What's Behind the Huawei-Nokia Licensing Deal?

Nokia this week announced it has signed multi-year patent license agreement with Huawei (News - Alert). In doing so, Nokia noted Huawei “is among the world’s leading smartphone manufacturers.”

Details of license agreement are confidential. But one estimate puts its value for Huawei at $118 million. Nokia (News - Alert) says its revenue based on the new agreement with Huawei will yield results starting this quarter.

The deal turns these fierce competitors into frenemies. And it marks Nokia’s latest effort to diversify its offerings at a time in which the industry’s network equipment sales have slumped.

“More than 90 percent of Nokia’s revenue comes from telecoms network equipment, but the licensing payments are highly profitable which is especially welcome as the network business is suffering an industry-wide slump,” reports Reuters.

An April BloombergMarket report notes that Nokia’s Technologies unit sales expanded 25 percent in the first quarter. That’s the unit in charge of the company’s patents.

“The division collects revenue for its trove of intellectual property related to mobile phones, a business Nokia used to dominate but exited a few years ago,” BloombergMarket explained.

But lately Nokia has been easing its way back in. In addition to its new deal with Huawei, the world’s third largest smartphone vendor by value, Nokia recently struck licensing deals with handset makers Apple (News - Alert), LG, Samsung Electronics, and Xiaomi. Speaking of Xiaomi, media reports note that Huawei and Xiaomi have been in talks about providing their smartphones to AT&T (News - Alert) and Verizon in the U.S.

“It’s possible that Huawei is entering into this licensing agreement to protect itself from potential litigation as it improves its distribution footprint,” Forbes reports. “Nokia’s deep portfolio of essential patents relating to GSM, 3G radio and 4G LTE (News - Alert) technologies – many of which were developed back when the company dominated the mobile handset business – could be valuable to Huawei. Besides this, Nokia’s other noteworthy patents relate to Wi-Fi and video standards as well as technologies that reduce the need for hardware components in a phone, improve radio reception and enhance battery life.”