Nokia's timing couldn't be worse for Qualcomm

Nokia's timing couldn't be worse for Qualcomm
Just when Qualcomm is distracted by its patent battle with Broadcom, in comes Nokia hoping the International Trade Commission will be just as kind as it has been to Broadcom in agreeing to ban imports of certain Qualcomm chipsets and handsets that it claims infringe on five of Nokia's patents.

In the latest of the many spats between the two companies, Nokia is accusing Qualcomm of engaging in unfair trade practices by infringing on five Nokia patents and using them in its CDMA and WCDMA/GSM chipsets. Qualcomm has already filed complaints against Nokia for allegedly infringing on six of its patents and the commission is expected to convene a trial on those accusations next month.

Nokia's Chief Financial Officer Rick Simonson told Dow Jones Newswires that he believes Qualcomm's recent patent setbacks with other companies gave Nokia an advantage.

"They're losing on the things that are very similar to the complaints we are filing," he said.

For sure, Nokia's move comes at an inopportune time for Qualcomm, whose general counsel Lou Lupin, the mastermind behind Qualcomm's historically stalwart IPR initiatives, resigned. Last week, the company was in federal court, urging a federal judge to reject Broadcom's request to ban its chips in the U.S.  The ITC imposed the ban in June after finding that Qualcomm infringed on a patent that protected Broadcom's technology to conserve phone battery power, and the Bush administration declined to veto it this month.

Qualcomm is adamant about not paying what Broadcom is requesting: $6 for each handset sold with technology based on the disputed patent. The company, which makes a substantial amount of money from patents, says such an agreement would cost the company between $1.5 billion and $2 billion during the three years remaining on the patent.

Moreover, a federal judge ruled earlier this month that Qualcomm engaged in "aggravated litigation abuse" and waived its rights to enforce certain video transmission technology patents related to the H.264 video compression standard used in some high definition products. The court ordered Qualcomm to pay all of Broadcom's fees and costs in defending the patent infringement case.

With all of this bad publicity, you'd think Qualcomm's stock was taking a beating-that all of these losses would be scaring the pants off investors. But at the end of Friday, the stock was up 1.65 percent or 61 cents to $37.54. Most analysts aren't downgrading the stock, but rather reiterating their "buy" ratings.  In a recent note, Goldman Sachs said it is keeping its "buy" rating in the midst of the litigation because of the company's positive fundamentals and its opinion that a resolution is inevitable. In the Broadcom ITC case, the firm said none of the possible outcomes meaningfully impact Qualcomm. In terms of Nokia, Goldman Sachs believes that Qualcomm holds significant negotiating leverage that could result in a favorable outcome for Qualcomm.

UBS noted in reiterating its "buy" rating that those "investors with tolerance for volatility are likely to be rewarded in the longer run."

The good news for Qualcomm is that since its fundamentals remain strong and analysts who recommend its stock aren't too worried yet, the company has a bit more wiggle room to try and maneuver itself out of its patent disputes. The question is: How long? -Lynnette