Samsung may secure more fees from Google

Samsung Electronics may be able to receive higher licensing fees from Google in return for keeping the latter’s search engine as the default on Galaxy smartphones and tablets if current negotiations go well, the company announced Monday.

The negotiations underway surfaced after Toni Sacconaghi of Bernstein Research said in a note to investors that he believes Google is expected to pay Apple about $3 billion in licensing fees this year, up from $1 billion just three years ago.

Samsung has already been receiving an undisclosed amount of commission fees from Google, which has been capitalizing on advertising income from various default Android apps, including the Google search engine, from the early days of the Galaxy smartphone, according to a Samsung spokesman.

It is customary that other smartphone producers get licensing fees in varying sizes on a regular basis from Google, he added.

The two companies signed a mobile application distribution agreement in 2011 under which Google requires phone makers set Google Search the default if they want to install any of their apps in their devices.

“Negotiations to renew the contract are ongoing,” the Samsung spokesman said, without elaborating on details.

Google refused to comment on the matter at hand.

“While Android is free for manufacturers to use, it’s costly to develop, improve, keep secure, and defend against patent suits,” Google said in a note responding to an inquiry. “We provide Android for free, and offset our costs through the revenue we generate on our Google apps and services we distribute via Android.”

Unlike with Apple, which runs its own operating system, Google maintains a unique relationship with Samsung, which uses Android for most of its smartphones and tablets. The smartphone maker has the largest market share in the world.

Mobile search is known as a major revenue driver for Google, but the licensing fees that Samsung is receiving from Google may not be as big as what Apple is getting, data shows. Two years earlier, Goldman Sachs estimated that about 75 percent of Google’s mobile search revenue was generated from Apple devices. Berstein’s Sacconaghi cites court documents dating back three years to support his reasoning.

“Court documents indicate that Google paid Apple $1 billion in 2014, and we estimate that total Google payments to Apple in fiscal year 2017 may approach $3 billion,” he wrote in the note. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5 percent of Apple’s total operating profits this year, and may account for 25 percent of total company operating profit growth over the last two years.”

The court documents he mentioned refer to a transcript of court proceedings related to a copyright lawsuit filed by Oracle against Google, which said Google paid Apple $1 billion in 2014 to keep its search bar on Apple phones.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]