Wednesday, July 23, 2008

The Qualcomm Nokia deal.

The media is abuzz with the settlement between Nokia and Qualcomm, the two telecom giants. They've had a long running acrimony over royalties on wireless patents. This deal is obviously big for Qualcomm because it validates their patent licensing business model. A 15 year deal covering the gamut of 3G and 4G technologies should remove any litigation uncertainty from both the stock names. Reduction in litigation expenses are obviously a bonus for both sides, and should boost margins and income in possibly difficult economic times ahead.

While much will be written about the pros and cons of this deal as more details emerge, commentary from this article caught my eye.

Why Qualcomm could be the big winner here:

“This is a huge win for Qualcomm,” said analyst David Marchesani, of Quality Growth Management in Rancho Santa Fe. Marchesani said the length of the deal and the number of technologies covered were noteworthy.
“You don't have to wonder whether they're going to have to go through all the same stuff again in three, four or five years,” he said. “This resolves a lot of uncertainties. And the market hates uncertainties.”

Reasons which favor Nokia:

Comments from a Nokia executive suggest that the company will pay less than the 5 percent royalty Qualcomm typically charges manufacturers. “We are happy to have a rate structure that will not slow down growth and innovation in the industry,” Nokia Chief Financial Officer Rick Simonson said. “We're not going to disclose the rate structure, but I will say 'mission accomplished.' ”

“We got a deal that was financially beneficial to Nokia,” he said. “It was worth it.”

It'll be interesting to see how the two stocks react tomorrow. Both are up after hours.

Full Disclosure: Opinions expressed are my own and do not represent any official view. Long QCOM.