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Tuesday, July 24, 2007

Is Qualcomm smarter than we think?

Verizon (VZ) has made a deal directly with Broadcom (BRCM) to pay royalties of $6 per phone in order to bypass the import ban on phones containing Qualcomm (QCOM) chips that infringe on Broadcom patents.

There is speculation that other carriers may be negotiating with Broadcom, as well, in order to avoid disruption of their supply chains.

If the carriers make their own deals with Broadcom, Qualcomm can continue to hang tough and pay nothing while continuing to sell their chips to the handset makers.

Making this an even smarter play on the part of Qualcomm, is the fact that Broadcom set limits on the agreement with Verizon. Payments would be capped at $40 million per year and $200 million over the lifetime of the patents involved. No limits were offered to Qualcomm, who could have needed to make royalty payments greatly in excess of $200 million.

This is unprecedented behavior. It is very unusual for retailers (the wireless carriers selling the handsets) to pay what are essentially patent royalties to a component provider. These disagreements are usually settled between the opposing component makers themselves. In this case, even the immediate users of the components (handset manufacturers) were completely bypassed as the solution escalated from the component makers to the carriers.

So here we have a situation where those at the end of the supply chain end up paying royalties for those at the beginning of the supply chain. Sweet deal for Qualcomm, if they can get away with it.

2 comments:

Texrat said...

Maybe I missed something. Just how is QCOM going to benefit? You say they'll sell their chips anyway without paying anything, but aren't these the same chips infringing on Broadcom's patents, that can't be sold in the US?

Looks more like a win for Broadcom, as advertised. I'd love to see an explanation of your rationale, though, in case I'm just not getting it.

TradeRadarOperator said...

Qualcomm refuses to pay Broadcom but Verizon goes ahead and pays up so it can import the phones and avoid the ban. Guess I didn't make that clear.

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