With Samsung deal, Qualcomm doubles down on licensing practices

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Qualcomm Inc on Wednesday aimed to show shareholders that its licensing practices still have a future after having come under scrutiny from antitrust regulators around the world as well as from major customer Apple Inc.

The disputes over the practices have even weakened Qualcomm’s financials enough to make it the target of a 103-billion-US-dollar hostile takeover bid from Broadcom Ltd.

Qualcomm, the world’s biggest supplier of mobile phone chips, said it has amended its patent licensing Samsung Electronics Co Ltd, the world’s No.1 mobile handset maker. The news came just before Qualcomm released its fiscal first-quarter earnings, which were weighed down by its wide-ranging legal dispute with Apple and a weak sales outlook for smartphones sales in China.

Samsung and Qualcomm said they would expand their efforts to collaborate around 5G, the next generation of mobile data networks. As part of the agreement, Qualcomm said Samsung would also withdraw its interventions in Qualcomm’s appeal of a Korean Fair Trade decision in the Seoul High Court.

The deal to end hostilities stands out because Qualcomm’s at times contentious dealings with its customers have become a focal point in Broadcom’s takeover effort. Broadcom’s leaders argue they can boost Qualcomm’s value by taking over the San Diego-based company and resolving some of its disputes with customers.

Samsung and Qualcomm said they would expand their efforts to collaborate around 5G, the next generation of mobile data networks. /Reuters Photo

Terms of the Samsung deal are also important. Qualcomm has two business lines, one that sells chips and another that charges licensing fees to handset makers like Apple and Samsung based on a cut of the selling price of their phones.

The device licensing has been the focus of many of Qualcomm’s regulatory and customer disputes, with Apple calling it an unjust “tax.” Broadcom’s leaders have hinted they might modify it.

On Qualcomm’s earnings call, Alex Rogers, head of the company’s licensing division, told investors Samsung would still pay royalties on handset sales, rather than combining the royalty agreement with its chip purchases.

A Qualcomm spokesman declined to elaborate on the specifics of the Samsung deal, an amendment to a 2009 agreement under which Samsung paid 1.3 billion US dollars upfront and then an ongoing rate that many analysts believed was different – and possibly lower – than what other device makers paid.

But in getting Samsung to drop its regulatory action and come back to the negotiating table, Qualcomm is hoping to show it can patch things up with customers without Broadcom’s help.

“We remain open to finding a path to resolution and back to collaboration with Apple,” Chief Executive Officer Steve Mollenkopf said on the investor call.

Source(s): Reuters