Qualcomm’s Mirasol Display Business Shifting to Licensing Focus

That follows Korean bookseller Kyobo’s discontinuing an e-reader that Mirasol technology in a 5.7-inch display with 1,024x768 resolution (CED Nov 25 p3). The device, which is being promoted at $89, down from the original $300 retail price, was Mirasol’s debut in larger size color applications beyond mono versions used in a range of products, including G-Core’s range finder for golfers. The 5.7-inch display has been built into Bambook’s Sunflower, Hanvon’s C18 and Koobe’s Jin Young Reader. Qualcomm displays use pixel elements composed of 10- to 100-micron micro electromechanical systems with two conductive plates, a thin film stack on glass and a reflective membrane.

Qualcomm’s new strategy for Mirasol will “better align our product roadmap with the addressable roadmap,” CEO Paul Jacobs said. Mirasol’s impact on Qualcomm’s fiscal year ending Sept. 30 will be “relatively muted. We do expect some charges to take for fiscal 2013,” Keitel said. Qualcomm had projected spending $2 billion on the new factory in Taiwan. Qualcomm spent about $400 million on Mirasol in 2011, and was expected to incur another $600 million in costs this year to build the factory shell and install a new production line, FBR Capital Markets analyst Craig Berger said in a research note. “With $1 billion of capital spent on this Mirasol fab, we think that the facility’s revenue generation capabilities are large when fully ramped and assuming customer demand exists,” Berger said. Qualcomm MEMS Technologies (QMT), which includes Mirasol, was expected to post a $300 million operating loss this year, Berger said. Qualcomm had been expected to start production at the plant by mid-year, but postponed it to fall.

As a result of QMT’s restructuring, Qualcomm “tested” the assets for “impairment,” but didn’t record one, deciding its fair value was higher than its carrying value, the company said in a 10Q filed with the SEC. “We cannot imagine the gross or operating margins of a Mirasol-enabled module will approach the margin levels desired by investors, thus leading us to conclude that this segment will someday be divested from Qualcomm in some form,” Berger said. Qualcomm officials weren’t available for comment.

Qualcomm continued struggling with a shortage of 28-nanometer chips that are at the heart of its Snapdragon 4 processor built into Samsung’s Galaxy III, LG Optimus LTE2, HTC One and One S and other smartphones, company officials said. More than 15 devices had launched with the S4 MSM8960, which has gained design wins in 175 products, Qualcomm President Steven Mollenkopf said. “The constraints on 28 nanometer supply are continuing to limit our revenue potential upside this fiscal year,” Jacobs said. To ease the shortage, Qualcomm is widening its base of 28-nanomter chip suppliers beyond Taiwan Semiconductor Manufacturing Corp. to include GlobalFoundaries, Samsung and United Microelectronics, analysts said. The 28-nanometer shortage is expected to ease by Q4, Berger said. “You're essentially in a situation where demand is increasing and supply is increasing, and we're trying to match those two ramps,” Mollenkopf said. Qualcomm will “still have a gap” between supply and demand at the start of Q4, but it will “improve throughout the quarter” and it “matches up toward the end,” Mollenkopf said. “Anytime you are ramping a new source, at the beginning part of the ramp, you don’t have the yield or cost numbers consistent with several quarters into” it, Mollenkopf said. “And we have that given that we're bringing up multiple sources."

Qualcomm is sampling four new S4 ICs, including the quad core APQ8064 that is the first to use the company’s Adreno graphics processor, Mollenkopf said. Qualcomm also has developed the dual-core 1.5-GHz S4 Prime for TVs and set-top boxes and gained a design win in Lenovo’s K91 42-inch and 55-inch Smart LCD TVs that are expected to ship in China.

Meanwhile, the U.S. attorney’s office in southern California started a preliminary investigation earlier this into Qualcomm’s compliance with federal Foreign Corrupt Practices Act (FCPA) of 1977 that bars bribery of foreign officials. The probe, based on whistleblower allegations first made to the Qualcomm board’s audit committee in 2009, preliminarily determined that special hiring considerations, gifts and other benefits valued at $250,000 were given to employees at Chinese companies and agencies, Qualcomm said. The SEC began a separate investigation in September 2010. Qualcomm has cooperated with the investigations, the company said. It has hired an independent counsel to review its compliance with FCPA, the company said.

Qualcomm’s Q3 net income rose 17 percent to $1.21 billion as sales jumped 28 percent to $4.63 billion. The gain in net income was despite a rise in operating expenses to $3.2 billion from $2.5 billion as equipment and service revenue costs increased to $1.71 billion from $1.27 billion. Qualcomm CDMA Technologies, which includes the Snapdragon business, posted a gain in revenue to $2.86 billion from $2.91 billion a year earlier. Qualcomm Technology Licensing recorded an increase in revenue to $1.59 billion from $1.25 billion, but down from $1.72 billion in the previous quarter.