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Legal Bills Mounting as Qualcomm Litigates Patent Disputes

Like ants on a picnic blanket, legal troubles are creating an unpleasant diversion in a year of moneymaking at Qualcomm Inc.

Patent and licensing disputes with a group of other wireless technology companies , collectively dubbed “Project Stockholm” by one executive , threaten to take legal expenses over the $200 million mark by the time fiscal 2007 ends, Chief Financial Officer Bill Keitel told investors in a conference call Jan. 24.

Qualcomm is “significantly increasing” its estimates for legal expenses this year, President Steve Altman said. “The current environment represents an unprecedented level of attacks on our business.”

This comes during a year when Qualcomm is forecasting an 8 percent to 15 percent increase in annual revenue. And a year that promises such milestones as Verizon Wireless rolling out Qualcomm’s TV-over-cell-phone service.

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Preparing For Launch

The rollout should begin in the first quarter, Chief Executive Paul Jacobs said, adding that Qualcomm has licensed content from CBS, Fox, NBC, MTV, Comedy Central and Nickelodeon for the venture.

“We are very excited about this upcoming launch,” Jacobs said, “because mobile TV will be the next compelling application to cause an upgrade cycle in phones.”

Jacobs said record shipments of third-generation cell phones and microchips drove Qualcomm’s performance during the quarter ended Dec. 31 , the first of fiscal 2007. Qualcomm reported net income of $648 million, or 38 cents per diluted share, on revenue of $2.02 billion.

One year ago, Qualcomm reported net income of $620 million, or 36 cents per diluted share, on revenue of $1.74 billion.

The company also offered its forecasts for the quarter and year. Qualcomm expects revenue of $2 billion to $2.1 billion in the current quarter, and diluted earnings per share of 42 cents to 44 cents.

For the fiscal year, it forecasts $8.1 billion to $8.6 billion in revenue, with earnings per share of $1.44 to $1.49. During fiscal 2006, Qualcomm took in $7.5 billion in revenue.

More Legal Bills Coming

Legal issues promise to take up plenty of Qualcomm’s resources during the months ahead.

A technology licensing deal with Finland’s Nokia expires April 9. Qualcomm is negotiating an extension, but Jacobs indicated he was pessimistic on the progress of talks.

The end of the deal could hurt earnings in the current fiscal year by 4-6 cents per share, the company said in a statement. Qualcomm also said it intends to pursue injunctions as well as damages against Nokia once the deal expires.

That legal salvo will only add to the battle with Nokia, Ericsson, Broadcom, Texas Instruments and other technology companies.

Altman said significant cases involving disputes with Nokia alone are scheduled for March, July and September.

In many cases, Qualcomm is not in control of its legal costs, Altman said. One court, he said, has divided a certain case involving Qualcomm and Broadcom into five jury trials, thus driving up legal bills.

As this newspaper was going to press, a jury in U.S. District Court in San Diego was getting ready to decide whether Irvine-based Broadcom had infringed on Qualcomm patents related to high-definition video compression.


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