July 3, 2001 SUMMARY---
* This AM, QCOM announced licensing extension w/ NOK to all 3G CDMA stds & more imp'ly at SAME royalty rates as 2G, also extended agreement to incl infra, which is also ROYALTY BEARING to QCOM & added a "cross-license" agreement where QCOM gets access to NOK's patents related to GSM, GPRS & WCDMA to make multimode chips and as important QCOM will NOT be paying royalties to NOK.
* We believe this is a positive for QCOM because (1) NOK was last co to extend its license to incl 3G & this agreement removes overhang related to that; (2) QCOM is getting the same royalty rate regardless of the CDMA standard and (3) QCOM acquires needed patents related to technologies outside its core areas of expertise (GSM, GPRS) to make multimode chips.
* We reiterate our 1H rating. No change to model as we assumed this agreement would eventually be signed.
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QCOM EXTENDS NOKIA LICENSE TO INCLUDE ALL CDMA STANDARDS AT SAME ROYALTY
RATES
This morning, QCOM announced it had extended its licensing agreement with Nokia to include all CDMA standards and technologies. There are essentially three parts to today's agreement: (1) Nokia extended its phone licensing agreement with QCOM for ALL flavors of CDMA and more importantly will receive the SAME royalty fees; (2) QCOM and Nokia extended the original agreement to include an infrastructure license (which was not part or the original agreement in 1992), which is ROYALTY BEARING to QCOM and, again, covers all flavors of CDMA; and (3) added a "cross-license" agreement where QCOM gets access to NOK's patents related to GSM, GPRS and WCDMA to make multimode chips and as important QCOM will NOT be paying royalties to NOK.
NEWS IS POSITIVE ACROSS THE BOARD
We've highlighted several catalysts for QCOM and this is one of them as it removes the final psychological overhang to QCOM's receiving the same royalties for all flavors of CDMA as NOK is the LAST major vendor to extend its license to include 3G. It also eliminates the overhang on QCOM that it did not have IPR on 3G technology, in particular WCDMA. Since we have already been assuming NOK would extend its license agreement, our model won't change.
We believe this announcement is positive for QCOM, for NOK and for the industry. We believe this is a positive for QCOM because (1) NOK was the last company to extend its license to include 3G and this agreement removes the overhang related to that and (2) QCOM is getting the same royalty rate regardless of the CDMA standard and (3) QCOM acquires needed patents related to technologies outside its core areas of expertise (GSM, GPRS) to make multi-mode chips.
This is a positive for NOK because it eliminates the IPR overhang and there's no concern about NOK having legal-related delays when they begin to ship 3G CDMA-based equipment starting this year. Now, all the patent issues are behind both companies, and the industry should benefit from one less factor that could potentially stall the development of 3G. We continue to believe that QUALCOMM is the best positioned company to benefit from the migration to next-generation wireless technologies, which are all based on its CDMA technology. We continue to feel the momentum and newsflow are currently moving for QUALCOMM, not against it, given: 1) the continued progress for CDMA deployment in China; 2) 1XRTT deployments, subscriber take-up and handset sales in South Korea, Japan, U.S., Mexico and New Zealand over the next 6-9 months; 3) 1XRTT chipset market share gains at Motorola (who plans to use QUALCOMM;s chips in 100% of its 1XRTT handsets) and possibly Nokia; 4) the strength of its patent portfolio, which has been upheld in several countries including U.S., Europe, Japan and South Korea; and, 5) the upcoming spin of its ASICs division.
from SSB
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Even SSB tried to be gracious in citing examples, well - an example - of why this agreement may benefit Nokia.
But it would take a contortionist to spin this into anything other than a humiliating defeat for Nokia.
Nokia badly needs the infra license ... to establish a UMTS beachhead in Europe before the credibility of 3GSM evolution is entirely in doubt. |
