Qualcomm, Huawei in Talks to Settle Patent-Royalty Dispute

Qualcomm Inc. QCOM -2.92% is in talks to settle a dispute with Huawei Technologies Co., which has been withholding a hefty stream of royalty payments from the chip maker, according to people familiar with the matter.

The negotiations between Qualcomm and Huawei are well along and could result in a settlement in the coming weeks, the people said.

The talks could still fall apart and there is no guarantee of an agreement. Qualcomm is in the midst of a contentious takeover battle with Broadcom Ltd. that has global political ramifications, and it isn’t clear what implications that could have for Qualcomm and Huawei’s willingness and ability to strike a deal.

Huawei couldn’t immediately comment on the talks. A Huawei representative said Qualcomm is a valued partner and that Huawei is a significant customer.

Qualcomm declined to comment.

Huawei was the second Qualcomm licensee to hold up royalties, coming after Apple Inc. ordered its contract manufacturers to stop paying the San Diego chip maker. The contract manufacturers had been paying through 2016.

News of the settlement talks comes as Qualcomm has spent months fending off a $117 billion takeover proposal from Broadcom, which is based in Singapore but has vowed to move to the U.S.

The U.S. government committee that vets foreign acquisitions of U.S. companies on national-security grounds on Sunday ordered Qualcomm to postpone its annual meeting scheduled for Tuesday, where shareholders were set to vote on whether to replace six of the company’s 11 directors with nominees put forward by Broadcom.

Should Qualcomm manage to reach an agreement with the handset makers that maintains its usual royalty structure, it could strengthen the company’s hand ahead of the shareholder meeting, now set for April 5.

Stacy Rasgon, an analyst with Bernstein Research, said the question is, “does Qualcomm have to give anything up? And if they did, is it significant?”

Qualcomm has said resolving its disputes with the handset makers could restore billions of dollars in royalty revenue. That is a key piece of the company’s plan to deliver between $6.75 and $7.50 in adjusted per-share earnings in fiscal 2019.

In addition to selling chips, Qualcomm collects royalties for use of its patents on key technology in cellular standards. It holds patents on cellular systems beyond its chips, which allows it to collect a fee for nearly every smartphone sold world-wide, whether or not they contain its chips.

In recent years that patent-licensing regime has been under attack not only from Apple and Huawei but regulators in several countries, which have leveled fines against Qualcomm and forced it to change some of its practices. Qualcomm is appealing some of those cases.

Qualcomm disclosed a dispute with an unnamed second licensee last year with its second-quarter results, after Apple in January 2017 sued the chip maker in the U.S. and later in other countries. Apple alleges Qualcomm uses its dominance in smartphone chips unfairly to extract exorbitant patent royalties from licensees.

Qualcomm has consistently declined to name Huawei, saying its policy is to try to resolve such disputes privately until they land in court.

The chip maker in 2015 had reached a settlement with Chinese antitrust authorities, including a $975 million fine, that compelled some Chinese licensees that had withheld royalties to start paying.

—Tripp Mickle contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

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