Light Reading
Chipmaker's CEO builds bridges in China as the company faces a significant antitrust fine.

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
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.
Flash Poll
LRTV Huawei Video Resource Center
Network Solutions Help the Philippines Jump Ahead

9|17|14   |   2:59   |   (0) comments


In the past, the Philippines has under-invested in technology. Now, the CEO of Softshell talks about how Huawei products help the Philippines jump ahead as the economy improves.
LRTV Huawei Video Resource Center
VCS Observation for Safer Cities in the Netherlands

9|17|14   |   5:20   |   (0) comments


Holland's VCS Observation has been operating for 22 years. Its main goal is to get cities safer. CEO Wim van Deijzen tells us some of the challenges his company faces and how Huawei is helping to overcome these challenges.
LRTV Huawei Video Resource Center
A Conversation With Serbia's Ministry of Interior

9|17|14   |   4:38   |   (0) comments


At HCC 2014, the Assistant Minister of the Ministry of Interior of the Republic of Serbia talks to us about his projects and corporation with Huawei. Solutions like Safe City and E-Government and services like cloud computing are just some of the areas his department is interested in.
LRTV Huawei Video Resource Center
IHS Analyst Discusses eLTE at CCW 2014

9|10|14   |   7:09   |   (0) comments


Thomas Lynch, associate director of critical communications at IHS Technology, talks about broadband in critical communications.
LRTV Huawei Video Resource Center
TCAA on Huawei eLTE: A Broadband Solution for Mission-Critical Communications

9|10|14   |   2:29   |   (0) comments


At CCW2014 in Singapore, the TCCA's Phil Kidner talks about the importance of broadband data for critical communications.
LRTV Custom TV
Spotlight on Cisco: SDN for Optical Networks

9|8|14   |   9:27   |   (0) comments


Cisco's Greg Nehib talks OpenFlow and more on the 'Software-Defined Networking for Optical Networks' panel at the Big Telecom Event in June 2014.
LRTV Custom TV
Cisco's Evolved Programmable Network (EPN)

9|8|14   |   4:05   |   (0) comments


A look at the various demos Cisco showed at Light Reading's Big Telecom Event highlighting Cisco's EPN innovation and how SDN and NFV technologies are enabling a variety of new services.
LRTV Huawei Video Resource Center
The Future of Ultra-Broadband, With Kevin Kelly (UBBF2014)

9|5|14   |   1:13   |   (0) comments


If you think the technological changes we've seen up to now are astounding, just wait until you see what the future has in store. Discuss upcoming breakthroughs with Kevin Kelly, Founding Executive Editor of Wired Magazine, at the Huawei Ultra-Broadband Forum on September 24.
LRTV Huawei Video Resource Center
The Inaugural Optical Innovation Forum in Nice

9|2|14   |     |   (0) comments


More than 170 attendees from network operators, service providers, analyst firms, and component companies from around the world convened in Nice in June for the inaugural Optical Innovation Forum, co-produced by Huawei and Light Reading.
Wagner’s Ring
Data Centers Drive Telcos Into the Future

8|28|14   |   2:20   |   (2) comments


Data centers are at the heart of key trends driving telecom -- network virtualization, the drive for increased agility, and the need to compete with OTT providers.
LRTV Custom TV
Why SPs Should Consider Cisco's EPN

8|27|14   |   5:40   |   (0) comments


Sultan Dawood from Cisco discusses Cisco's EPN, which enables SPs to build agile and programmable networks delivering new network virtualized services using Cisco's Evolved Services Platform (ESP).
LRTV Huawei Video Resource Center
Huawei’s Showcase @ Big Telecom Event 2014

8|26|14   |   2.56   |   (0) comments


SoftCOM is Huawei's framework for telecom business and network transformation. Haofei Liu, Solution Marketing Manager, Carrier Business Group, Huawei, showcases Huawei's SoftCOM architecture in this video.
Upcoming Live Events!!
September 23, 2014, Denver, CO
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
A survey conducted by Vasona Networks suggests that 72% of mobile users expect good performance all the time, and they'll blame the network operator when it's not up to par.
Today's Cartoon
Vacation Special Caption Competition Click Here
Latest Comment
Hot Topics
Introducing 'The New IP'
Steve Saunders, CEO and founder, Light Reading, 9/11/2014
Glimpsing the Self-Driving Car
Dan Jones, Mobile Editor, 9/12/2014
AT&T to Launch WiFi Calling in 2015
Sarah Reedy, Senior Editor, 9/12/2014
AT&T: We'll Bundle Fixed Wireless & DirecTV
Mari Silbey, Independent Technology Editor, 9/15/2014
New NFV Forum Focused on Interoperability
Carol Wilson, Editor-at-large, 9/16/2014
Like Us on Facebook
Twitter Feed