They’re talking, again. Business as usual. Optimism, according to the two parties, should replace the suddenly cloudy horizon. Never mind the thunderbolts that Qualcomm Inc. hurled at Nokia Corp. during the chipset vendor’s investor day earlier this month in New York over negotiations to renew a mutual licensing agreement, due to expire in a year.
But make no mistake: Qualcomm has sent a clear signal to Nokia-and, not incidentally, to other parties who’ve complained or sued over the chipset vendor’s royalty rates-that it will not back down on its standard rates for its CDMA- and W-CDMA-related licenses.
The manner in which both parties publicly established their positions also appeared to reflect their respective corporate cultures-Qualcomm brash and outspoken, Nokia restrained and understated-that have probably played a role in their prickly relationship. The current dust-up comes on the heels of a number of lawsuits in U.S. courts and complaints to the European Commission by or against Qualcomm and its IPR licensing practices, notably involving Nokia as a plaintiff.
Having established its position in no uncertain terms and, not incidentally, rattled investors and analysts concerned about a possible standoff between the world’s largest handset maker and the architect and leading vendor of CDMA-related intellectual property, Qualcomm late last week put a freshly diplomatic spin on the matter.
“We are in discussions and have plenty of time to come to agreement and we are optimistic that we will,” wrote Jeremy James, Qualcomm’s director of corporate communications, in an e-mail response declining a request for an interview on the subject. “We would not characterize [the situation] as an `impasse.’ “
In its earnings report issued in late April, the chipset vendor had noted that there was no certainty that the two parties would succeed in renegotiating a mutual licensing agreement that allows Nokia to sell CDMA and W-CDMA, or 3G, handsets and allows Qualcomm to sell GSM chips that rely on undisclosed Nokia patents. Nokia needs a strong hand in CDMA markets to maintain its leadership position in global market share, while Qualcomm must maintain diversity in its offerings to bolster its market-leading CDMA position.
Qualcomm told investors and analysts earlier this month that Nokia had far more at stake financially than it did, should negotiations fail, and suggested that the Finnish handset vendor’s income loss would be on a magnitude of tens of billions of dollars greater than Qualcomm’s.
For its part, Nokia stuck to the restrained tone and substance with which it has responded to the issue since Qualcomm first raised it last month.
“It’s a very complicated industry,” said Bill Plummer, Nokia’s vice president for external affairs, late last week. “Many of us work together on some fronts and we compete on other fronts. Qualcomm fits into that model. Yes, we’re in negotiations with Qualcomm and, from our perspective, that limits the substance of what we can say publicly. But, generally speaking, licensing and cross-licensing of intellectual property is the normal course of business in this industry and that’s how we’re approaching this negotiation. We’re sitting on a robust portfolio of IPR and we respect the IPR that others have. We expect that others will respect the rights that we have. In terms of the numbers that [Qualcomm] was talking about [governing respective exposure if an agreement is not reached], we would differ.”
Plummer’s remarks represented the most extensive issued by Nokia to date, while James’ were distinctly diplomatic following Qualcomm’s investor day on May 4, which had been largely devoted to discussing the looming uncertainties of the negotiations.
Qualcomm officials told investors and analysts that Nokia generated $40 billion in income in 2005 from its IPR licenses while Qualcomm derived only $3.3 billion, suggesting the Finnish vendor would take the greater hit if the mutual IPR licensing agreement was not renewed-thus Plummer’s point that his company “differed” on Qualcomm’s numbers.
Whether Qualcomm bargained on the reaction among financial analysts remains unclear.
“To us, the tone and the content provided signaled more readiness for a battle than a resolution,” wrote Ittai Kidron, an analyst for CIBC World Markets, which makes a market in securities for Qualcomm and Nokia, after the meeting. “We are in for a long bumpy ride.”
Later, Kidron said both parties had used the situation to send signals to the market. Qualcomm’s message? To the world’s original equipment manufacturers, specifically Nokia: no backing off its royalty rates, now or in the future. Nokia, in keeping with its character, let the world know that it thinks public declarations of bravado have little relevance to private negotiations. What matters is what is on the table when the two parties enter a room and close the door.
“It does create a cloud around the stock,” said Mike Burton, a financial analyst with ThinkEquity Partners L.L.C., which also makes a market in Qualcomm securities. “I encourage investors to focus on Qualcomm’s core business and to ignore the `noise.’ But you’re going to see more press releases and analysts talking about how this might impact Qualcomm’s business model, because the licensing business is a significant part of the Qualcomm model.”
