Qualcomm eases licensing terms, to unclog inflow of revenues

Through this strategic move Qualcomm is aiming to avoid potental future legal disputes and maintain its existing business structure.

In a development that underscores how far Qualcomm Inc is willing to go to preserve its core business practice of making a cut through phone sellers, during its earnings call, the San Diego-based chipmaker’s quarterly report suggested that it was not as severely affected by the global slowdown in the smartphone business as was previously feared.

Weak forecasts from industry suppliers had earlier given grounds to these feats. However, investors and analysts were pleasantly surprised by Qualcomm’s move to accept lower revenues in return for maintaining its existing business structure and avoid future disputes from customers.

One stream of Qualcomm’s revenues comes from licensing a trove of patents that essentially make smartphones work; this has been its traditional core profit base. In the last one year, this business has seen a sharp drop in revenues which can be attributed to its legal dispute with Apple Inc.

The backdrop in which Qualcomm adopted this new strategy is the fact that its licensing revenue, calculated as a percentage of the selling price of a smartphone with its device-level licensing model, is the center of regulatory disputes in the United States, South Korea and China.

As part of its new strategy, Qualcomm stated it would cap the price of the phone, the basis of the revenue calculation, at $400 irrespective of the phone’s selling price.

In November, Qualcomm also took a decision to license some patents required for connecting to the upcoming 5G networks, at 3.25%.

The net effect of its decisions amount to Qualcomm sticking to its device-level licensing model while accepting less revenues through its licensing business, said Kinngai Chan, an analyst at Summit Insights Group.

“It’s cheaper for most people,” said Chan. “What Qualcomm is trying to do is … get everyone to sign a licensing agreement with them so they don’t have to worry too much.”

“We’re not getting paid less for it,” said Qualcomm’s licensing chief Alex Rogers. “I think the best way to think about this is building a foundation for long-term stability” for Qualcomm’s licensing business.

Qualcomm’s recent deal with Samsung Electronics Co Ltd also reiterates this trend of not rocking the boat: Qualcomm has amended its 2009 agreement with Samsung with a new licensing rate to settle a regulatory dispute in Korea.

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