Comms chips

Qualcomm to Pay $975M in China Antitrust Spat

Qualcomm's 14-month legal battle with China's National Development and Reform Commission (NDRC) has come to an end, with the chipmaker agreeing to pay a $975 million fine for violating anti-monopoly laws.

San Diego-based Qualcomm Inc. (Nasdaq: QCOM) also had to agree to several changes in how it approaches licensing agreements with Chinese handset makers. (See Qualcomm to Pay $975M Fine to China.)

The resolution, announced on Monday, is the result of more than a year of antitrust probe into Qualcomm's 4G licensing fees, which the NRDC has determined to monopolize the market under China's Anti-Monopoly Law (AML). (See Qualcomm Looks to Soften China Antitrust Blow .)

In addition to paying a fine of $975 million (6.088 billion Chinese Yuan Renminbi), Qualcomm has agreed to several changes on its business practices in China, where it has a huge processor business. Amongst the changes detailed in a statement, Qualcomm said it will "offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process."

The chipmaker has also agreed to lower its licensing fees to 5% for 3G devices and 3.5% for 4G devices -- including tri-mode LTE-TDD devices -- that don't have CDMA or WCDMA for branded devices sold for use in China, using a royalty base of 65% of the net selling price of the device.

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Qualcomm says it will not challenge the NDRC's findings and expressed relief that the long process is over. "We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead," writes Qualcomm CEO Steve Mollenkopf, who has made several trips to China since being appointed CEO last March, in the statement.

The chip giant has demonstrated its commitment to the Chinese market, announcing late last year it would invest more than $150 million in the country's startups other initiatives in the market. (See Qualcomm to Invest $40M in Chinese Startups.)

Qualcomm is also adjusting its financial guidance as a result of the settlement with China. Despite the hefty fine, it says revenues for 2015 will be around $26.3 billion to $28 billion, up slightly from the $26 to $28 billion it previously forecast. Earnings per share, however, are estimated to be $3.56 to $3.76, including the charge levied against it, down from $4.04 to $4.34 previously estimated. (See Qualcomm Reports Fiscal Q1.)

After the settlement was announced Monday evening, Qualcomm's stock was up 1.15%, or 0.76 points, to $67.11.

— Sarah Thomas, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editorial Operations Director, Light Reading

R Clark 2/10/2015 | 1:56:50 AM
Re: precedent set? Microsoft's China offices were raided last year by another agency, the State Administration for Industry and Commerce (SAIC), and apparently it's still under investigation for "Windows compability issues" - it's not clear exactly.

Foreign companies in China are feeling like they have a target on their backs.  THe EU Chamber of Commerce is actually running a seminar on 'what do to if investigtoars turn up on your doorstep.'  It's especially bad for IT and telecom firms since the Snowden revelations.  Qualcomm has a bit of form in selling chips at high prices, but it's hard not to see industry policy at work here. The local media is greeting this as a big win for the domestic handset sector.

Also, there's a turf war between SAIC and NDRC.
Joe Stanganelli 2/10/2015 | 1:30:03 AM
Re: precedent set? Well, just look at China's tolerance/friendliness to blatant intellectual property infringement as counterfeiters thumb their nose at major companies.  Of course they're going to be big on antitrust enforcement.  (IP, after all, represents a form of monopoly.)

But yes...learn from others' mistakes.
danielcawrey 2/9/2015 | 8:11:30 PM
Re: precedent set? When you want to work in China, you have to follow the government's rules. That's just the way things work there – it's not always going to go your way. 

What's interesting is that there are a lot of companies who are willing to play by these rules because the opportunity in China is so immense. 
sarahthomas1011 2/9/2015 | 6:57:38 PM
precedent set? Other companies, like Microsoft are no doubt watching this carefully. They've come up against trouble in China as well and could face a similar fate.
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