Qualcomm Inc (QCOM)

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Analyst: Qualcomm Will Make Up With Nokia
Posted date: 11/9/2006

http://www.sdbj.com/industry_article.asp?aID=1918457.5087702.1390701.6237561.8085225.102&aID2=10....

Qualcomm Inc. and Nokia Corp.’s licensing squabbles will be resolved, although not necessarily amicably. That’s according to Los Angeles-based analyst John Bucher with BMO Capital Markets.

In an analysis of Qualcomm’s performance and future expectations dated Nov. 3, Bucher said that while “posturing and drama” surround the pending expiration of licensing agreements between the companies, a positive resolution is expected.

“I’m not saying they’re going to reach an agreement by April,” said Bucher, referring to the April 9 expiration date of the companies’ licensing agreements. “In the end, though, I don’t believe that Qualcomm will lose any licensing revenue from Nokia.”

According to the report, in 1992 and 2001, Nokia entered into agreements for the use of Qualcomm’s proprietary Code Division Multiple Access and Wideband Code Division Multiple Access technologies.

In a Qualcomm earnings release dated Nov. 2, a footnote included on 2007 pro-forma earnings estimates stated that earnings per diluted share could be affected by 4 to 6 cents, if Nokia doesn’t renew the agreements to continue using Qualcomm’s intellectual property.

The report, co-written by Bucher and BMO analyst Jung Pak, states, “Qualcomm is not optimistic that an extension or new agreement will be entered into with Nokia prior to April 2007.”

The result of failed negotiations would be that Nokia could not lawfully use Qualcomm’s intellectual property pertaining to Code Division Multiple Access, or CDMA, technology — the dominant standard for cellular telephony in the United States. Similarly, Qualcomm will lose rights to sell integrated circuits that use Nokia’s patents.

Despite Qualcomm’s dour outlook of meeting an April deadline, the report foresees a resolution occurring within 12 months.

Citing Qualcomm’s strong position in cellular, mobile CDMA wireless communications, Bucher and Pak expect that, once settled, Nokia’s royalty payments will be at or near Qualcomm’s current rate, but will be offset slightly by an increase in fees Qualcomm pays for use of Nokia’s intellectual property.

“Nokia might not like the rate they have to pay, but 135 companies have licensing agreements with Qualcomm,” said Bucher. “They’ve agreed on the royalty rate after numerous independent negotiations.

“The problem Nokia faces is trying to convince somebody why it’s an unfair rate when all these other parties have agreed to it.”

Bucher disclosed that he and his family have a beneficial ownership in a trust that holds shares of Qualcomm as well as Flarion Technologies, a company Qualcomm bought in January.

— Andy Killion