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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: John Hayman who wrote (139745)	10/31/2005 9:18:13 AM
From: 100cfm	Read Replies (1) \| Respond to of 152472

* In China Qualcomm has given exclusive chipset customers lower royalty rates for shipments inside China. For shipments outside China the rate is higher to compensate for the discount. * This is the only instance that we are aware of where chipset customers benefit from a lower royalty rate and clearly only applies in China. * Qualcomm has repeatedly stressed that outside of this exceptional arrangement all licensees pay essentially the same rate with only negligible variation. I think this statement is probably inaccurate since Q in it's response has already admitted to the accusation by defending against the accusation by stating that "it is simply a complaint about legitimate and lawful price competition". If the Eu finds against Q on this issue I wonder if Q has an out in their contract that would let them raise/remove the discount to it's exclusive chipset customers. Rather than lowering their rate for everyone.?? Thus no direct financial impact, other than those who are buying Q chips solely for the discount, who would then presumably buy from the competition.

To: John Hayman who wrote (139745)	10/31/2005 9:21:38 AM
From: carranza2	Read Replies (2) \| Respond to of 152472

A terrific analysis. Thanks for bringing it here. We believe that there is a case to answer as to why licences should effectively pay royalties to Qualcomm on GSM and other technologies where it has no IP but the case for a lower technological contribution to W-CDMA will be far harder to argue. First time I've ever heard that Q collects royalties on GSM stuff built into its chips. Perhaps others could add info. This seems wrong but wireless is weird. If Q does not get GSM royalties, Nomura's case for the proposition that Q faces some exposure along these lines falls apart. I would doubt that it would make such such an elementary mistake, so there is probably more to this than meets the eye. But if Q does not receive GSM royalties, then the fact that Q has IPR on the WCDMA "engines, wings and ailerons" should dispose of the claim. Plus, how much harm could Q possibly sustain if it has to give up any GSM royalties? Seems hardly worth fighting over. * We think that the complaint with the heaviest implications for Qualcomm is number 3. [Discrimination in royalties between chip customers and mere licensees.] If the EU enforces punitive actions on Qualcomm we suspect the rest of world will quickly follow. The outcome of this complaint would be unlikely to be limited to just shipments in the EU and would have material implications for Qualcomm's business. Ah! The fly in the ointment may have finally appeared. Nomura sagely points out a couple of things: Q has reiterated that the differences are negligible except for China and then only with respect to internally consumed chips. Like probably most here, I have little problem believing that Q's public statements re: negligible differences existing are true. Seems like Broadcom and others simply want to test the validity of that information, and build a case around the possibility that Q is less than honest about its public pronouncements. Harass Q, in other words. We'll see. Everything in Q's corporate culture suggests that it would not discriminate as suggested by BRCM, and not just because of honesty but because doing so could be very dangerous. Its licensing program has proven to be a paragon of intelligence, I would think they'd be crazy to expose themselves in this way, but stranger things have happened. And no one is perfect, recall that Q's legal team did commit what I consider to be malpractice by not making sure that a breach of confidential information provision was to be deemed "material" in its contract with TXN. Could this whole dustup be about the Chinese WCDMA market, where substantial discrimination does exist? What possible effect does that have in Europe? I suppose Nokia can bitch, and it has, but I thought this was about the European market. IF Q discriminates very little among non-Chinese licensees and customers, as I suspect is the case, the whole thing will fall apart like another meritless Broadcom suit. But again, it seems that NOK and TXN would not join such a farce unless there was a little more meat on the bone. Or would they?