Over the past few articles, I have taken a look at QualComm’s potential revenue flow over the next few years if it got its way. Before I proceed to look at the effect of the lawsuits and the industry consolidation on the company’s revenues and long term interests, I wish to diverge and look at the company’s recent bickerings with Nokia (NOK).
Let me begin by re-iterating the unstated fact, ratified by my previous analysis: It is all about who gets those percentage margins per phone sold. Nokia, with close to 40% of the market share, has been a prominent QualComm licensee in the past. With the migration to WCDMA/HSDPA picking steam, the Finland company will pay royalties to QCOM on most phones it sells in the near future.
The center of all the lawsuits between QCOM and Nokia is the cross-licensing agreement that expired this summer. The parties were in discussion to renew the cross-licenses that span CDMA, GSM and now UMTS (WCDMA/HSDPA). Nokia made a strategic move to walk away from CDMA. There are atleast 3 reasons that came out during my exchange with industry veterans and confirmed by the analysis so far –
The move away from CDMA2000 is only one sign that all is not well with this almost imperative industry relationship. With the license extension discussions moving to a deadlock, the two companies have engaged in lawsuits and counter-lawsuits since 2005 with no end at sight. These lawsuits span 3G and QualComm’s essential IP in GSM/EDGE (Yes, GSM!). For a concise history of the lawsuits, please refer to this zdnet article. It appears that QCOM allowed Nokia to use its GSM patents until now in return for CDMA royalties. With the discussions falling apart, QCOM has been filing for infringement in GSM so it can impact Nokia’s immediate productization thereby forcing an early resolution in its favor. Nokia, on its part, has been seeking ‘fairer’ terms of licensing. For now, the posturing has taken a formal structure with the lawsuits and the outcome of the EC antitrust probe will be quite decisive for the industry with the 3GPP community centered in Europe.
While I am not willing to take sides, I definitely think that Nokia has made calculated efforts to lower QCOM’s patent play led by its CDMA2000 pull-out. What gives the handset vendor more leverage and support is the pervasiveness and competition in the UMTS/GSM standard. So, I will keep a close watch on the EC case. Its outcome and QCOM’s strategic options at that stage will be crucial to its future.
This segment is a part in the series : QualComm