Monday, 13 November 2006

Chips Drive Cost Differentials between CDMA and GSM Handsets, finds Study

Qualcomm has recently borne the brunt of considerable openly hostile pressure from carriers—most notably from Reliance in India—to reduce its royalty fees. Carriers point out that higher royalties for CDMA chipsets mean they cannot meet the same price points as their GSM competitors, and the need to subsidise handset prices is seriously impacting their margins. However, a new study by ABI Research indicates that royalties are not at the root of the cost differential between CDMA and GSM handsets.

Principal analyst Stuart Carlaw says, "The issue of royalties is just a convenient lever that carriers are using to put competitive pressure on the CDMA silicon market." ABI Research found that royalty costs for CDMA shipments into India were in the region of five percent of the total handset sale value. This is in line with Qualcomm's policy of normalising royalty fees at the five percent mark on a global scale. The sole exception is the Chinese internal market where a two-three percent royalty fee is applied.

Carlaw goes on to add that, "Comparing low cost CDMA2000 and 2G GSM devices is a bit like comparing apples to pears. The question is whether there is a direct need for this degree of functionality at the silicon level in emerging markets, especially given the comparably higher IC costs."