Qualcomm posted record quarterly earnings, but shares dropped in after-hours trading on the company’s warning that disputes with the Chinese government and some licensees there could hurt business going forward.
In the wake of the report, Qualcomm shares were trading at $77.81, down $3.79, or more than 4.5 percent.
In addition to a previously disclosed investigation by the Chinese government, Qualcomm noted as part of its earnings report that it believes some Chinese licensees are underreporting their sales. Further, it said some companies not yet licensing its patents are holding off doing so amid the China inquiry.
“China continues to present significant opportunities for us, particularly with the rollout of 4G LTE, but also presents significant challenges, as our business practices continue to be the subject of an investigation by the China National Development and Reform Commission (NDRC),” Qualcomm said.
The company reported June quarter earnings of $2.24 billion, or $1.31 per share, on revenue of $6.81 billion — a double-digit jump in earnings and a nine percent year-over-year gain in revenue.
Here’s the company’s full statement on things in China:
China continues to present significant opportunities for us, particularly with the rollout of 4G LTE, but also presents significant challenges, as our business practices continue to be the subject of an investigation by the China National Development and Reform Commission (NDRC). Please refer to our Quarterly Report on Form 10-Q for the third quarter ended June 29, 2014 filed with the SEC for our most recent disclosures regarding the NDRC investigation.
We also believe that certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee) and that unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing. We expect calendar year 2014 3G/4G device shipments to be approximately 1.3 billion globally. However, our estimate of calendar year 2014 3G/4G device shipments that we currently expect to be reported to us is approximately 1.04 billion to 1.13 billion, which is adjusted for units that we believe may not be reported to us, are in dispute or are currently unlicensed. We are taking steps to address these issues, although the timing of any resolution is uncertain.
This article originally appeared on Recode.net.