Slacker, If anyone has any sources (Gregg Powers would be great) that indicate that a sale by an ASIC competitor would be bottom-line neutral, I would love to see it.
No one has actual numbers as the various royalty arrangements are confidential, and my pencil has always been considerably less sharp than Gregg's. Nonetheless we can speculate how Q may have arranged for near bottom line neutrality. Just for argument assume a 3rd party asic sale carries a 7% royalty on a $28 ASP. Further assume that a handset maker must pay 3% on a handset using Q asics, or 6% on one with a 3rd party asic. Lets use $200 for the handset ASP.
If Q has a 45% margin on a Q asic that would be $12.60 margin contribution. Add to this $6.00 (3%X $200) that they get when that asic goes into someone else's phone, for a total margin contribution of $18.60.
Now, the 3rd party case. 7% of $28, or $1.96, for the 3rd party asic royalty, plus 6% of $200, or $12.00 for the phone royalty using 3rd party asics, for a total margin contribution of almost $14.00.
First observation - the difference is not all that great, certainly not as great as you might think if you just listened to some of the media or street guys.
Second observation - there is no corporate overhead cost associated with the 3rd party case, whereas I am not sure if the high gross margin estimates we've heard for Q asics is fully loaded for all costs.
Final observation - making $14 on a commercial transaction in which you have had no involvement whatsoever sounds like a pretty good business to me. :-)
I can't say if these figures are even close to what the real royalty agreements specify, but I would be very surprised if Q management did not give an awful lot a consideration to this issue when the deals were struck.
Best regards,
Jim |
