A Qualcomm Warning For Nokia

Qualcomm fired a warning shot in Nokia’s direction last night.

Theirs is a tangled relationship: Nokia is a partner to Qualcomm in some
instances, a competitor in others, and a litigious antagonist in yet others.

In a filing with the SEC, and again in a conference call with reporters,
Qualcomm said that negotiations for renewing licensing agreements
with Nokia were not on the right track.

It’s not unusual for companies to warn investors about potential risks to
their business, but observers were surprised that Qualcomm identified Nokia
by name, which is something it’s never done.

At issue are royalties from licenses for wireless CDMA technology, which is
an important part of Qualcomm’s business. The company’s warning yesterday,
to the effect that it may not be able to renew its agreement with Nokia by
the time the current one expires in April 2007, sent tremors through the
analyst community.

Nokia responded to the filing this morning, saying it “acknowledges”
Qualcomm’s comments, with Bill Plummer, vice president of communications for Nokia, qualifying that response as “restrained.”

Qualcomm’s quarterly filing stated that “there is no certainty as to when we will be
able to conclude an agreement [with Nokia] or the terms of any such
agreement …. There is also a possibility that the parties will not be able
to conclude a new or extended agreement by April 2007.”

At least one analyst felt that the terse language used in the filing means talks are not going well.

“The incremental language … highlights risks associated with
termination — and failure to renegotiate the terms — of that license for both
parties,” wrote SG Cowen analyst Matthew Hoffman in a note this morning.

Nokia’s Plummer refused to characterize the language used by Qualcomm.

He agreed that the two companies have a complicated relationship, but said
this was a characteristic of their market.

“There are multiple players that are engaged, sometimes closely together,
and sometimes in good old-fashioned competition,” he told

Jeremy James, a spokesperson at Qualcomm, agreed, and said that the nature of their relationship generates a lot of interest because of the relative importance of the players.

“They are the No. 1 handset maker in the world and they have not bought
chips from us,” he told internetnews.com. “They are a licensee. We would love to sell them chips.”

In the filing, Qualcomm noted that royalties from its licensees comprised 37 percent of the total consolidated revenue for the second quarter of this year, compared with 36 percent in the same quarter last year.

James would not disclose what percentage of those revenues are from

The filing was rife with other references to Nokia, which is indicative of the complexity of the companies’ relationship.

Qualcomm said that Nokia was a strategic partner in some areas and a competitor in others. It also noted that Nokia is one of six companies to have filed a complaint against it with the Competition Directorate of the European Commission.

Qualcomm also disclosed that it had filed suit against Nokia in November of
last year, alleging infringement of patents relating to GSM/GPRS/EDGE and
position location and seeking monetary damages and injunctive relief.

SG Cowen’s Hoffman believes that the companies will settle, but cautioned that the public nature of the dispute represents “a headwind for QCOM.”

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