Bux:
Remember, as you noted, that I do not know the precise magnitude of royalty reduction that management contemplates. My first reaction was similar to yours and Maurice's...basically, screw Ericsson and the Europeans. They chose the wrong standard, did everything they could to kill CDMA and now they should suffer the consequences.
Fortunately, Jacobs et al have greater maturity and wisdom. Remember, Ericsson has a strong and dynamic TDMA-based GSM franchise that will be eroded over time by cdmaOne--but certainly not "stopped in its tracks". Imagine a scenario where QC refuses to license its IPR, W-CDMA dies on the vine and ERICY and its GSM-fraternity dig in their heals and keep pushing TDMA-based GSM. Over the next five-to-ten years, cdmaOne will continue to gain share and it might take five years or more for it to achieve 50% marketshare. Remember that Ericsson is a big, powerful company with a large and well entrenched installed base--so none of this will be easy. Now, consider that there is a time-value to money (i.e. current dollars are worth more than future dollars...as in the net present value concept). QC management is wisely noting that its blocking IPR position can keep Ericsson from stealing our technology, but would probably result in a smaller marketplace for our products (particularly when viewed from a net-present value basis).
Now picture a scenario whether Ericsson "negotiates" a lower royalty rate for the entire CDMA community. The company is allowed to declare victory and save face. Meanwhile, worldwide wireless rapidly converges around a cdmaOne-type technology platform. Royalties are greater, because the overall market is much larger than the decline in royalty percentage...and the market for QC's products (ASICs, infrastructure and handsets) has been expanded dramatically. Pretty good deal right?
By offering to unilaterally reduce the royalty rate, QC also motivates companies like Motorola, Nortel, the Koreans and a litany of operators to "fight the good fight". By rallying political support, and offering an attractive olive branch, QC is backing Ericsson into a tighter corner.
There is always a balance between what you want and what you can have, between wants and needs. Step back from the specific royalty percentage and ask yourself the simple question: What would make you happier as a QC shareholder...cdmaOne achieves 35% worldwide marketshare in three years, QC's royalties are $X dollars and EPS is $Y per share OR cdmaOne achieves 80% worldwide marketshare in three years, QC's royalties are $2x dollars and EPS is $3Y per share (higher royalties plus greater manufacturing profits). Which outcome makes you happier?
Best regards,
Gregg |
