's Fair Trade Commission imposed a fine of 1.03 trillion won on Qualcomm for allegedly abusing its dominant market position in December 2016.

Qualcomm is also working to close its pending acquisition of NXP Semiconductors NV. Mollenkopf said on the Jan. 31 earnings call that the last remaining regulatory approval needed for the deal was from Chinese authorities. Qualcomm executives said they were hopeful the approval would be received soon.