& cplSiteName &

Qualcomm Looks to Soften China Antitrust Blow

Robert Clark
News Analysis
Robert Clark
7/25/2014
50%
50%

Chipset giant Qualcomm faces a hefty fine and a cut in royalty fees as the antitrust probe into its China patent licensing reaches its final stage.

After an eight-month inquiry, the National Development and Reform Commission (NDRC) has determined that Qualcomm Inc. (Nasdaq: QCOM)'s 4G licensing fees are a monopoly under the Anti-Monopoly Law. This is not illegal in itself, but the logic of the process is such that a stiff penalty is inevitable, with domestic media suggesting it could amount to as much as US$1 billion.

The San Diego-based chipmaker, which derives two-thirds of its profit from royalties and sells significant volumes of its processors in China, also appears to have come around to that view. (See Qualcomm Announces Record Third Quarter Fiscal 2014 Results.)

CEO Steve Mollenkopf flew into Beijing Thursday on his third visit to the country since becoming CEO in March. He met with officials, including Premier Li Keqiang and the NDRC, and held a press conference to announce a $150m fund to invest in Chinese startups. Just three weeks ago the company said it would collaborate with Shanghai fab SMIC on 28nm wafer production. (See Qualcomm Commits Up To $150 Million to Strategic Venture Fund in China and SMIC and Qualcomm Collaborate on 28nm Wafer Production in China.)


For more communications processor market coverage and insights, check out our dedicated Comms Chips content channel here on Light Reading.


If Qualcomm feels like it has a target on its back, it isn’t alone among foreign firms in China. In 2013 milk powder companies were fined $110 million for price-fixing, while pharmaceuticals firm GlaxoSmithKline is embroiled in a bribery scandal featuring a sex tape involving its former China chief, and even Starbucks has come under fire for selling expensive coffee.

But analysts point out that while xenophobia may not be far from the surface, high-profile foreign firms are being singled out as a politically safe way of signalling to domestic companies that they need to clean up their act.

IN addition, the Chinese also feel they have a reasonable case against Qualcomm. The say that, as a rule of thumb, patent licensing fees for various technologies shouldn't cumulatively account for more than 10% of the sale price: Qualcomm on its own levies a 5% royalty fee.

Qualcomm has said the uncertainty created by the probe has meant it has had difficulty in collecting from customers -- including one large, unnamed firm -- prompting a 6.65% slide in its stock price Thursday to end the day at $76.17.

If that's not troubling enough, the Financial Times reports that Qualcomm might have to settle by foregoing royalties for LTE TDD, the variant of 4G being deployed on a massive scale by China Mobile Ltd. (NYSE: CHL) and in some areas by the country's other two main operators. (See China Issues More 4G Licenses and China Holds Key to LTE TDD.)

Chinese critics point out this isn't Qualcomm's first brush with competition law. In 2009 the Korean competition regulator fined Qualcomm a record $207 million for abusing its market power over Korean vendors when it held 99.4% of the CDMA chip market.

Meanwhile, Qualcomm continues to produce healthy financial results. For its fiscal third quarter that ended June 29, the company posted record revenues of $6.81 billion, up 9% from a year earlier, and net income of $2.24 billion, up 42%.

— Robert Clark, contributing editor, special to Light Reading

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
R Clark
50%
50%
R Clark,
User Rank: Blogger
7/28/2014 | 8:44:32 AM
Re: QCOM Antitrust article
Thanks for the clarification @QCOM1. In my story I did try to suggest the enthusiasm of the China media both for the probe and the widely-embraced figure of US$1bn.  The NDRC never takes calls from foreign media, and the Qualcomm CEO declined to take any questions on the matter at his Beijing presser, so I didn't bother reaching out to either party to check the figures.
danielcawrey
50%
50%
danielcawrey,
User Rank: Light Sabre
7/26/2014 | 12:48:01 PM
Re: QCOM Antitrust article
Qualcomm has done quite well in charging high fees for its intellectual property. It almost seems as if the Chinese government in partiuclar is not happy with that. 

It's also pretty clear that the state-run Chinese companies that use Qualcomm's technology that they would love to get a hold of it to better compete on costs - a influential factor in all of this for sure. 
kq4ym
50%
50%
kq4ym,
User Rank: Light Sabre
7/26/2014 | 8:57:00 AM
Re: QCOM Antitrust article
All the news about governments going after foreign firms for all sorts of alleged wrong doing and for using unfair business practices makes me wonder what's really  going on. Are the governmentss legitimately targeting these companies or is it a case of changing the rules during the game? One would think international companies and their lawyers would dot the "i" and cross the "t" before they engage. But, maybe it still a case that laws and business contracts are so complex now, that it's likely a government agency can find fault no matter how diligent the company lawyers?
QCOM1
50%
50%
QCOM1,
User Rank: Light Beer
7/25/2014 | 1:49:38 PM
QCOM Antitrust article
Re: QCOM  antitrust article

Yours and several articles suggest QCOM could face a "hefty fine... as much as US$1B..",  using  QCOM's revenue by geographical area  figure of about one half of its revenues being from China.

Last December you wrote on this subject, more realistically estimating that number--

"...  Officially, 49% of Qualcomm's 2012 revenue came from China, although most of that was from the assembly of chips sold elsewhere. In reality, the real figure is estimated to be around 20%...."

Per QCOM's  10K - " We distinguish revenues from external customers by geographic areas based on the location to which our products, software or services are delivered, or for QTL licensing revenues, the invoiced addresses of our licensees...."

I believe it's much less than 20%, perhaps $900 million in royalty revenue (200M devices, $150 ASP, and 3% royalty rate) plus another $1 in chipset sales to the domestic Chinese market.  This would yield about a $200 million penalty at the maximum 10% of revenue rate, not the $1 billion being floated around.
From The Founder
Cisco's Conrad Clemson, recently promoted to head up the company's Service Provider Apps & Platforms developments, talks to Light Reading's Founder and CEO Steve Saunders about how he's bringing cloud video, mobile and virtualization together to empower network operators.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Interviews
Heavy Reading: The Webscale View

1|18|17   |     |   (0) comments


At Light Reading's 2020 Vision Executive Summit in Rome, Heavy Reading's former chief analyst Patrick Donegan shared insight from the recent webscale operators report, which featured research on how webscale operators view the market, the best webscale companies to ...
LRTV Custom TV
Cisco's Cloud Scale Networking: Automation, Virtualization & Simplification

1|18|17   |     |   (0) comments


Cisco's Sanjeev Mervana outlines the latest innovations in networking technology at CES 2017 in Las Vegas.
LRTV Custom TV
ADVA Talks Innovation & the Future of Networking

1|17|17   |     |   (0) comments


Ray Le Maistre and Christoph Glingener, CTO of ADVA Optical Networking, discuss the current state of the industry, cooperation and collaboration, open innovation and the future of networking.
LRTV Custom TV
Cisco's Infinite Video Platform

1|17|17   |     |   (0) comments


Cisco's Infinite Video Platform allows service providers to deliver broadcast-quality video over IP networks. Infinite video supports many devices, from 4K TVs to tablets to game consoles. Join Cisco's Rajeev Raman for a brief tour and live demo.
LRTV Interviews
Masergy: Ability to Adapt Key for NFV

1|16|17   |   6:40   |   (0) comments


Speaking at Light Reading's 2020 Vision in Rome, Masergy's VP, Global Technology, Ray Watson, said agility is key to providing the mix and match NFV-based services that are driving business for the managed service provider today.
LRTV Interviews
Equinix: The Data Explosion

1|13|17   |   4:16   |   (0) comments


At Light Reading's 2020 Vision in Rome, Eric Schwartz, president of EMEA, Equinix, talked about how Equinix is helping its customers manage the influx of data today, and how it's preparing for a future filled with millions of connected IoT devices.
LRTV Interviews
Heavy Reading: The Changing Data Center Landscape

1|12|17   |   6:05   |   (1) comment


At Light Reading's 2020 Vision event in Rome, Heavy Reading's Senior Analyst Roz Roseboro talks about how virtualization is impacting data center evolution and how that evolution is affecting the relationship between service providers, data center operators and public cloud providers.
LRTV Interviews
Boingo: Prepping for Millions of Devices

1|12|17   |   5:07   |   (1) comment


At Light Reading's 2020 Vision in Rome, Boingo's CTO Derek Peterson discusses how wireless operators will address the needs of low-bandwidth and high-bandwidth apps at the same time, the need for more MHz, the impact of IoT and more.
LRTV Interviews
Comcast Shows Off Gig Gateway at CES

1|11|17   |     |   (1) comment


With its largest presence at CES in years, Comcast took the wraps off its long-awaited gigabit gateway and a new platform for managing the home WiFi network. Light Reading Senior Editor Mari Silbey sat down with EVP Chris Satchell to discuss the latest Comcast advance, and met with VP of Product Strategy and Development Andrea Peiro to walk through a demo of the ...
LRTV Interviews
Colt: End-to-End Key for 2017

1|10|17   |   6:21   |   (0) comments


At Light Reading's 2020 Vision Executive Summit in Rome, Nico Fischbach of Colt said having a multi-carrier, end-to-end service proposition is going to be key for 2017 -- and SD-WAN is instrumental in making it happen.
From the Founder
Cisco's Clemson on Mobile Cloud Video

1|9|17   |     |   (1) comment


Cisco's Conrad Clemson, recently promoted to head up the company's Service Provider Apps & Platforms developments, talks to Light Reading's Founder and CEO Steve Saunders about how he's bringing cloud video, mobile and virtualization together to empower network operators. "If you think about where we're going… whether it's a mobile application, or a video ...
LRTV Custom TV
VMware Telco NFV Solutions – Preparing for 5G & IOT

1|9|17   |     |   (0) comments


Shekar Ayyar, EVP & Corporate Strategy/General Manager of Telco for VMware, discusses VMware's Telco NFV solutions role and foundation for the Imminent Arrival of 5G & IOT.
Upcoming Live Events
May 15-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Hot Topics
A Women in Comms Glossary
Sarah Thomas, Director, Women in Comms, 1/18/2017
Ericsson: 5G Heralds 'New' New Economy
Mari Silbey, Senior Editor, Cable/Video, 1/12/2017
Next Plugfest Gets G.fast Closer to Market
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 1/13/2017
TV's Paradox: No HDR Without 4K
Mari Silbey, Senior Editor, Cable/Video, 1/17/2017
Cable Has One Thing Verizon Needs
Mari Silbey, Senior Editor, Cable/Video, 1/17/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Light Reading founder and CEO Steve Saunders chats with Sportlogiq CEO Craig Buntin about sports data analysis.
Eyal Waldman, CEO of Mellanox Technologies, speaks to Steve Saunders, CEO of Light Reading, for an exclusive interview about the 100 GB cable challenge, cybersecurity and much more.
Animals with Phones
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.