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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Kayaker who wrote (15352)	9/29/2001 9:54:34 PM
From: grinder965	Respond to of 197063

Kayaker, I too would have interpreted Q's position as you did. Nevertheless, it seems that the different interpretation as indicated in Q's letter would put the Korean licensees in the same exact position as their Chinese counterparts vis-a-vis royalties and chipset purchase commitments. Whatever the outcome, it appears Q has the bases covered on this issue.

To: Kayaker who wrote (15352)	9/29/2001 11:33:02 PM
From: brational	Read Replies (1) \| Respond to of 197063

Korean Rates Kayaker—You noticed a fine and subtle point. It certainly complicates the negotiation, though Dr. J’s interpretation (Chinese rate in China) is in fact more favorable to the Koreans than the first interpretation you proposed (Chinese rate in Korea). To help me sort through these options, I set up the table below. Each package is specified by three elements: rate in Korea (column 1), rate in China (col. 2) and rate outside China and Korea (col. 3). Each row in the Table corresponds to one of the current, proposed or possible options. The first option (K0) is what the Koreans have now; the second row is what the Chinese have now. Your alternative for the Koreans (K1) would entail taking the “Chinese rate in one’s domestic market”, i.e. 2.65 in Korea, and 7% elsewhere. Clearly, this will not be too advantageous for the Koreans, because it would reduce the royalty rate in a market that they already control, and which will remain protected from the Chinese who now have to pay 7% to get in. On the other hand, it will increase the differential in China relative to K0. Korea China Outside K&C Now (K0) 5.25 5.75 5.75 Chinese 7 2.65 7 alt. K1 2.65 7 7 alt. KJ 7 2.65 7 alt. K2 5.25 2.65 5.75 alt. K3 2.65 2.65 7 alt. K4 2.65 2.65 5.75 alt. K5 2.65 2.65 2.65 alt. K6 5.25 4.2 5.75 Option KJ is what Dr. J apparently proposed according to your astute observation, namely 2.65% only in China. This should be preferable to the Koreans than K1, because it would allow them to compete better in China against the Chinese themselves, and would equalize them to the Chinese in the Korean market (and elsewhere). It would still not be nearly as good as K0 from an export to non-China market, because the Chinese are likely to have a cost advantage to start with; the royalty differential in the current scheme would compensate for some of that manufacturing cost disadvantage. What the Koreans would most realistically try to get is alternative K2—everything stays at the current rates (K0), with the exception of the China market, where they too receive “most favored” status. This would overcome the disadvantage that they now see in the China market, and would re-establish “most favored” status across the board. For obvious reasons, Dr. J would prefer any of the earlier options. Of course the Koreans can get really pushy and claim the 2.65% rate for domestic market and China, keeping the export rate to other countries at the current 5.75% (option K4); Dr. J would naturally then push that one to 7% (option K3). And just to make the negotiation more difficult the Koreans could ask for alternative K5—most favored means the lowest rate possible anywhere everywhere. The most realistic scenarios that I see developing are that either the Koreans stay with what they have (K0), or they try to push very, very hard for option K2. Of course, there are many more possible alternatives, e.g. split the difference on China, yielding K6.

To: Kayaker who wrote (15352)	9/30/2001 11:52:35 AM
From: voop	Read Replies (1) \| Respond to of 197063

Kayaker I interpreted "if the Korean licensee accepts the lower royalty rate in China" to mean the royalty rate available in China (for the Chinese) and not to mean that Korean phones sold in China would have a 2.65 sales rate. By using the former logic, it would allow any vendor from any country at any time to choose one specific package of a specified domestic fee hooked to a specified export fee, be it the Chinese plan with lower domestic and higher export fees or the current plan. Dr Jacobs is even allowing the Koreans to change to whichever plan they want at any time in light of the MFN agreement. But Korea wishes to cherry-pick the lower rate of each, i.e. Chinese domestic rate and Korean export rate. Since Korea is saturated pretty well, I would think that the Korean manufacturers would keep the current structure. Now there will continue to be upgrades and data solutions to sell to their denizens, but I think they should try to be the Errorickson of the CDMA world with a world wide reach (and they should be kicking in KDDI's door if Batwing is truly screwing up the 1X implementation which should be old hat to Samsung.) I can see how it ticks them off to have to pay more than Chinese manufacturers in China (Chinese 2.65 vs Korean 5.75) but they also should have an advantage in the rim of fire in other populous countries where their export fee of 5.75 compares to 7 percent of rival Chinese manufacturers who have to fight a six year learning curve (or thereabouts) Voop