Qualcomm Inc (QCOM)

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Nokia, Qualcomm Make Nice

By Scott Moritz
Senior Writer
4/20/2006 1:35 PM EDT

http://www.thestreet.com/_googlen/tech/telecom/10280489_2.html

Nokia (NOK:NYSE ADR - commentary - research - Cramer's Take) shares hit a two-year high after the company posted strong numbers and executives expressed more confidence in the power of its technology patents.

The No. 1 cell-phone maker nailed its first-quarter performance thanks to the rapidly spreading popularity of wireless service in developing countries, along with growing demand for 3G handsets.

Investors also cheered the sudden sign of gentleness among wireless giants, as Nokia and Qualcomm (QCOM:Nasdaq - commentary - research - Cramer's Take) jointly agreed on a statement that they were in discussions to renew a licensing deal set to expire in a year.

The rare glimmer of a truce in an increasingly heated wireless patent battle helped send Nokia shares up 4% Thursday.

The softened-stance revelation came in Qualcomm's quarterly filing Wednesday, relieving some concerns that the ongoing legal standoff over patents and royalties could trip up profits for the San Diego wireless standard bearer.

"I think people that missed Qualcomm rise on the long side are now trying to spin this as a negative," says one hedge fund manager, referring to the overheated concerns about near-term patent licensing deals.

"The expectation is that neither side wants to mess up the other," says the investor. "The real issue seems to be the duration of the new contract."

Nokia and Qualcomm are likely to be inclined to strike a deal well before deadline to avoid any financial disruption, say analysts and investors.

A one-year to three-year renewal would be suitable for Nokia, allowing the Finnish phone titan to pursue its longer-term legal challenge to Qualcomm's licensing fees, says JPMorgan Chase analyst Ehud Gelblum in a research note Thursday.

In October, Nokia along with Broadcom (BRCM:Nasdaq - commentary - research - Cramer's Take), Texas Instruments (TXN:NYSE - commentary - research - Cramer's Take), Ericsson (ERICY:Nasdaq ADDR - commentary - research - Cramer's Take), NEC and Panasonic filed a complaint asking the European Commission arguing that Qualcomm's pricey licensing fees were driving up phone costs.

Qualcomm says it is preparing a response to the charge.

Meanwhile, Nokia CEO Jorma Ollila told analysts on a conference call Thursday that the company has been a "net payer" overall in its various licensing agreements. But Ollila, who leaves Nokia in June to take the top job at Royal Dutch Shell (RDSA:NYSE ADR - commentary - research - Cramer's Take), says the patent power has shifted in Nokia's favor.

"We believe our negotiation position will be stronger than it has been in the past," Ollila said. "In WCDMA, our investments have been very significant and put us in a pretty nice position."

Ollila says Nokia is seeking a "constructive approach" to licensing agreements that can help cut his company's operating costs and foster wireless innovation.

The peacemaking propaganda sounded good to investors anyway. Nokia shares were up 90 cents to $22.64 in midday trading Thursday.