Pointed out that Qualcomm's amazing patent strategy is behind Apple's aim to break away from Qualcomm
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Apple is focusing on its own chip production system by acquiring Intel's smartphone modem business, with the aim of reducing its dependence on Qualcomm chips and breaking away from Qualcomm's patent strategy. It is said that there is. Investor Evan Zimmerman explained Qualcomm's amazing margin rate that even Apple is afraid of and the strategy that makes it possible.
The Secret Behind Qualcomm's Margins? Patents
https://blog.withedge.com/p/the-secret-behind-qualcomms-margins
According to Zimmerman, the big difference between Qualcomm and other companies is that it doesn't separate its licensing and product departments, which are usually separate departments.
In a typical company, the licensing department licenses patents to non-competitive products. In particular, a handful of companies like Arm, which are able to create unique IP through research and development, have built business models centered around patent acquisition, which allows them to generate profit margins that exceed those of software companies.
When you think of making high profits from patents, some people may think of patent trolls, but companies like Arm are creating new things themselves, and they acquire patents for the purpose of suing other companies. It is completely different from patent trolls who go around buying and selling patents.
In contrast to the separate product and license model, Qualcomm is integrating its chip and patent licensing businesses. This means that in order for a company like Apple to buy Qualcomm's Snapdragon, it must also sign a patent license.
Regarding this, Mr. Zimmerman explained, ``Qualcomm is 'double-dipping' the revenue sources that most companies separate into two.''
The results of this model are reflected in Qualcomm's performance. According to Qualcomm's (PDF file) annual report , the licensing division QTL (Qualcomm Technology Licensing) will have a profit of $3.6 billion (approx. 524 billion yen) out of sales of $5.3 billion (approx. 771.5 billion yen) in 2023. ), the profit margin reached 68%. This is only 15.9% of Qualcomm's overall sales, but accounts for 49.3% of its net profit.
Although Qualcomm's profit margin in 2023 is lower than the previous year, it still achieved an overall profit margin of over 29%. Zimmerman said this number, which far exceeds the industry average of 22.74%, is ``an impressive performance in this highly competitive industry and highly regarded by investors in the financial district.''
Licenses are very expensive because Qualcomm negotiates on a business-wide basis rather than on a product-by-product basis. For example, Apple says it pays for the entire iPhone rather than individual models.
In addition, QTL can collect license fees for standard essential patents even if the other party does not use QCT (Qualcomm CDMA Technologies) chips, and has been involved in a two-year dispute with Apple over patent infringement lawsuits, which ultimately resulted in In some cases, we have been successful in obtaining large settlements.
Apple announces that it has settled with Qualcomm to end the ``quagmire legal battle'', and some say the settlement amount is about 670 billion yen - GIGAZINE
Qualcomm is able to adopt this strategy because it has a weapon of high originality. For example, Arm has to compete with open source architectures like RISC-V, but no company or entity can replace Qualcomm.
According to Zimmerman, Qualcomm's strength is related to the severity of its testing requirements. Modem testing requires the use of dozens of cell phone carriers' cell towers around the world, a complex process that is costly and time-consuming.
Regarding Qualcomm's strategy, Mr. Zimmerman said, ``Qualcomm's licensing business is the best in the industry and serves as a model for many companies. However, there are conditions for using patents like Qualcomm: to be fully prepared for lawsuits from companies that follow the same strategy, and to be technologically advanced so that no one can catch up. It means you have to be in the lead.”
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