Qualcomm Inc (QCOM)

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Qualcomm mobile royalty row hots up

Royalty payments will stop, Korean minister says

Simon Burns in Taipei, vnunet.com 26 Jun 2006

http://www.whatpc.co.uk/vnunet/news/2159118/minister-joins-qualcomm-battle

Leading mobile phone makers Samsung and LG can soon stop paying some royalties to US chip developer Qualcomm, Korea's communications minister told a local newspaper today. However, Qualcomm has denied similar claims twice before.

"As far as we know, the royalty deals between Qualcomm and our main mobile phone producers come to an end this August for CDMA cellphones shipped to the local market," Korea's Information and Communication Minister, Rho Jun-hyong, told the Korea Times.

Earlier this month, Qualcomm categorically denied similar claims in a statement to vnunet.com.

Reports that Korean mobile phone makers' royalty payments to Qualcomm will cease in August 2006 for domestic sales, and in 2008 for international sales, are not correct, according to Christine Trimble, Qualcomm's senior director of corporate communications.

"The royalty obligations that Korean manufacturers have with Qualcomm will continue beyond such dates (for both domestic Korean sales and exports), and there is no date on which a licence under all of Qualcomm's patents becomes royalty free," she said.

Contrary to the Korea Times report, vnunet.com has learned that the royalties Qualcomm collects in Korea could actually increase significantly in August because the company will no longer need to pay 20 per cent of them to a government research institute.

Qualcomm has not confirmed this, but earlier financial filings and statements suggest that the company could generate as much as an additional $300m this fiscal year from the end of royalty-sharing agreements.

Today's article in the Korea Times is the latest in a series of at least four similar stories over the past seven months. Each of the reports has claimed that the Qualcomm royalties will end.

As evidence, the stories cite information from a confidential licence agreement between Qualcomm and Samsung, and statements from a variety of increasingly senior Korean telecoms officials.

The article published today gives no indication that the newspaper or the minister are aware of Qualcomm's earlier denials, despite the widespread attention that they have received.

Trimble told vnunet.com earlier this month that the contract which the newspaper claims to have seen is out of date and has since been "amended and extended".

She said that earlier supporting statements from a government official were apparently the result of confusion. Qualcomm has not yet commented on the communications minister's statement to the newspaper today.

The issue is significant because the size of the claimed royalties is likely to have a noticeable impact on mobile phone prices, and on the financial well-being of Qualcomm and the manufacturers.

Today's report puts the royalty at more than five per cent of the selling price of the mobile handsets. In fiscal 2005 about $2.1bn, or 37 per cent, of Qualcomm's $5.6bn revenue was earned in South Korea, according to the company's financial filings.