Tuesday, February 17, 2015 6:58:54 PM
Eric Lin, DIGITIMES Research, Taipei [Tuesday 17 February 2015]
China's anti-trust investigation of Qualcomm has come to an end with the US chip vendor making concessions in order control damage to its operations in the country. The fine for the company and its agreement to adjust licensing fees are expected to only have a limited impact on Qualcomm's revenues and gross margins. However, the cancellation of Qualcomm's patent cross-licensing agreements will come as an advantage for China vendors looking to expand the licensing businesses of their own.
Qualcomm previously demanded its clients sign an "umbrella" cross-licensing agreements that cover all of its clients. It was meant to protect small vendors from being sued by bigger ones over alleged patent infringement.
The outcome of the antitrust probe means Qualcomm will be able to protect its share of the China market, which accounts for half of its revenues. Qualcomm can expect stable operations in China and strengthen its deployment of its own patents.
But the setback in terms of the cross-licensing has cast doubt over the company's ability to continue such a practice elsewhere. In fact, South Korea has already ruled that Qualcomm will need to cut its licensing fees for Korea-based vendors to a level similar to that in China.
Qualcomm will still be able to charge its clients licensing fees based on a percentage of the prices of their mobile devices, but the fees will be 35% lower than their previous levels, while the fees for 3G/4G hybrid and 4G standalone solutions will be separately calculated.
Qualcomm is also expected to charge a fee for 3-mode LTE solutions, but will not be able to force its clients to sign a crossing licensing agreement. Such a move is expected to benefit vendors such as ZTE and Huawei who have large numbers of patents. Vendors who do not have too many patents, despite the benefit of reduced licensing fees charged by Qualcomm, may still need to spend big sums paying for the patents they license from other China vendors.
Such a development may undermine Qualcomm's business. Without the protection from the cross-licensing agreement, device vendors may no longer see it necessary to choose Qualcomm solutions.
To minimize the impact, Qualcomm has already worked out some other forms of protection to help clients avoid the threat of patent disputes. But China-based vendors may need to pay extra for the continuous protection. But such protection may not come cheap.
On the other hand, both Huawei and ZTE are planning to release in-house developed solutions to replace those from Qualcomm. According to Digitimes Research's figures, annual shipments of Huawei's smartphones running on the vendor's own solutions amounted to almost 20 million units in 2014. This shows Huawei's reliability on Qualcomm has been dropping.
For Qualcomm, it faces the possibility of more antitrust probes in other countries. And it is imperative for the chip vendor to maintain the competitiveness of its products.
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