Qualcomm says Apple to stop paying royalties, cuts profit forecast

Apple Inc has decided to withhold royalty payments to its contract manufacturers that are owed to Qualcomm Inc, until a legal dispute between the companies is resolved, the chipmaker said on Friday.

Qualcomm, the largest maker of chips used in smartphones, said it will not receive royalties from Apple`s contract manufacturers for sales made during the quarter ended March 31.

San Diego, California-based Qualcomm also slashed its profit and revenue forecasts for the current quarter, to account for the lost royalty revenue.

Qualcomm`s shares fell 4 percent to $51.06 in premarket trading.

Apple sued Qualcomm in January, accusing the company of overcharging for chips and refusing to pay some $1 billion in promised rebates.

"Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court," an Apple spokesman said via email on Friday.

Qualcomm is a major supplier to both Apple and Samsung Electronics Co Ltd for "modem" chips that connect phones to wireless networks. The two companies together accounted for 40 percent of Qualcomm`s revenue in its most recent fiscal year.

"Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade," Don Rosenberg, Qualcomm`s general counsel, said in a statement on Friday.

Qualcomm said it now expects revenue of $4.8 billion-$5.6 billion for its third fiscal quarter, down from the $5.3 billion-$6.1 billion it had previously expected.

Qualcomm lowered its forecast for current-quarter adjusted profit to 75-85 cents per share, from 90 cents-$1.15 per share.

"(Apple`s) contract manufacturers may make some form of partial payment, but initial indications are that any payment would likely be insignificant," Qualcomm said.

Qualcomm added that its earlier forecast had accounted for several payment scenarios, but did not include a situation where no payment was made and no revenue was recognized.

Through Thursday, Qualcomm`s shares had fallen about 17 percent since Apple filed its lawsuit.