Broadcom hints big changes to Qualcomm’s patent business

SAN FRANCISCO: As part of its US$103 billion (RM426 billion) bid to buy Qualcomm Inc, Broadcom Ltd has hinted that it would make big changes to Qualcomm’s patent licensing business, a major cash-cow for the company but a source of bitter conflict with regulators and key customers including Apple Inc.

But Broadcom has given few details on how it would go about revising Qualcomm’s practices.

Qualcomm has so far rejected Broadcom’s takeover offer, saying the offer undervalued the company and would face regulatory hurdles.

Patent licences accounted for some US$5.1 billion in pre-tax profits for Qualcomm in its fiscal 2017, compared with US$2.7 billion in pre-tax profits for its chip business that brings in two and a half times more revenue.

Thus, Broadcom chief executive Hock Tan would need to carefully pair any changes to the programme with cost cuts elsewhere, with Qualcomm’s annual US$5.5 billion research and development budget seen as a prime target by analysts.

If Broadcom is successful in buying Qualcomm, a source familiar with the matter said that Broadcom would try to maintain the economics of the licensing business by adjusting the pricing structure between the licensing and chip selling businesses.

It would also attempt to renegotiate contracts with major customers, said the source. Reuters