Huawei Technologies has become the latest equipment manufacturer to sign a license agreement with Ericsson.

The Swedish manufacturer is pursuing an aggressive licensing programme for its W-CDMA patent portfolio, which is one of the most extensive in the industry. Huawei, a Chinese developer of mobile infrastructure and terminals, will pay Ericsson royalties for use of its patents and provide a reciprocal licensing agreement to the Swedish company. The deal with Huawei follows similar agreements with RIM and TCL Mobile.

“This agreement further demonstrates Ericsson’s commitment to fully support, and co-operate with local Chinese vendors in order to accelerate the development of 3G mobile telephony and facilitate the market growth in China. This will create new opportunities for both the local Chinese industry and Ericsson, and further leverages on Ericsson’s technology leadership and patent portfolio. Ericsson is promoting 3G in China and is showing the way to the rest of the industry by granting a license under terms to encourage competitive accumulated royalty rate for W-CDMA,” said Torbjorn Nilsson, Senior Vice President, Marketing and Strategic Business Development.

Insight

While Ericsson’s own handset venture with Sony is in danger of becoming seriously sub-scale (recent estimates from Strategy Analytics give it about 5% market share, well behind Nokia, Motorola, Siemens, Samsung and even LG), at least Ericsson can make money by licensing out its patent portfolio. Of all the major handset companies, Ericsson now appears most likely to succumb first to the coming wave of commoditisation by Far Eastern manufacturers.

SonyEricsson has some extremely innovative products in the pipeline, led by the forthcoming P800 smartphone, but unless it can claw back market share, it risks becoming a niche business. The market will be left to local companies such as Huawei and TCL Mobile in the Far East and global giants such as Nokia, Motorola and Samsung.

There is no immediate danger of Ericsson pulling out of its venture with Sony, but it may begin to look enviously at Qualcomm, which sold its handset operations to Kyocera and is now enjoying a high margin business licensing intellectual property and selling CDMA chipsets. It might be accused of selling the family silver, but with its financial stability under increasing scrutiny, Ericsson should not discount the possibility of restructuring as an IP, software and services provider.