Amid cost cuts, Qualcomm tweaks patent-licensing business

Qualcomm reported a sharp decline in its quarterly profits, largely due to a reduction in the amount of money it obtains from licensing its patents to other companies. And Qualcomm’s CFO also promised that the company would implement more cost-cutting actions in the coming months.

Interestingly, Qualcomm’s management also indicated the company is adjusting its patent-licensing terms, which some analysts said could result in a reduction in licensing fees paid by some of Qualcomm’s bigger customers, like Samsung.

During the company’s earnings conference call yesterday, Qualcomm’s CFO George Davis said that the company has implemented “a voluntary revised cap in which the maximum net selling price of a handset on which the royalty is based will be capped at $400 per device, down from $500 per device. This will be broadly implemented in fiscal Q4 and we do not expect a material impact overall,” according to a Seeking Alpha transcript of his remarks.

However, in comments to Reuters, Summit Insights Group analyst Kinngai Chan said the result of Qualcomm’s actions is that some of its patent customers may end up paying less to Qualcomm for licenses to those patents. “It’s cheaper for most people,” Chan said. “What Qualcomm is trying to do is ... get everyone to sign a licensing agreement with them so they don’t have to worry too much.”

Qualcomm’s tweak to its licensing program came after the company’s announcement in November of what it would charge handset makers for its 5G intellectual property. Specifically, the company said that it could charge smartphone manufacturers up to $16.25 in royalties for every 5G phone they sell. At the time, the company said it would cap its royalty rates at $500 for the selling price of the phone; yesterday the company lowered that price to $400.

Those changes are noteworthy considering that, as the Wall Street Journal pointed out, Qualcomm’s revenue from licensing patents fell 44% year over year to $1.26 billion in its most recent quarter. That decline stemmed from Qualcomm’s protracted patent-licensing disputes with Apple and Huawei.

In other Qualcomm news, the company continues to engage in layoffs and other cost-cutting actions to reach its target of $1 billion in savings. And Qualcomm’s CFO hinted to the WSJ that the company would engage in additional cost-cutting actions in the coming months. However, he didn’t provide any further details.

Qualcomm also continues to work to close its acquisition of NXP, a transaction that is being held up by the Chinese government. “While we continue to work closely with the Chinese regulators and remain optimistic about getting the necessary regulatory approvals there, it is clear that the geopolitical environment and trade actions are having an impact,” Qualcomm’s CEO Steven Mollenkopf said yesterday, according to the Seeking Alpha transcript.