LG likely to ink patent agreement with Microsoft next month

Vice chairman Koo may meet Microsoft counterpart at APEC CEO Summit


LG Electronics will likely ink an agreement on patent loyalties with U.S. software giant Microsoft as early as next month, industry sources said Tuesday.

The move is expected to further burden the Korean firm which is currently suffering from a sparse smartphone line-up. It could incur losses that amount to millions of dollars as the source noted that the firm is most likely to offer $3 per every Android device to Microsoft. A big portion of LG’s smartphones are currently running on the Android platform.

LG Electronics vice chairman and CEO Koo Bon-joon may meet his Microsoft counterpart at the APEC 2011 CEO Summit in Honolulu on Nov. 10-12, according to a source familiar with the matter.

The APEC forum has stated that Microsoft’s chief research and strategy officer Craig Mundie will be attending the event.

LG Electronics is expected to pay a figure similar to what its rival Samsung Electronics has agreed to give Microsoft for every Android-based device it sells -- estimated to be around $3 per gadget, the source said.

However, LG Electronics refused to confirm the report, saying the issue was not a topic under discussion right now.

“We haven’t heard anything special about our Android-based mobile phones,” an LG spokesperson said.

LG Electronics has recently shown sluggish sales of mobile phones that contributed to bringing down its credit rating outlook, but it is among the major mobile vendors, along with Samsung Electronics and HTC, that adopted Google’s free-to-use Android platform.

Koo Bon-joon

Bill Gates

LG has sold about 10 million smartphones units globally in the first half of this year, with it targeting sales of 24 million units by the end of this year. Considering that most LG smartphones are equipped with the Android platform, it is expected in incur losses of over $60-70 million solely in 2011.

Microsoft, however, has been arguing that the Android platform infringes on a number of its patents and that Android device makers must respect its intellectual property rights.

Due to such claims, Taiwan’s HTC gave the green light to a cross-licensing deal with Microsoft. HTC reportedly agreed to give $5 to Microsoft for every Android gadget sold in the market.

The practice was also implemented by LG’s biggest rival Samsung Electronics on Sept. 28. The event received increased attention because Samsung is also the No.1 maker of Android-based wireless devices.

Samsung did not disclose how much it has offered to pay Microsoft for every Android-based gadget it sold, but its official said it was lower than HTC’s $5 per device.

In return of royalty fees, the two firms said they would cooperate closely on the development and marketing of Microsoft’s Windows Phones.

Microsoft is currently planning to launch Samsung and HTC smartphones, running on its Mango OS, in the U.S. and Europe in the coming weeks.

Over half of the global contract manufacturer industry, or 53 percent, of Android and Chrome devices, is now under license to Microsoft, ultimately making Microsoft the winner involving its patent war against Android mobile vendors.

“LG has no other options then to follow the practice of its predecessors,” said another industry source who wished to remain unnamed. “Samsung did it and so did HTC. If LG decides not to go with it, the firm will end up losing a greater sum of money in court.”

Lee Soon-hak, an analyst at Mirae Asset Securities, said LG Electronics will eventually follow the footsteps of other vendors like Samsung and HTC, but the impact of the agreement on its earnings will differentiate depending on the timing.

“It will depend on conditions like the figure of the royalty agreed by the two sides and when LG will reflect it in its earnings report,” he said.

Some analysts, however, said the impact of the royalty payment will be limited for LG due to its current low earnings figure.

“Because LG is not showing a good performance, the event will affect its stocks limitedly, considering that the firm has low expectations (from the market) at this point,” said Lee Seung-woo, an analyst at Shinyoung Securities.

By Cho Ji-hyun (sharon@heraldcorp.com)