1) When W-CDMA is made the 3G standard and rolled out it becomes free. Yes, free. That's what a standard is, a policy set by the government to ensure that all competitors have equal footing.
This is simply not true. Every company selling products which use Qualcomm IPR must first buy a license from QCOM to sell them, and then pay Q a royalty for each product sold.
2) The only proprietary or licensable products become the individual parts of the network (Chips, handsets, base stations). These products can be made and sold by anyone without a licensing fee. An example of this is ATM which is a data networking standard. Both Cisco and Lucent make switches that work on ATM without paying anyone a licensing or royalty fee. If you don't believe me than answer this, who gets the licensing fees from GSM?
It is not the phone or the base stations which must be licensed and on which royalties must be paid, it is certain aspects of the technology that Q has patents on which are necessary to build these components. At least so far. If a company could figure out a way to build a system which did not infringe of the method Q used in their patents, then that company would not have to pay royalties, nor buy a license. So far, no one has been able to do this. ERICY blustered for several years that they could do it with W-CDMA, but when they capitulated early this year, it became evident to everyone that they couldn't after all. Many on this and the other Q thread knew that all along, that's why we've been in for the whole run-up.
About ATM and the IPR, this may be true, I don't know. About GSM, you're wrong there too. GSM is based on IPR owned mostly by a small group of European companies. They have cross-licensed each other with varying deals based on how much IPR each actually owned. This has the effect of lowering their net licensing costs for GSM. For companies without significant IPR to cross-license, however, the costs for using GSM IPR are in the range of 13%, way beyond the ~5% rate that they were all so upset to have to pay Q. Such hypocracy.
See info provided by Perry LaForge, director of the CDG (CDMA Development Group) on the CDG website. beta.siliconinvestor.com
3) What will happen is that companies will partner with each other to provide end to end solutions. For example a manufacturer of base stations would partner with a manufacturer of handsets. So if Qualcomm can manufacturer or produce the parts necessary for a part of the value chain they can benefit from that aspect but not the licensing fees.
Q will continue to make money on both products (phones, ASICs, etc) and on royalties. They make more on a phone that they make and sell than they do on a phone made by another who used a Q ASIC, which in turn is still more profitable than what they make on a phone made by another which uses a non-Q ASIC. They make money on all variations, however.
4) As part of the recent settlement Ericcson does not have to pay royalties to Qualcomm on current infrastructure sales. Infrastructure is much more profitable than handsets.
First of all, infrastructure is not always much more profitable than handsets. Qualcomm has consistently made money on phones but was losing their shirt, and ours, on infrastructure. It can be more profitable, as in the case of LU or NT, and even ERICY. As to the royalty question, this too, I believe, is incorrect. ERICY will pay a royalty on infrastructure sales equal to that of other CDMA Infrastructure licensees (with the possible exception of Motorola which pays less).
5) Lucent was one of the first to do work in the CDMA field, has numerous patents and produces chips for the handsets, for that matter so does Nokia and Ericcson who are both building their own CDMA phones. While qualcomm currently (before CDMA is made a standard) can force a small vendor to pay them a fee the large companies have patents to trade. Qualcomm and others must cross license these patents so it becomes a push.
Lucent, Ericson and Nokia may have patents on technology they use in their phones and base stations. I don't have detailed knowledge about this, but there may even be a patent or two licensed to the Q. However, the important thing to remember here is that the great preponderance of critical IPR needed to make working CDMA phones and base stations is owned by Qualcomm and over 50 major companies are paying big bucks for the priviledge of using it.
6) A point to remember in technology, the best technology rarely wins if it did we would all have Apple computers, run on IBM chips connecting to networks based on Cabletron switches. Installed base and customer reach are more important. Few clients ever want to change, even to a better technology, after its been installed. If you don't believe that than why is the US still not metric?
Though I disagree with your choice of "best" technology, I mostly agree with the point you are making, namely that the best technology doesn't always win. So? The arguement is irrelevant here. GSM already has by far the largest share of the world market for wireless, yet the major GSM players have all agreed to base their 3rd generation air interface on a variant of CDMA. And remember, Qualcomm gets paid equally no matter which variant of CDMA is implemented!
7) In terms of the market reaction I can't explain why some stocks are bid up in the short term but if the market is always right why is Network Associates at 16 not its high of 68, NEON at 16 not at 78, AMD at 19 not 35? The examples are endless the market over reacts and is based to some degree to investor sentiment.
Without getting into specifics about your particular examples, I will agree with you that stocks fluctuate. Sometimes for what appears to to be no good reason. In the case of Qualcomm, however, I believe the fundamentals are in place for this company to continue to grow at a blistering pace selling highly profitable ASICs (90% market share), phones, PDAs, OmniTracs, etc., along with bringing in a continually increasing royalty stream which goes right to the bottom line. This stock is the closest thing to a sure thing in the stock market I have ever seen and I'm holding on for whole show. |
