Opinion: Apple loses in Qualcomm-Samsung license agreement
Lost in the shuffle of earnings releases last week was an important announcement 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 from Broadcom AVGO, +3.01% Qualcomm QCOM, +3.22% continues to look for ways to show its value and potential for growth to shareholders. The battle with Apple AAPL, +2.19% 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 SSNLF, -3.07% 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 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, and the owner of PC Perspective. Follow him on Twitter @ryanshrout.
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