Nokia Settles Patent Dispute with Qualcomm; Q3 Earnings Disappoint

Includes: NOK, QCOM
by: Ron Haruni

Finland’s handset maker and leading mobile phone supplier Nokia (NYSE:NOK), after reporting Thursday its Q3′08 results — gave confirmation that will pay a lump-sum payment of 1.7 billion Euros ($2.3 billion) to Qualcomm Inc. (NASDAQ:QCOM) as part of the patent agreement between the companies.

The newly confirmed deal covers various current and future standards and other technologies, thus resulting in a settlement of ‘all litigation’ between the two rivals.

Under the terms of the 15-year agreement which effectively ends over three years of dispute between Nokia and Qualcomm, the Finish company has been granted a license under all Qualcomm’s patents for use in Nokia’s mobile devices and Nokia Siemens Networks infrastructure equipment. In other words, Nokia is paying a settlement in order of being able to utilize Qualcomm intellectual property.

In its earnings release, Nokia said:

As a result of the agreement with Qualcomm and certain other license agreements concluded during the third quarter 2008, Nokia incurred a slightly positive impact to its gross margin during the quarter, as the royalty provisions earlier recorded well covered the related obligations.

The 1.7 billion Euros ($2.3 billion) amount is payable during the fourth quarter of the current year.

By coming to a resolution that benefits both sides, the news can certainly be described as a positive development for the cellular industry.

On Thursday, Nokia released its third quarter earnings, and they were a disappointment. Its net income fell nearly 30% from last year. Earnings for the quarter came in at 29 Euros a share, falling from a profit of 40 Euros a share in the year-ago period.

Handset maker’s net sales were 12.2 billion Euros, down 5% year on year and down 7% sequentially. Devices & Services net sales posted 8.6 billion Euros, down 7% year on year and down 5% sequentially.

On the positive side, Nokia said adjusted gross margin increased to 35.7% from 34.5% a year earlier. In the third quarter ‘08, the total mobile device volume of Nokia’s Devices & Services group reached 117.8 million units, representing 5.5% year on year growth and a 3% sequential decrease.

Nokia said it expects industry mobile device volumes in the fourth quarter 2008 to be approx. 1.26 billion, up from 1.14 billion units it estimated for 2007.

Disclosure: None