Leading mobile chipset manufacturer, QUALCOMM Incorporated (QCOM - Free Report) recently leveled charges against smartphone maker, Meizu in the U.S., Germany and France. Qualcomm has filed a complaint with the United States International Trade Commission (ITC) concerning a patent infringement action in Germany with the Mannheim Regional Court. In France, the company initiated an infringement-seizure action to obtain evidence of any possible patent violation action in the future. Notably, Qualcomm had filed a similar lawsuit against Meizu in a Chinese Intellectual Property court earlier this year.
According to Qualcomm, as many as 100 Chinese companies have agreed to pay licensing fees for 3G and 4G LTE technologies, with the exception of Meizu. By using Qualcomm’s technology without a license, Meizu could dent its competitive position in the country, as licensees will incur higher costs for manufacturing smartphones.
The Bottom Line
Shipping about 20 million smartphone devices in 2015, Meizu is one of the top 12 smartphone makers in the world in terms of sales and shipments. Thus, by filing lawsuits against the company in multiple countries, Qualcomm intends to mount pressure on Meizu and force it to enter into an agreement. Importantly, technology licensing fees comprise a major chunk of revenues for Qualcomm and it fears that the trend of non payment of these fees may spill over to other licensees, which will hurt its top line. Thus, these legal proceedings are likely to help Qualcomm conserve its license-based revenues, especially in the face of competitive pressure from low-cost chip manufacturers like MediaTek as well as established chipset makers like Intel Corporation (INTC - Free Report) and NVDIA Corporation (NVDA - Free Report) .
Qualcomm currently carries a Zacks Rank #3 (Hold). InterDigital, Inc. (IDCC - Free Report) is a better ranked stock in this industry having a Zacks Rank #1 (Buy). It has seen 3 upward revision in estimates for the current quarter in the last 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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