& 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
Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability.
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 Custom TV
The Overall Objective Is to Win the Game

6|26|17   |     |   (0) comments


SCTE•ISBE's Chris Bastian discusses Energy 2020's success to date and the importance of a flexible approach that allows for changes in specific strategies in order to reach significant milestones.
LRTV Interviews
CenturyLink: Let's Get Past SD-WAN Hype

6|23|17   |   04:02   |   (0) comments


Technology becomes a "shiny object" unless it's properly focused on solving business needs for enterprise customers, says Bill Grubbs, network solutions architect for CenturyLink. He explains to Light Reading why SD-WAN deployments have to be tailored to specific needs – and more.
Women in Comms Introduction Videos
Infinera's Sales Director Paints Tech's Big Picture

6|21|17   |   4:14   |   (1) comment


Shannon Williams, Infinera's director of sales, shares how she achieves work's many balancing acts -- between her role and the broader company, today and tomorrow's tech and more.
LRTV Custom TV
SD-WAN Innovation & Trends

6|20|17   |     |   (0) comments


Versa CEO Kelly Ahuja discusses with Carol Wilson the current status and trends in the SD-WAN market, Versa's innovation around building a software platform with broad contextualization, and the advantages that startups can bring to the SD-WAN market.
LRTV Interviews
Ovum's Dario Talmesio on 5G in Europe

6|20|17   |   02:16   |   (0) comments


At 5G World 2017, Dario Talmesio, principal analyst and practice leader on Ovum's fixed and mobile telecoms European team, explains the emerging trends amongst European operators as they prepare for 5G.
LRTV Custom TV
Putting Power on a Pedestal

6|19|17   |     |   (0) comments


ARRIS's John Ulm says a major accomplishment of SCTE•ISBE's Energy 2020 program is increased focus on power cost and consumption, including inclusion of energy requirements in operators' RFPs and RFIs.
LRTV Custom TV
Gigabit Access: The Last-Mile Pipe for All Future Services

6|19|17   |     |   (0) comments


A Gigabit access platform being deployed today must be able to deliver all types of services to an increasing number of devices. A non-blocking architecture is necessary to support the ever-increasing growth in bandwidth demand. The Huawei Gigabit access solution is based on a distributed design that is fully scalable to deliver a unprecedented performance.
LRTV Custom TV
Key Factors to Successfully Deploy an SD-WAN Service

6|19|17   |     |   (0) comments


As service providers transition their SD-WAN solution from trials and limited deployments into production at large scale, there are important considerations to successfully operationalize these solutions and realize their full potential, without adding complexity, introducing uncertainty or disrupting current business operations. Sunil Khandekar, CEO and Founder ...
LRTV Custom TV
IoT Solutions: Rational Exuberance

6|19|17   |     |   (0) comments


IoT solutions are morphing from hype into viable business opportunities. Huawei has the platform and ecosystem support to help carriers successfully address new business opportunities in the IoT space.
LRTV Custom TV
Realizing ICN as a Network Slice for Mobile Data Distribution

6|19|17   |     |   (1) comment


Network slicing in 5G allows the potential introduction of new network architectures such as Information-centric Networks (ICN) as a slice, managed over a shared pool of compute, storage and bandwidth resource. Services over an ICN slice can benefit from many architectural features such as Name Based Networking, Security, Multicasting, Multi-homing, Mobility, ...
LRTV Interviews
Ovum's Mike Roberts on 5G Uptake

6|19|17   |   04:08   |   (0) comments


Mike Roberts, research director for Ovum's service provider markets group, explains why he has boosted his 5G subscriptions forecast.
LRTV Interviews
AT&T's Hubbard on Intersection of SD-WAN & MPLS

6|15|17   |     |   (0) comments


Rick Hubbard, SVP of Network Product Management for AT&T Business Solutions, discusses how AT&T's approach to SD-WAN fits in with its overall virtualization strategy, explains how SD-WAN can improve enterprise customers' use of the cloud and addresses the intersection of SD-WAN and MPLS.
Upcoming Live Events
October 18, 2017, Colorado Convention Center - Denver, CO
November 1, 2017, The Montcalm Marble Arch
November 1, 2017, The Montcalm Marble Arch
November 30, 2017, The Westin Times Square
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
No Imagination: UK Chip Biz Goes Up for Sale
Iain Morris, News Editor, 6/22/2017
Does AT&T Deserve Time Warner?
Mari Silbey, Senior Editor, Cable/Video, 6/23/2017
Netflix's Lesson in Culture Expectation Settings
Sarah Thomas, Director, Women in Comms, 6/21/2017
Kalanick Steps Down as Uber CEO
Sarah Thomas, Director, Women in Comms, 6/21/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
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.