Qualcomm’s Huawei Deal Will Clear The Road For 5G Rollout
San Diego chip giant Qualcomm Incorporated (NASDAQ:QCOM) released its earnings report for the third quarter of the fiscal year 2020 yesterday, as it announced two key shifts in the smartphone semiconductor sector. First, Qualcomm confirmed that it had settled licensing disputes with Huawei, and second, it revealed that a key flagship 5G smartphone launch will be delayed. Here are all the relevant details.
Qualcomm's Huawei Settlement Is Worth $1.8 Billion, Company Retains Initial Calendar Year 2020 5G Shipment Forecast
The smartphone and silicon industries are dominated by patent ownership – with the few lucky companies that do have ownership of key technologies being able to set the tone for the entire industry. As countries all over the globe move towards fifth-generation cellular networks (5G) Qualcomm and Huawei had had to battle it out for supremacy, owing to the pair's ownership ko the aforementioned key patents.
To this end, Qualcomm's announcement that it has ended all disputes with Huawei and reached a settlement worth $1.8 billion with the Chinese telecommunications giant is welcoming as it will remove a key roadblock in the 5G rollout. Huawei is one of the two tech companies in the world that sells both 5G smartphone equipment and gear for telecommunications carriers, and the company's plans to gain an edge in the 5G smartphone modem market were marred earlier this year when the United States Department of Commerce prevented Taiwanese semiconductor fabricator Taiwan Semiconductor Manufacturing Corporation (TSMC) from selling products fabricated on its leading-edge semiconductor nodes to the Chinese company.
To understand the significance of the deal between the two companies, a report by research firm GreyB that provides details about the non-SEP (standard essential patents) patents shows just how neck to neck Qualcomm and Huawei really were. The data shows that Huawei led the pack as of September 2019 with 5G patents as it owned the rights for 13,474 technologies.
In second place was Qualcomm through its ownership of 12,719 patents, with Samsung coming in third place. It also reveals that Samsung leads the pack in mmWave patent ownership, and after Qualcomm, Santa Clara chip giant Intel Corporation has the highest patent ownership for beamforming technologies. GreyB also reports that as of March last year, Huawei led the pack for declared 5G EP patents and Qualcomm came in second-last in a list of six companies. Given the reliance of 5G technologies on 4G and LTE standards for critical areas such as duplexing, experts have also pondered over the fact that perhaps Huawei's lead in the area is artificial.
At the earnings call yesterday, Qualcomm also chose to maintain its 5G device shipment estimates for the calendar year 2020. These stand unchanged for a range that stands in between 175 million and 225 million shipments, and the company expects actual numbers to fall in the upper end of the estimate. The company's confirmation that a major flagship 5G smartphone delay will end up affecting its forward guidance for the fourth quarter of the fiscal year 2020 (ending in September) reveals that the bulk of the impact from this delay to Qualcomm will be to the company's product arm, Qualcomm CDMA Technologies (QCT).
The company revealed that a segment of the sales for this smartphone have been shifted to its current quarter and that another segment of the sales will take place at the end of this year - most likely in December. Following the earnings report yesterday, Qualcomm's shares are up by nearly 11% in pre-market trading on 09:03 ET as the market shares its optimism on the Huawei settlement.
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