Chip maker Qualcomm Inc. has entered into a 3G and 4G China patent license agreement with China-based OEM Xiaomi Technology Co Ltd.
On Wednesday, Dec. 2, Qualcomm signed the licensing deal with Xiaomi, which will enable the latter to deploy the patents of the former to create and retail both 3G and 4G devices.
"Qualcomm is committed to the success of its partners in China as they continue to grow their businesses and we are pleased to reach this new agreement with Xiaomi. We work closely with our partners, such as Xiaomi, to push the boundaries of what's possible and drive the advancement of the mobile industry," noted Derek Aberle, President of Qualcomm Incorporated.
The licensing deal with Xiaomi brings Qualcomm a step closer to sorting out its licensing woes in the country.
For the uninitiated, Qualcomm is among the world's leading licensees of patents pertaining to cellular technology. The San Diego-based company garners over 50 percent of its profit thanks to the licensing patents.
Analysts believe that Qualcomm owns over 170 patents pertaining to LTE alone. In FY 2014, Qualcomm generated $8.2 billion in royalties alone from patents pertaining to cellular technology.
In the FY ended September, Chinese customers accounted for over 50 percent of the company's revenue.
In November, Qualcomm revealed that its projected profits were lower than expected due to delays in closing new licensing agreements in China. The chipmaker revealed that several Chinese consumers were also responsible for "improperly withholding" royalties on the patents as they changed the manner of reporting sales.
Post these comments, Qualcomm's shares fell by 15 percent in the ensuing trading session.
However, with the licensing deal with Xiaomi in place, Qualcomm will be able to breathe easy, as well as alleviate the concerns of its investors. Investor confidence will also increase considering Xiaomi is the second-biggest OEM in China.
According to the terms of the agreement, Xiaomi will be paying a royalty to Qualcomm on the devices the former sells - which are able to connect to both 4G and 3G networks. The exact terms of the deal are not known. However, the royalties Xiaomi will pay are in keeping with conditions a rectification plan Qualcomm submitted to the National Reform and Development Commission (NDRC) in China.