Qualcomm, the San Diego-based chipmaker, has reported a sharp decline in its quarterly profits, which is largely due to the reduction in cost for licensing its patents to other companies. The move shows just how far Qualcomm is willing to go in order to preserve core business practices.
During the earnings conference call (via Seeking Alpha transcript), Qualcomm’s CFO George Davis said that the company has implemented “a voluntary revised cap in which the maximum net selling price of a handset on which the royalty is based will be capped at $400 per device, down from $500 per device. This will be broadly implemented in fiscal Q4 and we do not expect a material impact overall.” He also promised that the company will implement more cost-cutting actions in the coming months.
Qualcomm’s business has two divisions – chip-making and licensing. While the chip-making business helps in having patents, the licensing business fuels money for R&D. Now, by capping the price of a specific patent licensing deal, Qualcomm is making it cheaper for smartphone makers to use the chipmaker’s technology in their products.
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With cheaper patenting fees, Qualcomm expects more manufacturers to sign new deals, which in turn will help to keep the business secure for another couple of years. Yes, with the concession, Qualcomm will make less money than it would with the original pricing but here, the chipmaker is thinking from a long terms perspective.
Qualcomm owns patents for 5G connection technology, a reason why Broadcom was looking to acquire the chipmaker. The cut in licensing fees will also be applicable for future 5G-enabled phones.
CEO Steve Mollenkopf also noted that the Qualcomm-Apple case is still pending, and ‘legal milestones’ are putting pressure on both companies to settle. “There will be a decision one way or the other. Either through the courts, or in the way that I think everybody would prefer, in a settlement, here and before the end of the year if we’re lucky,” he said in an interview with CNBC.