Huawei 'Strikes Back': Global 5G Patent Battle Might Be Getting Started

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Some may believe that the brand-new patent royalties plan is a measure to alleviate this situation. We analyze some possible rationales and effects in the following chapter.

5G royalties: why and what for

The most straightforward point is that patent royalties can increase Huawei's revenue, which was damaged by geopolitical tensions. Nevertheless, Liuping Song, Huawei's CLO, said that intellectual property will not become Huawei's main source of revenue, which instead will remain products and services. According to the company's estimates, its royalty revenue will only be about CNY 8 billion (USD 1.2 billion) from 2019 to 2021.

Moreover, royalty-based companies do not always have positive gains in their business operations. From a standpoint of market research, we believe that Huawei has analyzed the profits of the companies relying on royalties, such as Qualcomm, and recognized the risks. As a comparison, Qualcomm's patent licensing business accounts for more than 60% of the company's total profits. Most patents held by Qualcomm are 2G-related, 90% of which are CDMA-related. After that, since the 3G era all the way through the first years of the 5G rollout, the relative number of registered patents of Qualcomm has been decreasing. For example, in the 3G era, Qualcomm owned 27% of the core patents. In the 4G era, it had only 16%, while in the 5G era, it is currently holding only 8% of the total.  Over time, the American chipmaker paying a great deal of attention to patent royalties has seen one of its critical revenue directions shrinking.

Secondly, royalties may help Huawei win greater representation globally, from both a quantity and a quality perspective. In terms of quantity, according to Iplytics, Huawei ranked first in the field in 2020 with 3,147 patents, surpassing the second-place player Samsung (2,795). Huawei is also the company with the largest number of authorized patents in China. Beyond the absolute numbers, the F-OFDM developed by Huawei has become a globally unified 5G hybrid new waveform technical standard, and the polar code proposed by Huawei has also become the coding scheme of the 5G control channel for both the base station equipment and optical communication equipment. Moreover, Huawei is the international standard developer of IPv6. It provides more than 70% of the network equipment for the world's largest IPv6 network, the CNGI, which has been running steadily for over six years now.

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