In order to protect its patent licenses from further infringement as well as to boost its open source platform for chip design, Qualcomm Inc. (QCOM - Analyst Report), which primarily develops chips for CDMA-based smartphones, plans to create a separate operational unit called the Qualcomm Technologies Inc.
The new business division, which will come into force from the first quarter of 2013, will consist of the research-and-development unit and the Qualcomm CDMA Technologies (QCT) segment, which comprised of the semiconductor business. The holding company will continue to manage the Qualcomm Technology Licensing (QTL) business segment and will also look after the corporate affairs of the company. Moreover, it will also retain most of its patent licensing portfolio while parting with a handful of patent portfolios to Qualcomm Technologies Inc. to share it with the third party (open source community) for creating an open source platform, thereby enhancing its future chip design.
Most technology companies remain exposed to the threat of intellectual property infringement and Qualcomm is no different. Earlier, the company faced many legal battles, which resulted in heavy litigation expenses. In, 2009, Qualcomm lost a long pending court-case against Broadcom Corp. (BRCM - Analyst Report) for violating its patent that resulted in an $891 million bailout for the company.
So to avoid such legal issues, Qualcomm decided to start a separate business unit primarily dealing with technology licenses as well as giving the opportunity to Qualcomm Technologies Inc. division to work closely with the Android application developer, in order to create advanced processors for future.
Qualcomm is already providing necessary tools and technical support to Android application developer to closely integrate the programs they develop into the Snapdragon S4 8960 processor. So segregation of its QTL segment will help the company to avoid any legal issues with the open source developer. Moreover, the authority to grant license will lie solely with the parent company, hence providing full security to its patent licenses.
Currently, Qualcomm has a Zacks #3 Rank, implying a short-term Hold rating on the stock.