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Qualcomm ends patent fight in China with fine, royalty cuts

Posted: 11 Feb 2015     Print Version  Bookmark and Share

Keywords:royalty  4G  3G  28nm  antitrust case 

Qualcomm will pay a $975 million fine to Beijing authorities, marking the end of its nearly two-year patent fight in China.

China's National Development and Reform Commission (NDRC) called the investigation "antitrust case." But more accurately, it successfully haggled with Qualcomm to get the royalty rate cuts for Chinese handset vendors.

The financial community showed signs of relief after the settlement announcement, sending Qualcomm's shares up 3 per cent in after-market trading.

Let's do the math

Qualcomm's Chinese settlement calls for a 5 per cent royalty rate on multi-mode 3G/4G devices (including multi-mode 3G/4G devices) and a 3.5 per cent rate on other 4G hardware (including 3-mode LTD-TDD devices). The key change is that now rates will be derived from a royalty base of 65 per cent of a device's net selling price, instead of an OEM's full sales price. Qualcomm's royalty rates are typically based on 100 per cent of the net selling price of a handset.


So, let's do the math. The 5 per cent royalty when multiplied by .65 equals an effective royalty rate of 3.25 per cent for 3G. The 4G royalty is 3.5 per cent of the net selling price of the device, which results in a net royalty rate of 2.275 per cent.

Some analysts view the deal favourably as "an outcome that could have been worse." After all, Qualcomm will be still receiving a 3.25 per cent royalty rate on every 3G phone sold in China, and 2.275 per cent for every 4G device.

However, Qualcomm's existing customers outside China continue to pay a royalty fee based on 100 per cent of the net selling price. What if Qualcomm's non-Chinese customers starting asking for the same deal?

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