Qualcomm Not Responsible for Price Differences Between CDMA and GSM Handsets
Qualcomm has recently borne the brunt of considerable openly hostile pressure from carriers - most notably from Reliance in India - to reduce its royalty fees. Carriers point out that higher royalties for CDMA chipsets mean they cannot meet the same price points as their GSM competitors, and the need to subsidize handset prices is seriously impacting their margins.
However, a new study by ABI Research indicates that royalties are not at the root of the cost differential between CDMA and GSM handsets.
Principal analyst Stuart Carlaw says, "The issue of royalties is just a convenient lever that carriers are using to put competitive pressure on the CDMA silicon market." ABI Research found that royalty costs for CDMA shipments into India were in the region of 5% of the total handset sale value. This is in line with Qualcomm's policy of normalizing royalty fees at the 5% mark on a global scale. The sole exception is the Chinese internal market where a 2-3% royalty fee is applied.
Carlaw goes on to add that, "Comparing low cost CDMA2000 and 2G GSM devices is a bit like comparing apples to pears. The question is whether there is a direct need for this degree of functionality at the silicon level in emerging markets, especially given the comparably higher IC costs."
Qualcomm does enjoy a very robust dominance of the CDMA silicon markets and it could be argued that such market dominance does not allow for normal competitive pressures to occur. However the pressure from carriers is having its effect: Qualcomm has announced the development of its QSC1100 low cost chipset that aims to redress some of the IC cost issues fuelling this confrontation."
Posted to the site on 7th November 2006
