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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Thomas Mercer-Hursh who wrote (1018)	7/18/2004 12:51:55 PM
From: Eric L	Respond to of 2955

IP and the Standards Process TM-H << To me, one of the indicators of the strength of Qualcomm's position is the size of the royalty which it can demand. Was this at all comparable with GSM? >> That is indeed a measure of the strength of their IP portfolio and validation of their business model, but that does not translate into any competitive advantage outside of the license fees they have been paid and the royalty they will be paid on the wholesale ASP of each unit of subscriber equipment (SE) that will be sold which is probably in the neighborhood of 5% but varies by licensee. Royalties on some components of infra are evidently considerably lower. If all GSM royalties were stretched end to end (without cross-licensing) they would evidently (at least at one time before some expired) total almost 30% of the BOM (not ASP) of a handset. The holders of GSM IP cross license and since most of them manufacture whole product and most do not have a (strictly) IP based business model generally their objective is to be net positive from a royalty perspective before they collect revenue and hopefully margin from the manufacture and sale of product which is their primary source of revenue. The chairman of Sony which was not a GSM stakeholder has stated that were it not for their JV with Ericsson, they would pay ~15% of subscriber equipment (BOM or ASP not clear) in royalties. A US GSM subscriber equipment manager who had insatiable curiosity on this subject (and manufacturers margins) once told me that so far as he could determine about 11% of the ASP of GSM handsets he was purchasing was royalty for IP. The classic treatise on GSM IP in relation to the comittee-based standards process is "Intellectual Property Rights, Strategic Technology Agreements and Market Structure: The Case of GSM" by Bekkers, Dysters and Versagen: 137.120.22.236 I consider it a must read (or review if already read) for those following wireless. While I'm not a Bill Dalglish fan, this linked article below with an Interdigital slant from his website reviews Bekkerset al and provides a reasonable analysis sprinkled with liberal speculation including some BS, and some conjecture about 3GSM UMTS IP, Qualcomm's IP positioning, and the standards process: wirelessledger.com There are so many players with IP and "essential IP" in 3GSM UMTS, and the architecture of the platform is so incredibly complex and deviant from CDMA2000 on an evolved ANSI-41 CN, that if all claimants were proportionally rewarded, using the established value of Qualcomm's IP as a keystone, when IP is stretched end to end it might well total 150% of SE BOM. Most of the major claimants are, however, somewhat in agreement that IP will be pooled and capped at a reasonable level. Qualcomm is in the catbirds seat, since they do not manufacture whole product, and any approach other than the preceding would drive the cost of the platform whose architecture Qualcomm doesn't control architecturally to a level that would make the cost of equipment for the platform Qualcomm does control unreasonable. The dust won't settle for several years but in the end it will probably look much like GSM, but with a wider spread of participants sharing the portion of the pool not claimed by Qualcomm who locked in early at least on the UTRA DS (WCDMA) side. The TDD side might have a few interesting twists. You made a point earlier about gorillas not having absolute control of their technologies architecture - and we might add, their value chain. One of the more interesting side dramas to watch is what's happening in Korea where manufacturers, carriers, and the government and its ministries team very closely. Every single evolution of cdmaOne and CDMA2000 has been commercialized in Korea, and technological barriers at each step overcome, in no small part due to the around the clock efforts of the key members of Qualcomm's value chain headquartered there. There is obvious resentment to the royalty rate paid to Qualcomm relative to their contributions and as a consequence there is a concerted and coordinated "shoot the gorilla" effort being made to reduce dependence on Qualcomm and its starting to translate into a loss of sockets for Qualcomm IC's. Qualcomm's largest customer came to 3GSM UMTS market using an Ericsson chipset by TI, will deliver low end 1xRTT handsets using chipsets by Via, and is teaming with EoNex - and possibly TI - for further development, and evidently will participate in commercialization 1xEV-DV phase 1 without using a chipset from Qualcomm initially. Their second largest customer will expand the use of their own chipsets for 1xRTT, increasingly shift focus from CDMA2000 to GSM and 3GSM, and although coming to 3GSM UMTS market with a Qualcomm chipset is reportedly developing their own, probably with a strategic partner or two. WIPI presents challenges for BREW. Kings can never nod off as Nokia recently rudely discovered, but neither can gorillas or chimpanzees (which is what Qualcomm is in the big wide world of mobile wireless telephony as opposed to the smaller CDMA2000 mass market subset of same). Best, - Eric -