Light Reading

Qualcomm Looks to Soften China Antitrust Blow

Robert Clark
News Analysis
Robert Clark

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
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.
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. 
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?
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
Light Reading's conference in November will attempt to answer all of the big questions around white box networks. No pressure...
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Custom TV
ZTE in Budapest ITU 2015

10|13|15   |   03:26   |   (0) comments

ZTE Chief Architect David Huo discusses the company's progress on the 5G front.
Telecom Innovators Video Showcase
Close-up on ConfD

10|12|15   |   10.21   |   (0) comments

Tail-f's Renée Robinson-Stromberg tells Steve Saunders about the powerful ConfD management interface.
Women in Comms Introduction Videos
Women in Comms: Highlights From Dallas

10|12|15   |   2:23   |   (1) comment

The best soundbites, quotes and words of wisdom from leading women from Intel, AT&T, Verizon and Genband at our recent WiC breakfast in Dallas.
Telecom Innovators Video Showcase
NetNumber Founder on Managing Signaling Control

10|12|15   |   6:36   |   (0) comments

NetNumber Founder and Chief Strategy Officer Doug Ranalli describes the essential complexity of real-world signaling-control and how NetNumber enables carriers to bring signaling-control "under-control". Learn why virtualization alone isn't the answer.
LRTV Documentaries
Verizon Gets Proactive on App Performance

10|12|15   |   04:50   |   (0) comments

SDN is turning traditional service models around to allow Verizon to measure and deliver performance at the application layer. As Shawn Hakl, VP of enterprise networking and managed solutions for Verizon, explains, the carrier had to develop new skill sets and change some of its internal operations, but the payoff was happier enterprise customers.
Telecom Innovators Video Showcase
Tail-f, Cisco & What the Future Holds

10|9|15   |   8:17   |   (0) comments

Steve Saunders meets with Tail-f's Director of Technology, Carl Moberg, in Stockholm to discuss becoming part of Cisco, ETSI MANO, virtualization and the need to combine science and business in order to create opportunities for service providers.
LRTV Interviews
Broadband Forum Embraces SDN & NFV

10|9|15   |   02:42   |   (1) comment

At Gigabit Europe 2015, Robin Mersh and Kevin Foster from the Broadband Forum explain how the industry body is adapting to meet the SDN, NFV and cloud needs of the access network sector.
LRTV Interviews
Top Tips for FTTH Operators

10|8|15   |   02:26   |   (0) comments

At Gigabit Europe 2015, Ventura Team co-founder Richard Jones talks about some of the key business case considerations for FTTH network operators.
LRTV Interviews
M-net Calls for FTTx Unity

10|8|15   |   03:45   |   (0) comments

At the Gigabit Europe event, Jörn Schoof from M-net, the Munich city network operator, calls for industry collaboration on fiber broadband access rollouts.
LRTV Documentaries
The Business Case Challenge for NFV

10|7|15   |   03:47   |   (0) comments

Virtual CPE is one of the early success stories for network functions virtualization, as service providers are finding flexible, programmable CPE solves a lot of logistics problems and reduces their cost. But even here, Masergy Communications faced a business case challenge, says CTO Tim Naramore.
LRTV Interviews
JT Offers Some Gigabit Lessons

10|7|15   |   4:08   |   (1) comment

Barna Kutvolgyi, managing director, Global Consumer, at JT, the incumbent operator on the island of Jersey, talks about how other service providers can learn from his company's gigabit broadband rollout experiences.
LRTV Interviews
AT&T's Chiosi on the Potential of Open Source

10|6|15   |   06:27   |   (0) comments

AT&T Distinguished Network Architect Margaret T. Chiosi talks to Light Reading's Carol Wilson about the potential for open source technology to liberate communications service providers.
Upcoming Live Events
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
November 17, 2015, Santa Clara, California
December 1, 2015, The Westin Times Square, New York City
December 2, 2015, The Westin Times Square, New York City
All Upcoming Live Events
Network appliances have a strong value proposition in today's networks and will continue to do so in the NFV and SDN-enabled networks of tomorrow.
Hot Topics
Dell Buys EMC for $67B in Biggest Tech Deal Ever
Mari Silbey, Senior Editor, Cable/Video, 10/12/2015
M&A Speculation Swirls Around Juniper
Ray Le Maistre, Editor-in-chief, 10/6/2015
Cord Cutting? 'Fraid so.
Brett Sappington, 10/7/2015
Cisco Makes 'Martian' Connection
Mitch Wagner, West Coast Bureau Chief, Light Reading, 10/9/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With so many new and exciting communications technologies now under development, it's easy to get caught up in the industry's escalating hype cycle. That's why the ...
Last week saw a big day in the 15-year history of Light Reading when Editor-in-Chief Ray Le Maistre and I were invited to interview the Deputy Chairman and Rotating ...
Cats with Phones
"What?! I'm on with Finisar about their stock price tanking" Click Here
Live Digital Audio

Think NFV is just about virtualization? Think again!

Network architects are learning that there's a lot more to the technology than first thought – more complexity, that is; but also, more potential benefits.

On May 29th 1 PM ET, Steve Saunders, founder and CEO of Light Reading, will be drilling into the "pains and gains" of NFV with Saar Gillai, SVP & GM, HP Communications Solutions Business at Hewlett-Packard Co. (NYSE: HPQ) (HP). He has defined a four-step NFV model describing a sequence of technology innovation. It's a must-read doc for any network architect looking to get to grips with their NFV migration strategy. Join us for the interview, and the chance to ask Saar your NFV questions directly!