BlackBerry Jumps as $814.9 Million Qualcomm Refund Bolsters CashBy
Dispute centered on overpayments of smartphone license fees
Binding arbitration award will boost BlackBerry’s cash hoard
BlackBerry Ltd. stock rose the most in more than two years after it was awarded $814.9 million to end a dispute with Qualcomm Inc. over royalty payments, giving it cash needed to help recast itself as a software maker.
The two companies had agreed to enter binding arbitration to settle claims by BlackBerry that it was owed refunds on technology licensing fees prepaid to the chipmaker. The announcement sent BlackBerry shares up as much as 19 percent in New York, the most intraday since January 2015.
The refund from Qualcomm will boost BlackBerry’s cash hoard, which stood at $1.7 billion at the end of its fiscal fourth quarter, helping Chief Executive Officer John Chen as he spends more money to shift the company’s focus to software and security-focused products. BlackBerry no longer makes the phones that used Qualcomm technology and argued that it was due a refund after sales collapsed.
“With BlackBerry planning to invest for growth in its software businesses, the surprising arbitration award and $815 million in cash from Qualcomm will bolster BlackBerry’s balance sheet and increase the likelihood of acquisitions to augment growth,” Canaccord Genuity technology analyst Michael Walkley wrote Wednesday in a report. He raised his price target on BlackBerry to $9.50 from $8.
Qualcomm, which owns patents that cover the fundamentals of modern mobile technology, gets a cut of the selling price of handsets from phone makers, whether they use its chips or not. The San Diego-based semiconductor maker gets the majority of its profit from those license payments. In 2010, before its smartphone business collapsed, Waterloo, Ontario-based BlackBerry signed a nonrefundable agreement with Qualcomm covering royalty payments through 2015, Walkley said in his note. It shipped far fewer phones than it expected, leading it to seek a refund on some of the payments, he wrote.
The chipmaker, the biggest producer of semiconductors that run smartphones, faces the refund bill while trying to fend off multiple lawsuits and regulatory actions targeting its lucrative licensing business. Earlier this week, it counter-sued Apple Inc., one of its biggest customers, escalating a fight in which it’s accused of illegally trying to maintain a stranglehold over the market for phone components. Qualcomm countered that Apple is behind a global push to break the chipmaker’s business model because the iPhone maker wants to pay lower fees.
Qualcomm on Wednesday said it disagreed with the outcome of the arbitration proceeding with BlackBerry, but noted the decision is binding and can’t be appealed.
“The arbitration decision was limited to prepayment provisions unique to BlackBerry’s license agreement with Qualcomm and has no impact on agreements with any other licensee,” the company said.
BlackBerry’s shares jumped 15 percent to $8.85 at noon in New York. Qualcomm declined 3 percent to $53.69.
Qualcomm has been battling other smartphone makers over royalty fees, from Apple to LG Electronics Inc. The U.S. Federal Trade Commission is also investigating Qualcomm for unfairly cutting out competitors and forcing Apple to use its chips exclusively. In December, South Korea’s antitrust regulator slapped a record 1.03 trillion won ($902 million) fine on the chipmaker for violating antitrust laws.
BlackBerry, following the cash award, said it will continue to work with Qualcomm.
“BlackBerry and Qualcomm have a longstanding relationship and continue to be valued technology partners,” Chen said in a statement. “We are pleased the arbitration panel ruled in our favor and look forward to collaborating with Qualcomm in security for ASICs and solutions for the automotive industry.”
The final amount of the award, including interest and attorney fees, will be announced after a hearing on May 30, BlackBerry said.
— With assistance by Ian King