Qualcomm Signs Lenovo to China Technology Licensing Agreement

  • U.S. chipmaker had struggled to sign up Chinese phone makers
  • Licensing revenue is Qualcomm's biggest source of profit

Qualcomm Inc. signed new mobile-chip licensing terms with China’s Lenovo Group Ltd., the latest victory for the U.S. chipmaker as it seeks to collect revenue after a spat with the country’s government over fees that it collects in the world’s largest smartphone market.

Lenovo agreed to pay royalties in line with new policies that spell out how Qualcomm can charge customers for use of its technology in China, the companies said in a statement Thursday. Some local manufacturers had used their government’s investigation of San Diego-based Qualcomm -- settled last year after it paid a fine -- as a reason to hold off on paying all the fees that the chipmaker says it is owed.

With the deal, Qualcomm has now secured deals with China’s five biggest mobile-phone makers. Qualcomm is unique among semiconductor makers in that it gets most of its profit from licensing patents. Makers of phones pay the company royalties, whether or not they use its chips. That lucrative profit pool has come under attack as governments around the world scrutinized Qualcomm’s business practices.

The company is making progress in negotiations with Chinese handset makers and is on track to collect fees from about half of manufacturers responsible for a projected $83 billion in China sales this year, company President Derek Aberle said last week. Some are still unlicensed or undereporting sales, he said.

In fiscal 2015, Qualcomm Technology Licensing turned $7.9 billion of revenue into $6.9 billion of pretax profit for the company, underscoring how profitable its patent portfolio is. Even as the market evolves and Qualcomm’s licensing rate declines, the expansion of its reach to other new markets and resolution of disputes mean that its total revenue from the licensing business will grow, Aberle said. The company is projecting licensing sales of more than $10 billion by 2020, he said.

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