Qualcomm’s extended licensing deal with Samsung is a big play, but Apple effect hits the bottom line

Qualcomm has announced the expansion of its licensing agreement with Samsung as the effects of the company’s litigation battle with Apple continue to bite.

The deal between the chipmaker and Korean tech giant means that their existing agreement will be extended to 2023 and sees Samsung withdraw its opposition to Qualcomm’s appeal of a more than $800 million fine from the Korean Fair Trade Commission (KFTC) in relation to the US company’s licensing practices. As they announced news of the deal Qualcomm CEO Steve Mollenkopf stressed that it was at the device level, which patent owners prefer, rather than the chipset level.

Alex Rogers, the head of Qualcomm Technology Licensing (QTL), also indicated that as part of the agreement Qualcomm would receive expanded rights back to Samsung’s patent portfolio. The deal looks hugely significant both because we are at the dawn of the 5G era in mobile technology and also because of Samsung’s position as the world’s smartphone leader. It means that the two giants of the mobile world now have an agreement in place for the next five years when the level of connectivity looks to set to explode.

The news of the Samsung deal came as Qualcomm announced its results for its fiscal first quarter. A strong three months from the technology division meant that overall revenues reached $6.1 billion, up from $6 billion year-on-year. But it was a tough quarter for QTL, which saw revenues slump from $1.8 billion a year ago to just under $1.3 billion – with the company’s ongoing litigation with Apple continuing to have a deep impact. As that dispute continues, QTL’s numbers do no include royalty revenues from the iPhone maker and another (unnamed) licensee who Qualcomm is also in dispute with.

That litigation also looks set to have a big impact on the second quarter, when Qualcomm has typically seen big returns from its deal with Apple. According to its current guidance QTL revenues are expected to be between $1.15 billion and $1.35 billion, a decrease of 40% to 49% on the second quarter of 2017.

Those numbers show the significance of the ongoing court battle, but on a call with analyststo discuss the Q1 results, Mollenkopf stressed the company’s commitment to seeing a fair return on its IP and chip technology. “We value Apple as a customer and would like to continue that relationship into the future, but it is in our stockholders best interest that we ensure that Apple pay a fair and reasonable royalty and operate on a level playing field with other OEMs,” he said.

The agreement with Samsung undoubtedly strengthens Qualcomm’s overall licensing position, while a recent tech deal with a quartet of Chinese device manufacturers including Lenovo, OPPO, Vivo and Xiaomi shows the progress it has made in that market. But it remains to be seen whether the company will continue to be able to ride-out its series of disputes with Apple should they extend much beyond 2018.

Subscribe here for related insights, breaking industry news and cutting-edge market analysis from global experts.