Bluesky re Nokia and Samsung royalty calculations
First I know what you meant to say, but I have to make one correction to your post to set the record straight. I said Nokia’s undiscounted royalty rate could be .5%, a half of 1%, but Not “0.05%”.
Second I still get significantly higher royalty amounts per handset than the flat amounts that you are getting. I would like to blend some of your numbers into some of my revised calculations. I guessed that Nokia’s CDMA handsets were less than 10% of their total, you stated it was 15%, so I will use that number. I estimated that Samsung’s TDMA-based sales were 50% of their total for 2002. You stated it was 40%, so I will use that number also.
Revised Nokia calculations as follows:
Nokia total handset sales in 2002 = 152m. Nokia’s average selling price per handset in 2002 = $163 per handset. Nokia’s estimated 2G/2.5G TDMA-based handset sales in 2002 = 129m (152m total x 85%). IDCC estimated royalty from Nokia ‘s 2002 sales = $100m to $120m per IDCC. Nokia should also pay some royalty to IDCC for 2G/2.5G infrastructure as Ericy is now required to do. Let’s assume that Nokia’s 2G infrastructure royalty is slightly less than Ericy’s 2G infrastructure amount of $6m per year. Let’s go with $5m per year for Nokia 2G infrastructure. Therefore let’s back out $5m for infrastructure from the $100m to $120m total royalty amounts to isolate on handset royalty.
Minimum Nokia calculation: $95m handset royalty divided by 129m TDMA-based handsets = 74 cents per handset divided by $163 average wholesale price = .45% indicated minimum royalty rate.
Maximum Nokia calculation: $115m handset royalty divided by 129m TDMA-based handsets = 89 cents per handset divided by $163 average wholesale price = .55% indicated maximum royalty rate.
The midpoint between minimum and maximum = 81.5 cents per handset and a .5% indicated royalty rate for Nokia on a prediscounted basis.
Samsung’s revised calculations as follows:
Samsung sold 42m total handsets in 2002. Samsung’s estimated TDMA-based sales = 17m (42m x 40%). Samsung’s estimated royalty for 2002 = $22m to 27m per IDCC. I do know that Nokia’s average wholesale price per handset was $163 for 2002, but I do not have any definite data on Samsung’s average price, although I have heard it was significantly above Nokia. Therefore, I will stay with my previous estimate of $200 per handset.
Minimum Samsung royalty: $22m divided by 17m estimated TDMA-based handsets = $1.29 per handset divided by $200 estimated average price = .65%.
Maximum Samsung royalty: $27m divided by 17m estimated TDMA-based handsets = $1.59 per handset divided by $200 estimated average price = .8%.
The midpoint between minimum and maximum = $1.44 per handset and a .72% indicated royalty rate for Samsung on a prediscounted basis.
The reason that Nokia’s indicated rate is lower than Samsung’s indicated royalty rate is probably due to additional volume discounts off a base MFL rate for Nokia IMO. A previous post of mine described graduated royalty rates based on volume. There could be a set MFL royalty base rate, which could then be reduced based on sales volume. Since Nokia is by far the largest handset manufacturer (more than 3 and a half times Samsung’s volume in 2002), it makes sense that Nokia should pay an overall lower royalty rate than anyone else.
Let me revise a previous graduated scale calculation as follows:
A graduated scale that would make sense to me might be as follows. Let's assume that IDCC's 2G royalty rate for any licensee with an MFL contract starts at 1% base MFL rate for the first 5 million of handset sales and decreases by .1% for each additional 5m handsets sales, until a .5% minimum floor is reached. Thus I could envision a sliding rate scale per year as follows:
First 5m handsets = 1.00%
Next 5m handsets= .90%
Next 5m handsets = .80%
Next 5m handsets = .70%
Next 5m handsets = .60%
Over 25m handsets = .50%
Nokia sold a total of 152m, and about 130m estimated TDMA-based 2G handsets at an average wholesale price of around $160 per handset. Using the above scale, Nokia's overall effective average royalty rate would be less than 1%. However, on the first 5m handsets Nokia would still pay 1%, the same as any other MFL licensees. In order for the other MFL licensees to get all of Nokia's lower graduated rates, then they would also have to achieve Nokia's handset volume.
Using the above hypothetical graduated scale and Nokia's 2002 estimated 130m TDMA-based handset sales and average sales price of $160, Nokia's indicated handset royalty for 2002 would be $116 million calculated as follows:
First 5m handsets = 1.00% x $160 = $1.60 per handset x 5m = $8.0m
Next 5m handsets= .9% x $160 = $1.44 per handset x 5m = $7.2m
Next 5m handsets = .8% x $160 = $1.28 per handset x 5m = $6.4m
Next 5m handsets = .7% x $160 = $1.12 per handset x 5m = $5.6m
Next 5m handsets = .6% x $160 = $.96 per handset x 5m = $4.8m
Over 25m handsets = .5% x $160 = $.80 per handset x 105m = $84.0m
Total indicated Nokia handset royalty = $116m for 130m estimated TDMA handsets in 2002. This is between IDCC’s estimated $100m to $120m range.
Samsung sold 42m handsets in 2002, and an estimated 17m TDMA-based handsets. Using the same hypothetical graduated scale per handset as above, Samsung’s indicated royalty for 2002 will be $24.4m calculated as follows:
First 5m handsets = $1.60 per handset x 5m = $8.0m
Next 5m handsets= $1.44 per handset x 5m = $7.2m
Next 5m handsets = $1.28 per handset x 5m = $6.4m
Next 5m handsets = $1.12 per handset x2m = $2.8m
Total indicated Samsung handset royalty = $24.4m for 17m estimated TDMA-based handsets in 2002. This is between IDCC’s estimated $22m to 27m range.
Of course, Non-MFL licensees will have to pay higher royalty rates than these.
AI
