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3G iPhone and Qualcomm

Posted on Sunday, May 4th 2008

By Vijay Nagarajan, Guest Author

The 3G iPhone rumors are getting more frequent by the day. We all know it will hit the market. It is just a question of when. I have, in the past, looked at the likely component vendors for the impending iPhone including Infineon and InterDigital. As requested by one of our readers, we take a look at a company which will gain from the 3G iPhone, even without a single component inside it – Qualcomm.

With a substantial portion of the 3G intellectual property (IP), Qualcomm stands to make royalty money from every CDMA-based phone sold around the world. Three out of four phones in the 2010-2011 timeframe are expected to be CDMA-based. Quite obviously, this includes the impending 3G iPhone.

If a 3G iPhone is available in the next couple of months, I estimate about 2.5 million units will be sold. This number is expected to climb to about 17.5 million units in 2010. With a conservative selling price of $350 and a royalty percentage of 5%, Qualcomm stands to make close to $44 million this year and as high as $300 million in 2010 just on iPhone sales.

Both Apple and Infineon (whose chipset, I am betting, is central to the 3G) will certainly be aware of this situation. Infineon purchased Agere’s mobility products business from LSI last year. This acquisition, as Will Strauss of Forward Concepts points out, brings with it a huge body of patents (including 3G) from Agere’s Bell labs legacy. Besides, Infineon has a strong ally in InterDigital, the IP powerhouse which supplies the 3G stack for Infineon chipsets. Apple also signed licensing agreements with InterDigital last year for 2G and 3G iPhones.

While it appears that the iPhone camp has a good IP position, it does not obviate the need for a Qualcomm license. The combined patent portfolio of Infineon and InterDigital will help bring down the net money flowing into Qualcomm’s coffers. However, it is unlikely that this number will become public knowledge. We will also not know what percentage distribution of this fee as paid by Apple or Infineon.

This brings us to an interesting question that our reader asks – “Is there an upcoming legal battle coming? Interesting since recently qcom and apple switched top lawyers.” It is true that Apple lost its general counsel Donald Rosenberg to Qualcomm last September. But I will desist from drawing connections to a potential legal battle. A legal bickering between the two technology heavyweights just because it is a lose-lose situation. Qualcomm, while vigorously defending its IP, would prefer to be in the good books of Apple hoping for a future design win into the iPhone or other convergence devices. With Nokia’s 40% market share seemingly out of its reach in the short-term, Qualcomm will attempt to grow its market share with new vendors, Apple being a prime candidate. I am sure that Apple, a stickler for performance and technology leadership, will also understand that Qualcomm can be an important partner in the longer term. So, the most likely scenario is a low profile licensing agreement between the two.

In summary, Qualcomm stands to gain from the 3G iPhone irrespective of whose chipset is being used. I highly doubt a legal showdown, least of all based on the general counsel’s move. As for the exact licensing terms, we will never know. This secrecy not only adds to the enigma of Apple’s product strategy and margins but is also crucial to the success of Qualcomm’s business model.

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[…] will be paying Qualcomm royalties for using its patented WCDMA technology used in 3G chips. Apple is paying out $50 in royalties per unit of the iPhone to InterDigital, Qualcomm, and […]

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