Huawei to charge royalties for 5G patents: What's the point?

Huawei released the "Innovation and Intellectual Property White Paper 2020", and at the same time disclosed the charging standards for 5G multi-mode mobile phones: Huawei's patent licensing fee for a single mobile phone that complies with 5G standards is capped at US$2.5, and it provides a reasonable percentage rate applicable to the selling price of the mobile phone.

For a technology company, R&D capability is the foundation of its sustainable development. As can be seen from the white paper, the fruitful results of Huawei's patented technology are inseparable from the company's continuous innovative investment in R&D.

As one of the companies with the most patents in the world, especially 5G intellectual property, Huawei said that it expects its intellectual property revenue to be between US$1.2 billion and US$1.3 billion in the three years from 2019 to 2021.

Huawei's fees have also sparked widespread debate, and many people quickly associated it with another company, Qualcomm.
However, after comparison, it was found that Apple had to pay Qualcomm $7.5 in patent fees for each mobile phone, which is much higher than Huawei.

In terms of revenue, Qualcomm's licensing business revenue in the first quarter of 2021 ending December 26, 2020 reached US$1.793 billion.

In fact, according to the report "Leaders in the 5G Patent Race" released by IPLytics in February this year, Huawei ranked first with 15.39% of patent applications, Qualcomm ranked second with 11.24%, and ZTE ranked third with 9.81%. Samsung ranked fourth and Apple ranked eleventh.

It is reported that in 2020, Huawei had 105,000 people engaged in research and development, accounting for about 53.4% ​​of the company's total number of employees. In 2019, R&D expenditure was RMB 131.7 billion, accounting for about 15.3% of the annual revenue. As of 2019, the cumulative R&D expenditure in the past decade exceeded RMB 600 billion (about US$90 billion).

There is no doubt that for Huawei and other companies, increasing R&D investment is not only necessary for the next economic transformation and upgrading, but also the key to improving the innovation and competitiveness of the entire country. Only by grasping the new direction of scientific and technological and industrial development and deploying in major cutting-edge fields as early as possible can we take the lead in future scientific and technological and industrial development.

Why start charging 5G patent fees at this time?

According to official explanations, R&D investment needs to be rewarded. For example, Qualcomm, a US company, has previously reported that it will earn 1.5 trillion yuan in 5G patent fees from China in the next seven years. According to the 5G patent fee standards announced by Qualcomm, multi-mode 5G mobile phones will pay patent fees at 5% of the selling price. In other words, if a domestic mobile phone sells for 3,000 yuan, it will have to pay 150 yuan to Qualcomm. According to expert speculation, there will be 600 million 5G mobile phone users in the country by 2025. In this way, Qualcomm can earn 1.5 trillion yuan from China in 5G patent fees alone. It can be seen that the benefits that 5G intellectual property rights can bring in the future are huge. For Huawei, how much you pay should be how much you gain, and collecting 5G patent fees is also a means of normal business operations.

All manufacturers (including operators, terminal equipment companies, etc.) that use Huawei's patented technology need to pay patent licensing fees to Huawei. According to incomplete statistics, Apple, Samsung and other major manufacturers are on this list. In an interview after the press conference, Huawei also stated that it will negotiate specific rates with these companies. And this also raises another problem. Many people are worried that the price of 5G devices from Apple and Samsung will increase.

On the other hand, Huawei's terminal business was previously damaged by the chip shortage. From Huawei's perspective, charging may make up for some of the losses caused by the chip supply cut. But it cannot completely make up for this part of the loss. According to Song Liuping, intellectual property income will not become Huawei's main source of income. Huawei's main business is operating products and services, which is also the company's long-term revenue focus.