Hon Hai shares under pressure after Qualcomm legal action

Taipei, --Shares of Hon Hai Precision Industry Co. (??), an assembler of iPhones and iPads for Apple Inc., came under pressure Thursday after U.S.-based integrated circuit designer Qualcomm Inc. filed a lawsuit against the Taiwanese firm for not paying royalties, dealers said.

Qualcomm said a day earlier that it had filed a complaint in the District Court of the Southern District of California against Hon Hai as well as Taiwan-based Pegatron Corp. (??), Wistron Corp.(??) and Compal Electronics Inc. (??), which all make iPhones or iPads for Apple, for breach of royalty payment agreements.

Hon Hai shares fell 0.97 percent to close at NT$102.00 (US$3.38) on the Taiwan Stock Exchange, while Pegatron and Wistron also lost 2.05 percent and 0.73 percent, respectively, to end at NT$90.70 and NT$27.30.

Bucking the downturn, Compal gained 0.73 percent to close at NT$20.70 after hitting an early low of NT$20.25.

The weighted index on the main board closed down 0.44 percent at 9,969.45 points in the wake of a plunge on Wall Street overnight. Hon Hai shares were also affected by the weakness of the broader market, dealers said.

However, Hon Hai shares saw strong technical support around NT$100.00 after the stock fell to NT$100.50 at one point in the morning session, dealers said.

Qualcomm said that Apple advised its contract suppliers, referring to the four Taiwanese manufacturers in the case, to withhold royalty payments and agreed to indemnify them against any damages resulting from the breach of their royalty payment agreements with the IC designer.

"Despite a long history of consistently paying royalties under their license agreements with Qualcomm, the manufacturers now are refusing to pay royalties on the Apple products they produce," the IC designer said in a statement.

"While not disputing their contractual obligations to pay for the use of Qualcomm's inventions, the manufacturers say they must follow Apple's instructions not to pay," Qualcomm said.

Qualcomm said that the move by Apple to advise the four firms to withhold their royalty payments is aimed at forcing the IC designer to agree to an "unreasonable demand for a below-market direct license."

"The manufacturers must continue to live up to their obligations under these agreements, and Apple should immediately cease its interference," Qualcomm said.

Although Qualcomm did not disclose any financial terms in the royalty payment agreements with the four firms, the local media reported Thursday that the four could have to pay about NT$30 billion (US$993 million) in total to the U.S. IC designer.

Qualcomm and Apple have been in a legal battle, and now the impact has spread to the four Taiwanese firms.

Apple sued Qualcomm in January, accusing the IC designer of overcharging for smartphone chips, and refused to pay about US$1 billion in rebates the iPhone vendor had previously promised.

Source: Focus Taiwan News Channel