Qualcomm settlement good for Broadcom, customers

The deal announced Sunday that settled years of patent suits between chip makers Qualcomm and Broadcom is good news for consumers as well as for the companies involved, according to industry analysts.

Qualcomm will pay Broadcom US$891 million over the next four years, and over that period, the companies agreed not to assert their patents against each other on their integrated circuits and certain other products and services. The out-of-court settlement ended litigation in the U.S., the European Union and South Korea. It followed a series of lawsuits back and forth, one of which nearly stopped many mobile phones based on Qualcomm chips from entering the U.S. Qualcomm is the world's biggest maker of cellular chips and owner of key technologies used in both CDMA (Code-Division Multiple Access) and 3G Wideband CDMA. Broadcom is a large communications chip vendor with a small but growing cellular business.

"I think this is really a plus for the marketplace," said Jack Gold of J.Gold and Associates. "It allows both of them to get back to the innovation cycle, as opposed to the lawsuit cycle."

Analyst Will Strauss of Forward Concepts estimated Qualcomm was spending $200 million per year on the litigation, in addition to executives' time and attention. The company acknowledged in the financial report for its fiscal second quarter that the feud had made an impact on it.

"While this settlement adversely impacted our second-quarter results, eliminating uncertainty, employee distraction and cost related to protracted litigation is a positive for our stockholders, customers, partners and the wireless industry," Qualcomm said in its financial press release. It is scheduled to make its first payment of $200 million to Broadcom by the end of June and took a $748 million charge in the quarter for the settlement.

The deal lets Qualcomm maintain its basic business model, in which it charges handset makers royalties for its intellectual property. It charges about five percent of the price that handset makers charge mobile operators for their phones, according to Strauss. Critics have complained that those fees are too high, and this deal isn't likely to change them, analysts said.

However, the settlement could make phone makers, and the carriers that buy their products, more secure.

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