Broadcom Corp. emerged last week as the victor in a four-year feud over wireless phone chip patents with Qualcomm Inc.
But analysts aren’t sure if the win will help the Irvine-based company’s big ambitions in wireless chips.
Broadcom is set to get $891 million over four years as part of a settlement with San Diego-based Qualcomm. The deal ends patent litigation as well as complaints before trade commissions in the U.S., Europe and South Korea.
Behind the dispute was Broadcom’s push to win more business supplying chips to wireless phone makers.
It already counts as customers the top two cell phone makers: Samsung Group and Nokia Corp.
But Broadcom still has just a small piece of the wireless chip market, well behind Qualcomm and Texas Instruments Inc.
And the Qualcomm settlement isn’t going to magically boost Broadcom’s share in wireless chips.
But, besides royalty payments, Broadcom is getting something it wanted out of the deal,access to Qualcomm’s patents.
“What they really wanted to achieve was access to Qualcomm’s (third generation wireless network patents) without having to pay a royalty,” said one industry watcher who asked not to be named. “They wanted a level playing field without the extra costs.”
But Broadcom still faces big hurdles.
“The potential reduction in legal fees is a nice positive, but ultimately the success of (Broadcom’s) costly (wireless) strategy does not hinge on this legal victory,” said Daniel Morris, an analyst at Oppenheimer & Co. in New York.
Older agreements with Samsung and Nokia are set to bring in revenue for Broadcom toward the end of the year. But the company’s most recent deals with the phone makers aren’t expected to produce sales for years.
Qualcomm, which lost most legal rounds with Broadcom, also gets something out of the settlement,rights to some of Broadcom’s patents.
“Qualcomm remains a formidable competitor and likely gains access to valuable portions of Broadcom’s patent portfolio, which includes areas considered to be its strengths, such as networking,” Morris said. “Over the past few years, Qualcomm has actively pursued opportunities to bolster capabilities in these areas.”
Positive for Broadcom
Despite some hang-ups, investors and analysts generally like the settlement because it puts a costly war behind Broadcom.
“After several years of legal battles, we view this settlement as a clear positive for Broadcom,” said Ross Seymore, an analyst at Deutsche Bank Securities Inc. in San Francisco.
Ross said he expects Qualcomm’s licensing payments to bolster Broadcom’s profits and bring in some $43 million in quarterly revenue.
The deal also means Broadcom will be spending a lot less on courtroom battles.
Ross estimates the company was shelling out roughly $60 million per year for legal and related fees.
Some like that sparring with Qualcomm will no longer be a “distraction” to Broadcom’s management.
“Management has a lot on its plate,” said Randy Abrams, an analyst at Credit Suisse Securities LLC in New York. “The cash settlement and end to ongoing litigation would remove a modest expense hit and free up management resources to focus on driving growth again.”
