Qualcomm tanks after US District court judge sides with FTC in anti-trust dispute (QCOMM)

Arjun Reddy

May 22, 2019 2:06 PM

Qualcomm plunged over 11% in pre-market trading Wednesday after a US District judge sided with the FTC in an anti-trust dispute.

FILE PHOTO: A Qualcomm sign is seen during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018. REUTERS/Aly Song

San Jose-based Judge Koh ruled that the company engaged in anti-competitive behavior and must be subject to monitoring in the future to ensure fair competition.
Watch Qualcomm trade live.

A US District court judge ruled that Qualcomm violated anti-trust law in a case brought by the Federal Trade Commission. Shares of the chipmaker were down more than 11% in pre-market trading Wednesday.

The decision was written by San Jose-based Judge Lucy Koh and was first reported by the Wall Street Journal .

Qualcomm, which makes the microprocessors that are used in many smartphones, was accused of anti-competitive practices that extracted excessive licensing fees and prevented its clients from seeking microchips from alternative suppliers.

Judge Koh also determined that the behavior was likely to continue with the roll-out of 5G technology and mandated the company be subject to monitoring for seven years. The monitoring will ensure the company fulfills the required remedies, which include renegotiating previous licensing deals with clients and licensing its patent technology to rival chipmakers.

In anticipation of the 5G rollout, Qualcomm recently negotiated a licensing settlement with Apple over a wide-ranging patent dispute. Under the terms of the settlement, Qualcomm received over $4 billion. It is not clear if that settlement will be renegotiated as a result of the ruling.

"Certainly the last thing QCOM needs at this point (especially following the recent settlement) is further uncertainty-overhang around the licensing business. But an appeal is likely to take time (and hence, the overhang is likely to persist while it proceeds)," Alliance Bernstein research analyst Stacy Rasgon wrote in response to the ruling.

The Trump administration previously blocked a takeover attempt of Qualcomm by Singapore-based Broadcom , citing national security concerns. Qualcomm is also a key supplier to Huawei , which is currently facing a potential ban on sourcing components from US suppliers.

The FTC launched its suit in January 2017 and negotiations ahead of the ruling did not yield a settlement. The company will likely appeal the ruling.

Qualcomm is down 8% year to date.

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