By Stephen Phillips
Qualcomm Inc warned yesterday that it may be forced to wipe $50m from its fourth-quarter earnings after revealing it was out of pocket on equipment supplied to troubled Russian wireless services provider, Metrosvyaz Limited. Executives said that excluding the charges they expected earnings for the quarter ended July 31 to come in equal to or above the 88-cents-a-share average forecast from Wall Street analysts. Yesterday’s warning came just hours after Qualcomm’s ex-subsidiary, Leap Wireless International Inc, announced it would cease to fund Metrosvyaz, citing serious financial irregularities and loan defaults.
Metrosvyaz is attempting to broker joint ventures in Russia as vehicles to establish wireless local loop services. Qualcomm supplied wireless infrastructure equipment based on its Code Division Multiple Access cellular phone platform, and mobile handsets to Metrosvyaz, Dick Grannis, the firm’s vice president and treasurer told ComputerWire. The transaction pre-dated the sale of Qualcomm’s terrestrial CDMA wireless infrastructure business to LM Ericsson Telefon AB on May 25. Qualcomm will take the next month or so, before the announcement of its fourth- quarter results on November 2, to evaluate whether or not the costs can be recovered, Grannis said.
Leap announced late on Wednesday that it would write off $9.6m for the quarter to July 31, from investments in Metrosvyaz, in which – via holding companies – it holds a 35% stake. Leap inherited the Metrosvyaz stake from Qualcomm last year when it was spun off from the digital cell phone maker. Leap accused Metrosvyaz of repeatedly stonewalling its attempts to gain full access to the firm’s accounts. It said preliminary results of a special audit of Metrosvyaz’s books and contracts, based on partial information, had shown up unaccounted-for funds and questionable contracts and payments among serious financial irregularities. The statement said that Leap had filed a demand for third-party arbitration with a view to gaining full accounting access and recovering damages from Metrosvyaz and its directors. A Leap spokesperson said the firm’s stake in Metrosvyaz remained intact.
The firm also said it would write off $17.7m for the quarter from its 21% stake in the Transworld companies, a coalition of firms seeking to establish long-distance phone services in Russia, now being wound up. The Transworld Companies began limited long- distance phone services in December 1998 between Moscow and Perm, to the west, an area containing three million people. But the venture was dealt a fatal blow by the failure of its mission- critical satellite in April.
Qualcomm’s statement yesterday marks the second time in just over two weeks that the firm has been moved to issue public assurances that fourth-quarter earnings remain on target. The firm’s shares have been highly volatile in September, and plummeted in mid- month from a peak of $194.1 to around the $150 mark, before staging a recovery. The price closed at $189.19 yesterday – up 0.77%. á
