Deal With Ewpe Could Bring A $0.3 Billion Boost To Qualcomm, Inc. (NASDAQ:QCOM)’s Licensing Business
Qualcomm, Inc. (NASDAQ:QCOM) recently inked a technology licensing deal with a unit of Gree Electrical Appliances called Zhuhai Ewpe Information Technology (Ewpe), a Chinese OEM. The deal revolves around licensing of 3G and 4G LTE technologies. According to Trefis analysts, the latest patent licensing agreement with Gree could add $0.3 billion in fresh revenue to Qualcomm’s licensing business.
Gree manufactures home electrical appliances through its subsidiary called Ewpe. However, it is expanding into smart appliances market and for that reason it is in need of technology to enable wireless connectivity in its products. Gree has turned to Qualcomm, Inc. (NASDAQ:QCOM) to allow it to use its 3G and 4G LTE technologies for a fee.
Initially, Gree will be licensing Qualcomm’s wireless modem and radio technology to enable it build smart appliances. But it is also planning to get into smartphone business, churning out phones that will be used as controls for its smart appliances. As such, there will be additional licensing revenue for Qualcomm when Gree expands into mobile phones business.
What’s in store for Qualcomm?
Trefis analysts recently provided a breakdown of the potential revenue boost Qualcomm, Inc. (NASDAQ:QCOM) will getting courtesy of its latest patent deal with Gree’s unit Ewpe.
First, Trefis estimates that Chinese smart appliances market could be worth $300 billion by 2020. In 2015, Trefis estimates that Gree generated $22 billion in net operating revenue. Assuming that Gree’s revenue grows to $29.3 billion in 2017 and 25% of its revenue comes from smart appliances, the company will be paying royalties to Qualcomm on $7.3 billion (which is the revenue generated from smart appliances business).
If Gree pays royalty at the rate of 4% on revenue, it means revenue of $7.3 billion will yield $0.3 billion for Qualcomm.
Licensing revenue spike to $7.9 billion
Therefore, Trefis sees Qualcomm, Inc. (NASDAQ:QCOM)’s licensing revenue expanding to $7.9 billion assuming the company currently generates licensing revenue of $7.6 billion. Qualcomm could extract more licensing revenue from Gree when it expands into phone making business.
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