Chip to cut reliance on Qualcomm

Samsung Electronics Co. and LG electronics Inc., the two largest mobile handset producers in Korea, are developing core modem chips for mobile handsets. Success in those projects would mean that Korean handset manufacturers can cut huge costs in chip purchase prices and royalties that they pay Qualcomm. “Costs saved by a cut in royalties and imports may amount to 2 trillion won ($1.7 billion) in the next three years,” said an official from Eonex Technologies, Inc., a software developing firm. LG is currently testing a chip developed by Eonex, which supports the third generation wideband code division multiple access technology. “LG and Eonex are jointly testing the functions of the chip, and we will decide on whether to commercialize the product around September,” Kim Jong-eun, president of LG Electronics, said. Eonex currently has the license from Qualcomm that allows the company to develop mobile chips for commercial purposes. With the license, Eonex is allowed to provide the chips that it developed to not only domestic mobile manufacturers but also overseas producers. If Eonex succeeds in developing the chip, it can enter the code division multiple access standard mobile chip market, which is dominated by Qualcomm. Samsung Electronics on April 18 said that it is developing 2.5 generation code division multiple access chips and is contemplating installing the chips on Samsung’s products in the second half of the year. Samsung embarked on the development projects three years ago. Qualcomm holds the right for the core technology for the signal processing chip that is essential in manufacturing a mobile handset. Domestic handset makers buy the chip from Qualcomm and separately pay royalties for using the technology to the U.S. company. Chips cost from $10 to $30 per unit; and royalties are 5.25 percent to 5.75 percent of handset prices. From 1995 to 2002, domestic mobile makers paid a total of $1.3 billion in royalties to Qualcomm. Domestic companies also bought an estimated 500 billion won of chips from Qualcomm last year. Even if Samsung and LG develop their own chips, they still have to pay royalties to Qualcomm, because it holds the core technology. But Korean firms could gain greater leverage in royalty talks if they use domestically developed chips, which are 25 percent to 40 percent cheaper than Qualcomm’s, analysts said. by Kim Jong-yoon