WITH A LARGELY CONFIDENTIAL SETTLEMENT signed, sealed and delivered by Nokia Corp. and Qualcomm Inc. last week, arguably the most significant stand-off in the wireless industry has been resolved.
But when two of the most influential competitors in the business snuggle up for a campfire sing-along – a scenario far from guaranteed, as further talks focus on future collaboration – other rivals have reason to take stock of the implications.
Has Nokia obtained the means to hedge its staggering market share, lead in the rapid expansion of the 3G market and profit even more handsomely than yesterday. (Hint: yes.)
Has Qualcomm strengthened its hand in IPR licensing, positioned itself even better for the future and possibly gained the largest chip customer on Earth? (Hint: Oh yeah.)
Crowing
First, both sides delivered signals to justify dealing with a former enemy and make moot the question of whether one party or the other blinked.
Nokia CEO Olli-Pekka Kallasvuo said, in part, that “this agreement is within Nokia’s original expectations and fully reflects our leading intellectual property and market positions.” (Read: Qualcomm cut its royalty rate, partly to account for Nokia’s emphasis on its own IPR holdings. Analysts guess-timated that Qualcomm may have reduced its royalty rate to less than 2%, from about 3% to 5%, previously.)
Qualcomm CEO Paul Jacobs said that “the terms … reflect our strong intellectual property position across many current and future-generation technologies.” (Read: Nokia will continue to pay royalties, and so will our other licensees. Qualcomm likely will continue to earn revenue streams from the current growth in 3G technologies and is poised to claim a share of IPR-licensing royalties in next-generation technologies such as LTE and WiMAX.)
Nokia CFO Rick Simonson, in an interview with RCR Wireless News, discounted the notion that the companies’ statements signaled vindication. Nokia’s statement required “all of five minutes” to draft, Simonson said.
Deal details
First, the public contours of the deal:
The agreement covers 15 years – a staggering length of time in an industry that morphs every year or two. And it covers a slew of technology standards, including GSM, EDGE, CDMA, W-CDMA, HSDPA, OFDM, WiMAX, LTE and “other” technologies. All pending litigation will be settled; though in what manner remains to be seen. Nokia will assign ownership of a number of patents to Qualcomm, including patents deemed essential to W-CDMA, GSM and OFDM. Nokia will make an upfront payment to Qualcomm to settle outstanding claims to unpaid royalties and will continue to pay royalties, albeit at a presumably lower rate.
Left confidential: the size of Nokia’s upfront payment, its new royalty rate and the two sides’ reference to “enhanced opportunities between the companies in a number of areas.” The latter should cause shivers in nearly every quarter of the industry. Asked about a possible Nokia push in the United States’ 60% CDMA market, for instance, Simonson said that the agreement “removed legal obstacles” but asked for patience as the two companies’ technology teams conferred.
Everyone’s a winner?
Although the legal issues at stake in last week’s canceled court case had not been heard, Simonson said that Nokia’s position on its own patent portfolio – and licensing practices – remained unchanged. That led analyst Mark McKechnie at American Technology Research to speculate that, having confirmed Qualcomm’s IPR-licensing model, Nokia might take a more aggressive stance in charging for its own IPR.
Wall Street reacted to the news by immediately boosting Qualcomm’s stock as much as 17% and Nokia’s by 4%.
Analysts’ reactions spelled out some of the industry-wide implications.
McKechnie called the agreement “a game changer.” (He estimated Nokia’s new royalty rate at 1.5%.)
“The 3G agreement is positive as it gets Qualcomm paid starting now and establishes Qualcomm as a ‘clean’ play,” McKechnie wrote in a note to investors today. “We view the 4G component as equally important, however, as it provides visibility of growth beyond 3G and into the 2020 timeframe.”
Analyst Ittai Kidron at Oppenheimer wrote that the agreement “sets a bar for the whole industry establishing Qualcomm as a company all must deal with to be a player in current 3G and future 4G technologies. … Qualcomm’s business model has been validated.”
“With Nokia recognizing Qualcomm’s IP position in 4G technologies,” Kidron added, “we believe no other OEM will be able to challenge Qualcomm’s position.”
