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Nokia to pay Qualcomm $2.3 billion in settlement

The agreement ends a three-year legal battle over royalties for use of chips in cellphones.

October 17, 2008|Michelle Quinn | Times Staff Writer

Qualcomm Inc., the San Diego-based chip maker, will receive about $2.3 billion as part of a royalty-fight settlement with Nokia Corp., the world's leading maker of cellphones.

The one-time payment, which Nokia made public Thursday when it reported third-quarter financial results, was roughly what analysts had expected since the two companies announced that they had reached an agreement in July.

Qualcomm's shares gained $2.60, or 7%, to $38.89. Nokia's shares jumped $1.50, or 10%, to $16.57.

The companies had engaged in a three-year legal battle that the telecommunications industry worried would slow the growth of the cellphone market.

At issue was how much in royalties Espoo, Finland-based Nokia should pay Qualcomm for using its chips in cellphones that run on third-generation, or 3G, wireless networks. They also disagreed over how long Nokia should pay, given that changes in the cellphone industry mean there's no guarantee Qualcomm's technology will remain as crucial.

Nokia said it would pay 1.7 billion euros, which was $2.3 billion at Thursday's exchange rate, in the fourth quarter to settle the dispute. A Qualcomm spokeswoman said the company would receive $2.5 billion but would not explain the discrepancy or comment further.

The payment includes royalties Nokia owed Qualcomm dating to April 2007 and royalties for the next 15 years.

Qualcomm makes much of its money licensing its technology to wireless carriers and handset makers. It has a near monopoly on the cellphone chip technology in 3G phones.

But Qualcomm does not have the same lock on the next-generation phone technology, which is growing in popularity in Europe. Nokia wanted to pay a lower rate over the long term, given the changing market, industry analysts said.

Qualcomm's 3G technology is "peaking out and will fade for the next 20 years," said Edward Snyder, principal analyst at Charter Equity Research.

Details of the agreement were not disclosed, although industry analysts said they believed that Nokia was able to negotiate a royalty rate lower for cellphones, about 2%, than what its competition currently pays, which is more than 4%.

"It's one of these few times when both sides can claim themselves as a winner," said Thomas Michael Walkley, managing director at Piper Jaffray.

The agreement settled all litigation between Qualcomm and Nokia. But Qualcomm faces other legal challenges and patent battles with its chief rival, Broadcom Corp. of Irvine.

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michelle.quinn@latimes.com

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