Samsung Rejects Qualcomm


Watch out, Qualcomm (NAS: QCOM) !

Korean electronics conglomerate Samsung and a whole slew of Japanese firms are looking to form a joint venture to develop baseband chips for smartphones, an area currently dominated by Qualcomm. The group includes Fujitsu, NEC, and Panasonic, while NTT DoCoMo would take a majority stake in the venture.

Baseband chips are crucial to smartphones since they facilitate signal transmission to network towers. Qualcomm's baseband chips have won spots in big-name smartphones like Apple's (NAS: AAPL) Verizon iPhone 4 and Motorola Mobility's (NYS: MMI) Droid Bionic. Rumors even suggest that Qualcomm has secured a design win in the imminent iPhone 5.

Samsung and other chip companies have been trying to wean themselves off of Qualcomm's expensive royalty payments for quite some time. Sammy took the initiative years ago, foreseeing the eventual shift from 3G to 4G and working on its own chips so as not to rely on Qualcomm, which owns a substantial portion of intellectual property related to 3G (but not as much surrounding 4G technologies like WiMAX and LTE).

For now, Qualcomm is still delivering strong results despite this threat. Total revenue rose 34% last quarter with licensing and royalty fees jumping almost 42%. Winning a place in the iPhone lineup that was previously inhabited by Infineon, whose wireless unit was bought by Intel (NAS: INTC) , is an encouraging sign of possible things to come. Qualcomm still has a very strong IP portfolio to leverage, even if a handful of overseas customers have had enough.

At the time thisarticle was published Fool contributorEvan Niuowns shares of Apple, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Apple and Qualcomm. The Fool owns shares of and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Apple and Intel, as well as creating a diagonal call position in Intel and a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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