chsdbacks Chapter 474 Supply Disruption Crisis
Chapter 474 Supply Disruption Crisis
Qualcomm scheduled the meeting at its San Diego headquarters at 10:00 AM.
Ling Yun, along with Zhao Hu and two lawyers from the legal department, flew for twelve hours. The plane landed at 4 PM local time; the California sun was blinding, and the palm trees lining the highway stood motionless in the hot wind. Upon arriving at the hotel, Ling Yun had the lawyers review the patent list again, finishing at 1 AM.
The next morning, at Qualcomm headquarters. The conference room was on the sixteenth floor, with floor-to-ceiling windows overlooking the grey waters of San Diego Bay. Six people were seated at Qualcomm's side. The head of the China region sat at the far end, and the main speaker was the Senior Vice President of Global Licensing, a white man in his fifties named Michael, with very short hair and a habit of crossing his fingers on the table when he spoke.
"Mr. Ling, we've conducted an evaluation of Spark's patent portfolio." Michael opened a folder and pushed a page towards us. "This is our licensing offer."
Ling Yun glanced down. Five percent of the price of each phone.
He pushed the paper back. "This price is enough to buy half of our screen."
"This is the standard rate. We charge this price to all manufacturers using the WCDMA standard essential patents. Samsung, LG, Nokia, it's the same."
"It's different." Ling Yun leaned back in his chair. "Samsung's shipments are ten times ours. If you take five percent of their revenue, you'll make billions. How many units do we sell in a year? Are you taking a percentage or an absolute percentage?"
Michael's finger twitched. "The rates are uniform."
"Then this rate wasn't designed for us." Ling Yun stood up, walked to the floor-to-ceiling window, turned around, and said, "Michael, I'm not here to wage a price war with Qualcomm. Cross-licensing. You use Spark's non-communication patents—power-saving technology, touch algorithms, GPU architecture—and we pay reasonable communication patent fees. The difference is negotiable."
Michael exchanged a glance with the general counsel beside him. The general counsel leaned forward slightly. "Mr. Ling, cross-licensing is certainly something we can discuss. But our assessment concludes that Spark's non-communication patents aren't as valuable to us as you might think."
Which point do you disagree with?
"Touch algorithm".
Ling Yun smiled. He walked back to the table, took a document from Zhao Hu, and placed it on the table. "This is the touch algorithm licensing fee that Apple, Samsung, and LG paid to Xinghuo over the past two years. You say it's worthless, but they paid real money."
Michael opened the document and glanced at it for a few seconds. His expression didn't change much, but he slowed down the pace of turning the pages.
There was a silence in the conference room for about ten seconds. A warship slowly passed by on the sea outside the window, its gray-blue hull gleaming in the sunlight. Michael's phone vibrated; he glanced at it, then flipped the screen over and placed it face down on the table.
"Mr. Ling, if you have any objections to the 5% fee rate, we can arrange a second round of evaluation. But today, I'm afraid the authorization agreement cannot be signed."
Ling Yun stood up. "Then let's talk again after you've finished your evaluation. But I want to remind you of something—our standards team has already prepared the relevant materials regarding your proposal to exclude Spark in 3GPP, which involved several companies. If Qualcomm continues to use the standards-setting process to block competitors, we have other channels of communication."
You mean—
"Anti-monopoly investigation." Ling Yun buttoned up his suit jacket. "China, the EU, South Korea—you have anti-monopoly investigations underway in three jurisdictions. Xinghuo wouldn't mind being the fourth."
Michael's expression finally changed. It wasn't anger, but the expression of someone who had calculated everything only to have their opponent make an unexpected move. He slowly closed the folder, stood up, and extended his hand. "We will seriously consider your terms."
Ling Yun shook hands with him and turned to leave. Zhao Hu and the lawyer followed behind. As they reached the door, Michael said from behind, "Mr. Ling, do you know the secret to Qualcomm's survival in this industry for twenty years?"
Ling Yun turned around.
"It's a patent," Michael said. "Patents are our weapon. You may not like it, but it's the rule of the game."
"The rules of the game will change."
Ling Yun walked out of the conference room. The corridor was long, the fluorescent lights casting a white glow on the floor. Two lawyers followed behind, one of them whispering, "Mr. Ling, we didn't reach an agreement today. Should we prepare some antitrust materials when we get back—"
"Don't make a move yet." Ling Yun pressed the elevator button. "Let's wait for Qualcomm to make its move first."
It was already 2 PM when they returned to the hotel. Ling Yun stood by the window, gazing at the distant sea, and remained there alone for a long time.
Then he picked up his phone and dialed Liang Mengsong's number.
"Mr. Liang, we cannot accept Qualcomm's terms in the negotiations."
Liang Mengsong was silent for a few seconds on the other end of the phone. "What are the conditions?"
"Five percent of the price of each phone. There's also cross-licensing—they want all of Spark's communication-related patents, which they'll license to them for free, but they don't value our non-communication patents."
"These people—"
"Add another billion to the research and development budget for Noah's Ark," Ling Yun said.
There was silence on the other end of the phone. The sound of someone adjusting an oscilloscope behind Liang Mengsong, the clicking of the probe clipping onto the circuitry, could be heard.
"President Ling, one billion is no small sum. Moreover, it may take many years to see any return on this investment."
"I know," Ling Yun's voice was steady, "but some things can't be measured by rewards. If we kneel down now and agree to all of Qualcomm's conditions, the next generation will have to keep kneeling. When will that ever end?"
Liang Mengsong didn't answer immediately. After several seconds, he said, "Okay. I'll revise the budget tomorrow."
"Can we maintain the 2008 mass production target for baseband chips?"
"able."
"That's fine then."
After hanging up the phone, Ling Yun placed it on the windowsill. The warships in San Diego Bay had already sailed far away, leaving only a few white contrails slowly fading into the distance. He stood there for a moment, then picked up his phone again and dialed Chen Zhongming's number.
"Zhongming, the deal with Qualcomm fell through. Have the legal department prepare for two things. First, Qualcomm might apply for a sales ban on the Spark phone in several key global markets. Second, they might exert pressure through diplomatic channels, demanding that China strengthen patent enforcement. We need to prepare for the worst."
"Understood. Should we stockpile a batch of Qualcomm chips in advance?"
"No need. Their current supply cut will only affect low-end models. We have our own StarCore chips for high-end models. As for the low-end—" Ling Yun thought for a moment, "Let Li Mo assess whether we can use MediaTek chips to tide us over if Qualcomm really cuts off the supply."
"I'll arrange it."
Qualcomm took action two weeks later.
First, there was the chip supply issue. Qualcomm's account manager sent Ma Baoguo a polite email stating that due to global production capacity constraints, the delivery time for Snapdragon chips would be extended to six months. Ma Baoguo called to inquire, and the other party said it was due to force majeure and that all customers were in the same boat.
"Bullshit. They were still urging us to place an order last month." Ma Baoguo printed out the email and slammed it onto Ling Yun's desk.
Next, there was the 3GPP side. At the standards meeting, Qualcomm, along with several allies, proposed a motion requiring all WCDMA terminals to pay an additional network compatibility certification fee. Ostensibly to ensure network quality, this was essentially adding a barrier to entry for new entrants. Spark's representative immediately opposed it, but Qualcomm had enough allies that the motion was passed.
When Li Mo came to find Ling Yun, he spread the meeting minutes out on the table page by page, his tone very aggressive, "They've added another layer of tax on top of the existing patent fees. It's obvious they're targeting us."
Ling Yun flipped through the meeting minutes, but didn't show the anger Li Mo had expected. He closed the document and said something that surprised Li Mo: "They're panicking. That means we're on the right track."
Li Mo paused for half a second, then asked, "You're not angry?"
"What's the use of getting angry?" Ling Yun stood up and walked to the window. "Qualcomm used this tactic on Japanese companies twenty years ago, on Korean companies ten years ago, and now they're using it on Spark. Same formula, same process—first, they charge high licensing fees, then they cut off supplies if you can't reach an agreement, and if that doesn't work, they exclude you from the standards organization. There are dozens of small companies worldwide that have been ruined by them."
He turned around, the sunlight from the window casting a glow on his back, his face hidden in shadow. "But this stuff won't work on Spark. Because we never intended to rely on Qualcomm to survive. I knew this day would come the day Noah's Ark was launched."