Royalty Politics
Samsung Electronics is trying to reduce the patent royalties required for smartphone manufacturing and sales as the manufacturing costs of the Galaxy S6 have increased quite a bit.
Approximately 110 components are used in the Galaxy S6, about 30 more than in the Galaxy S5. In addition, the former uses more expensive materials such as reinforced glass and aluminum. According to Techinsights, the component costs of the Galaxy S6 are estimated at US$280, 12 percent higher than those of the Galaxy S5.
Meanwhile, the selling price has rarely increased. The factory prices of the Galaxy S6 are 858,000 won (US$787) and 924,000 won (US$848) for the 32 GB and 64 GB models, respectively. That of the 32 GB and 64 GB models of the Galaxy S6 Edge are 979,000 won (US$899) and 1,056,000 won (US$969) each. The 32 GB model of the Galaxy S5 was available at 868,000 won (US$797). This is why the manufacturer is trying to cut the royalties.
In this context, Samsung Electronics is putting pressure on Qualcomm. Qualcomm takes 2.5 percent to 5 percent of the selling price as its patent royalties for those smartphones using its application processors. It is said that Samsung Electronics has paid over 10 trillion won (US$9.2 billion) to Qualcomm during the four years since the release of the Galaxy S.
To that end, Samsung Electronics used the Exynos application processor it developed on its own in 100 percent of the Galaxy S6. Under the circumstances, Qualcomm is mulling over a cut in patent royalties to not lose the largest mobile application processor chip customer in the world. According to industry sources, in addition, Qualcomm is looking to split the technical licensing business unit from its chip manufacturing division due to the dim outlook of its application processor business.