MW Apple loses in Qualcomm-Samsung license agreement
Feb 06, 2018 13:32:00 (ET) By Ryan Shrout
Samsung and Qualcomm amend and extend their cross-licensing deal, possibly laying to rest a legal dispute between Qualcomm and Apple Lost in the shuffle of earnings releases last week was an important announcement (https://www.qualcomm.com/news/releases/2018/01/31/qualcomm-and-samsung-amend-long-term-cross-license-agreement) between Samsung and Qualcomm. Qualcomm thinks it will be a help in its legal battle with Apple and other vendors over licensing disputes. Qualcomm believes the extension of its licensing agreement with Samsung will enable it to lay to rest the combative legal dispute with the iPhone maker and bring along with it a boost in revenue through back-pay and future royalties. With news leaking over the weekend of an upgraded buyout offer (https://www.reuters.com/article/us-qualcomm-m-a-broadcom-exclusive/exclusive-broadcom-to-raise-qualcomm-bid-in-push-for-talks-sources-say-idUSKBN1FO0SG) from Broadcom (AVGO), Qualcomm (QCOM) continues to look for ways to show its value and potential for growth to shareholders. The battle with Apple (AAPL), along with the pending legal concerns in various regions, is one angle the market is watching to measure Qualcomm's long-term value. In the announcement last week, Samsung and Qualcomm agreed to amend and extend their cross-licensing agreement that allows the companies to use each other's technologies in product development. Most importantly, the Samsung agreement is part of a device-level license, meaning Qualcomm will earn a fixed amount for every smartphone Samsung ships. As Samsung is the world's largest provider of phones in the world, this is a significant win for Qualcomm. But the underlying implication of this agreement should have an impact on the ongoing legal battles between Qualcomm and Apple surrounding these very same licensing methods. The crux of Apple's dispute is that per-device licensing fees are fundamentally disadvantageous to everyone in the market, except for Qualcomm. Apple is fighting to tear up the current agreements that Qualcomm has with its vendors (which Apple is using to build its phones and avoid a direct agreement with Qualcomm) and force a per-segment or per-family licensing fee that it believes is fairer and, obviously, much less expensive. The renewed agreement with Samsung is a sign that the largest mobile-technology providers in the marketplace do not view the business practices of Qualcomm as overly aggressive or unreasonable. If Samsung finds it fair and necessary to engage with Qualcomm to license the company's patent portfolio, all while maintaining record revenue growth, there is little reason that Apple cannot, and will not, have to do the same. This marks another data point, and a big one, for Qualcomm in the ongoing legal fight. Also important is that Samsung has agreed to step away from its involvement in the Korean Fair Trade Commission investigation (and current appeal) into Qualcomm's licensing practices and business models. Considering Samsung was the instigator of the inquiry by the KFTC, this provides a higher likelihood of the appeal from the San Diego-based company being approved. In a year that has seen several legal setbacks fall upon Qualcomm, the removal of the KFTC complaint would be welcome news. Though details were sparse in the agreement announcement, the easy assumption is that Qualcomm offered Samsung an advantageous agreement in order to help clear the battle with the KFTC and use in the battle with Apple. Third Generation Partnership Project (3GPP) regulations do specify that licensors must offer equal terms for all partners, regardless of size and situation. But nothing precludes Qualcomm from providing additional resources (engineering help), access to additional intellectual property (IP) that would otherwise not be available, etc. A second announcement between Qualcomm and Samsung (https://www.qualcomm.com/news/releases/2018/01/31/qualcomm-and-samsung-announce-expanded-strategic-relationship) on the same day, also overlooked amid the mass discussion over financials, mentions an expansion of the "strategic relationship" between the Korean technology company and Qualcomm's product division. Details are again limited, but it includes wording that can give us clues. Qualcomm President Cristiano Amon says the new agreement will be "driving core mobile technology into many different segments." This might include the use of Snapdragon processors in more of Samsung's smartphones, a new family of Samsung Windows 10 PCs using Snapdragon hardware, or even something surrounding process technology and foundry agreements. Ryan Shrout is the founder and lead analyst at Shrout Research (https://www.shroutresearch.com/), and the owner of PC Perspective (http://pcper.com/). Follow him on Twitter @ryanshrout (https://twitter.com/ryanshrout). -Ryan Shrout; 415-439-6400; AskNewswires@dowjones.com
The largest tech acquisition offer in history wasn't enough.
Qualcomm's board of directors issued a statement on Thursday saying that they are turning down Broadcom's $121 billion bid to buy the competing chipmaker.
According to the release, Qualcomm "unanimously rejected" an "unsolicited proposal" to buy all of its shares at $82 each, of which $60 would be cash and $22 stock. Broadcom made the revised offer on Monday, up from the previously proposed deal price of $70 per share.
Qualcomm says that it is still undervalued at $121 billion. The board wrote a letter to Broadcom, stating it is worth more, specifically because "your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G. Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector."
In other words, Qualcomm thinks it can eventually be worth more on the stock market than $121 billion. Boards of public companies have a fiduciary duty to consider shareholders, so Qualcomm needed to justify why it was turning this down.
This is partly because it doesn't think Broadcom is appreciating the value gathered from Qualcomm's recent acquisition of NXP Semiconductor. It also believes that Broadcom is underestimating Qualcomm's ability to excel at making 5G wireless technology, which it hopes will be instrumental to IoT, short for "Internet of Things." This could help connect internet in cars, homes and wearable devices.
It presently has a market cap of $92 billion, despite months of deal talks. This implies that the stock market doesn't think it will end up selling for its desired price in the near future.
Qualcomm shareholders will be voting on March 6th whether to replace its board with Broadcom's nominees.
Even if Qualcomm were to approve the deal, it's also not clear if it will actually go through. Regulators may decide that it would have too much power over the smartphone chip market.
Qualcomm already works on both Apple and Samsung phones. It also works with a handful of Chinese competitors. This was the basis for a recent lawsuit.
Qualcomm's shares recently fell on reports that Apple could start working with Intel instead. Intel's stock has not traded up this week, however.
The EU recently fined Qualcomm $1.2 billion because of an exclusivity deal with Apple that it felt was unfair.
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