KumaarShah 143 Report post Posted October 11, 2007 Qualcomm Investors Brace for Price Drop in Nokia Patent Fight By Ian King and Amy Thomson Oct. 11 (Bloomberg) -- Qualcomm Inc. earned more than $11 billion in royalties from its cell-phone technologies this decade. Just as the company bet those payments would accelerate, some of its customers are starting to balk. Nokia Oyj, the largest mobile-phone maker, is seeking to persuade a U.S. trade judge that its mobile phones don't use some of Qualcomm's patents. An initial decision is due next month. A loss could force Qualcomm to cut its fees, at a time when its chip designs are taking over the industry. At stake is a patent-licensing business that provided 76 percent of operating profit last year. Qualcomm may have to make concessions, said patent lawyer David Airan of Leydig, Voit & Mayer in Chicago. That could prompt other handset makers to demand price cuts, eroding San Diego-based Qualcomm's position in the $39 billion market for mobile-phone chips. ``Qualcomm will not be able to take its royalty model further, that's absolutely clear,'' said Dresdner Bank AG analyst Per Lindberg in London, who rates the shares ``sell'' and expects them to fall as much as 41 percent to $25. ``This saga will become more and more embarrassing for Qualcomm.'' Qualcomm, the second-largest maker of cell-phone chips behind Texas Instruments Inc., commands a high share price because of its success at charging others to use its technology. The company has a market value equal to 8.2 times trailing 12-month sales, more than twice the average of companies in the Philadelphia Semiconductor Index, reflecting the high percentage of Qualcomm sales that turn into profit. The shares fell 35 cents to $42.30 yesterday in Nasdaq Stock Market trading. Royalty Risk Qualcomm's price-to-earnings ratio fell to 21 in mid- August, the lowest ever, on concern royalty rates would come down. RCM Capital Management sold some of its Qualcomm holdings in June, said Walter Price, who helps oversee $120 billion in San Francisco. ``Any risk to that royalty stream has implications about the valuation.'' U.S. International Trade Commission Judge Paul Luckern will decide Nov. 13 whether three Qualcomm patents on its Code Division Multiple Access mobile-phone technology are valid and apply to Nokia's new phones using Wideband-CDMA, a derivative of CDMA that is taking hold globally for phones that offer high- speed Internet access. ``There is a race to get the first ruling in your favor,'' said attorney Lyle Vander Schaaf at Bryan Cave LLP in Washington. ``Those decisions have significance outside the U.S. market.'' New Standards CDMA is used on Sprint Nextel Corp. and Verizon Wireless networks in the U.S. and in 18 percent of handsets shipped globally, said analyst Will Strauss at Forward Concepts Inc. in Tempe, Arizona. He estimates WCDMA shipments will grow 60 percent to 150 million this year. The fees Qualcomm gets on WCDMA phones are about 4.4 percent of sales, similar to the company's CDMA fees, Stifel Nicolaus analyst Cody Acree said. Qualcomm began licensing its patents in the 1990s, spokesman Bill Davidson said. ``Competitors, which haven't been able to beat us in the Marketplace, have decided they are going to try the court system and trying to appeal to government regulators,'' Chief Executive Officer Paul Jacobs, the son of founder Irwin, said in an interview. ``The legal battles are going to go on for a while.'' Court `Impetus' Because of the dispute, Qualcomm won't recognize royalty revenue from Nokia in the fourth quarter ended Sept. 30, costing 5 cents a share in profit. Jacobs, 44, said discussions haven't yielded progress and an outside force may be needed to forge a solution. ``Maybe this will be an impetus,'' Jacobs said of Luckern's decision. ``We have some flexibility, but we're not going to give up what we've worked so hard to achieve.'' Nokia spokeswoman Laurie Armstrong said the company, based in Espoo, Finland, is committed to negotiations. ``When it comes down to the facts, we are confident in our position.'' A settlement that reduces Qualcomm's royalty fees could lead other licensees, including Samsung Electronics Co., to ask for concessions. ``I don't really understand how Qualcomm can work out a deal without compromising their deals with other customers,'' said Bill Gorman, an analyst at PNC Institutional Investments in Philadelphia, which owns Qualcomm shares. The shares' volatility, based on a 100-day average of daily price changes, has risen 24 percent since Aug. 3 compared with 10 percent for the Philadelphia Semiconductor Index. Other Cases Qualcomm lost rulings in a separate patent dispute with Broadcom Corp., temporarily averted a ban on imports of phones using its chips into the U.S. and faces an antitrust investigation in Europe. ``If they were coming off a string of wins against Broadcom, they'd be a lot bolder in negotiations'' with Nokia, said lawyer Airan. Jacobs shored up his legal team last month, hiring Donald Rosenberg as general counsel from Apple Inc. Qualcomm ``didn't have the process in place for this sort of large-scale multicompany attack,'' Jacobs said. The shares would be worth almost $54 if the disputes didn't exist, said James Faucette, an analyst at Portland, Oregon-based Pacific Crest Securities who has an ``outperform'' rating on the stock. ``It'll pop'' with a favorable ruling from Luckern, said Daniel Morgan, who helps oversee $5.4 billion including Qualcomm stock at Synovus Securities Inc. in Atlanta. To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net ; Amy Thomson in New York at athomson6@bloomberg.net Link: http://www.bloomberg.com/apps/news?pid=206...&refer=home So will this make Nokia and others to come back into CDMA? Lets wait and watch. Share this post Link to post Share on other sites
amtrag 20 Report post Posted October 11, 2007 I don't feel Nokia would come back into CDMA becoz this patent fight involves WCDMA and not CDMA. And WCDMA technology is used for GSM. Share this post Link to post Share on other sites
