Qualcomm is a developer of CDMA mobile phone technology used in about 43% of the 1.2 billion mobile phones sold worldwide.
The company’s dominance of upcoming 4G mobile phone technology is essential for Qualcomm to prevent faster erosion of the royalty rates that it charges mobile phone makers like Nokia, Motorola and Samsung. Historically, royalty rates have declined from about 4.7% of the sale price of a mobile phone in 2005 to about 3.9% today.
We expect the declining royalty rate trend to continue; however, it could decline even faster if Qualcomm is not able to maintain its position in 4G technology.
According to a recent article by ABI Research, Qualcomm holds about 16% of patents that are relevant to next generation 4G CDMA technology placing it ahead of Samsung (12%) and Nokia (6%).
Royalty rates constitute about 31% of the $41.94 Trefis price estimate for Qualcomm. On Trefis, you can see how Qualcomm’s stock would be impacted if Qualcomm’s CDMA Mobile Phone Royalty Rate were to decline more than expected.
