Samsung to Pay $1.3 Billion to Qualcomm

The world’s No. 2 mobile phone maker, Samsung Electronics, announced it has signed with Qualcomm, the CDMA patent holder, to pay US$ 1.3 billion for CDMA, WCDMA and OFDMA patent usage for the next 15 years.

Besides the up-front license fee, Samsung said it will also pay additional running royalties, but the detailed royalty rate was not disclosed. Reportedly, Qualcomm’s royalty rate is different by company and sales area (domestic and overseas markets), but Samsung paid the lowest rate due to its massive volume and negotiation power.
Due to Samsung and LG Electronics, Korea is the single biggest profit source for Qualcomm. Samsung’s up-front fee is equivalent to around 80 percent of Qualcomm’s net income of $1.59 billion in fiscal year 2009. Samsung reportedly signed with Qualcomm under the most favorable conditions as the largest customer of Qualcomm. Samsung said the deal is more favorable than the previous one.

Usually, baseband chips account for 11-13% of material cost for middle to high-end phones and about 20% for low-end phones on average, according to the LG Economic Research Institute. To stimulate Qualcomm and to lower the royalty rate, Samsung tried various efforts, such as development of its own CDMA chipsets, Scom3200 and SCom5010 and adopted the chipsets in its own mobile phones SPH-X9000 and SPH-X9300.

In 2005, LG also released a “non-Qualcomm” chip in the LG SD280 model in the local market by selecting domestic chipmaker EoNex’s CDMA chipset. Later, LG received massive financial support from Qualcomm on a “3G for All” project which adopts Qualcomm’s chipset in entry-level WCDMA mobile phones.

Regarding the deal, Qualcomm Korea`s senior director and spokesperson Seung-soo Kim declined to comment.

Meanwhile, the FTC made a determination against Qualcomm with a US$ 208 billion fine for violating the nation’s fair competition rules by abusing its market monopoly in July. According to Korean watchdog, the Fair Trade Commission (FTC), Qualcomm ran three royalty policies with “discriminative royalties,” “discriminative royalty ceilings,” and “discriminative price-netting.”

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