Legal Battle Over for Qualcomm, Nokia
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Qualcomm (NASDAQ: QCOM) and Nokia (NYSE: NOK) late on Wednesday settled a three-year, three-continent legal battle over patent licenses and royalties for the next 15 years.
Nokia, the world's top mobile phone maker, agreed to make an up-front payment and pay royalties to the U.S. technology company, but said payments per phone would fall.
Investors, relieved that the fight was finally over, drove Qualcomm's shares up more than 21 percent. Following the deal, Qualcomm raised its forecast for the full-year 2008 after announcing the deal with Nokia.
The companies did not reveal specific financial details, but some analysts saw Nokia as the winner.
Nokia's Chief Financial Officer Rick Simonson said the terms of the new agreements were very different from the 1992 and 2001 patent deals between the two firms.
"We have recognized in this agreement and in financial terms of this agreement our very significant IPR position," he told Reuters in an interview.
"There is no more disagreement, battle or any conflict between two of the leaders in the industry, Nokia and Qualcomm, and I think it is terribly important," he said.
"Have we done a good thing for the industry? Absolutely. Have we done good for Nokia? Positively, yes."
Nokia had been pressing Qualcomm for a cut in the rate it was paying Qualcomm in royalties under a pact that expired in April 2007. Analysts estimated that rate at 45 percent.
Stifel Nicolaus analyst Cody Acree said a Nokia success could lead other Qualcomm clients to look for lower royalty rates or start new legal fights.
"Investors are giving Qualcomm immediate credit in after-hours trade, but it's not cut and dried," Acree said. "It could put some pressure on the royalty models or in chipset volumes that Qualcomm hasn't had to deal with in the past."
Qualcomm chip customers include Samsung Electronics and LG Electronics. Rivals include Texas Instruments (NYSE: TXN), Broadcom (NASDAQ: BRCM) and Infineon Technologies.
Qualcomm officials did not return calls requesting comment beyond its statement.
Under the agreement, Nokia and its telecoms network equipment venture Nokia Siemens Networks NSN.UL has a license to use all of Qualcomm's patents. In return, Nokia agreed to allow Qualcomm to use its technology in its chips.
Nokia also agreed to sell a number of patents to Qualcomm, including those essential to the widely used wireless technology standards WCDMA, GSM and OFDMA.
Qualcomm outside counsel Steven Strauss, a partner at Cooley Godward Kronish, said the agreement was reached Wednesday afternoon. "We've been having discussions over the past couple of days," he told Reuters.
After the settlement was announced, Qualcomm posted a quarterly profit in line with expectations and revenue slightly ahead of analyst targets. It said it would give financial forecasts during a conference call on Thursday.
Excluding items such as its investment arm, Qualcomm earned 55 cents a share for its third quarter to June 29, on revenue of $2.8 billion. Analysts on average had expected earnings of 55 cents on revenue of $2.71 billion, according to Reuters Estimates.
Simonson said undisclosed bookings Nokia had made for settling the row were larger than needed.
"They were more than enough," he said, but declined to comment on the impact the settlement could have on Nokia's third-quarter earnings.
"This gives me incremental benefit, and this is over 15 years," Simonson added. "People should not be looking at the third quarter impact on a 15-year agreement."
Qualcomm sees Nokia deal boosting outlook
The wireless technology license and chip supplier said it was raising its guidance on the strength of growth in phones with high-speed Web links, even before adding new royalties and an upfront payment from Nokia.
The companies did not announce the financial specifics of the deal, but Qualcomm executives said the settlement involves a "very substantial upfront payment" from Nokia.
Some analysts had worried that a lowering of royalty rates paid by Nokia to Qualcomm under the new agreement would incite other Qualcomm customers to bring their own legal suits. But Qualcomm dismissed these concerns.
"If we offer the package and terms of the Nokia agreement to other licensees I would be very happy if they would accept it," a Qualcomm executive said on the call.
Qualcomm forecast fourth-quarter earnings per share of 49 cents to 51 cents on revenue of $2.5 billion to $2.7 billion.
Shares of Qualcomm were up $9.55 or 21.3 percent, at $54.37 in morning trade on NASDAQ. Nokia shares were up 4.1 percent at 17.65 euros in late trade on the Helsinki stock exchange.