Qualcomm Inc (QCOM)

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Samsung to produce Qualcomm phone chips
Deal to help S.D. firm increase its supplies
By Kathryn Balint
UNION-TRIBUNE STAFF WRITER
November 24, 2005

http://www.signonsandiego.com/news/business/20051124-9999-1b24chips.html

Qualcomm and Samsung, two giants in the wireless industry, are expanding their relationship with a deal in which the South Korean company will make cell phone chips under the Qualcomm brand.

The companies did not disclose the value of the deal or the number of chips to be manufactured.

Samsung, which makes both chips and cell phones, is one of Qualcomm's largest customers.

San Diego-based Qualcomm is a developer of wireless technology and a designer of semiconductors for cell phones. It contracts with other companies to produce chips under Qualcomm's name.

The deal between Qualcomm and Samsung is key to both companies.

It allows Samsung to diversify by contracting out its chip-making services. For Qualcomm, the agreement will help the company meet rising demand for chips in cell phones.

Analyst Michael Cohen of Pacific American Securities said the agreement may be a sign that Qualcomm is gearing up to sell more chips as the next generation of cellular networks are built.

Qualcomm's wireless technology, called code-division multiple access, or CDMA, is used by about one in five cell phones throughout the world. Eventually, virtually all cell phones will use Qualcomm's technology, either in the form of CDMA or what is known as wideband CDMA. Qualcomm sells chips that run cell phones and collects royalties on the sale of phones using its technology.

"Our foundry agreement with Samsung will provide an additional source of supply and assist us in our strategy aimed to ensure capacity to support existing and anticipated business growth in both CDMA and WCDMA markets," Sanjay K. Jha, president of Qualcomm's chip division, said in a statement.

Oh-Hyun Kwon, president of Samsung's logic technologies business, called the agreement "the next logical step in a long-standing relationship."

The Samsung deal "is more confirmation that the global ramp to wideband CDMA is truly happening," said Cohen, the analyst. "Only when the rest of the cellular networks go to wideband CDMA do they have to pay royalties to Qualcomm. That's the other 80 percent of the market."

Samsung has threatened over the years to begin manufacturing its own cell phone chips, Cohen said. Analysts said the agreement between the two companies lessens that threat.

"I think strengthening the partnership lessens the potential for competitive tension," Cohen said.

The Samsung deal, announced late Tuesday, comes at a time when Qualcomm is under fire for its licensing agreements.

Last month, six major wireless companies complained to the European Commission about what they described as Qualcomm's "anti-competitive conduct."

Broadcom Corp., Ericsson, NEC, Nokia, Panasonic Mobile Communications and Texas Instruments filed complaints that accused Qualcomm of overcharging for its technology and stifling competitors.

Qualcomm has said the allegations are "factually inaccurate and legally meritless."

Analyst Albert Lin of American Technology Research said the Samsung deal provides Qualcomm with an ally.

"With six large companies pressuring the European Commission to investigate claims of unfair business practices, Qualcomm can count on the support of Samsung," Lin said in a research note.



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Kathryn Balint: [phone]; [e-mail]