Wed, Nov 27, 2013 page15

• Qualcomm growth under threat with probe in China

  • Bloomberg
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  Qualcomm Inc’s growth prospects in the world’s largest mobile-phone market may be under threat after China’s National Development and Reform Commission began an investigation related to an anti-monopoly law.

  Qualcomm disclosed the probe on Monday, saying the commission advised that specific details are confidential. The San Diego-based company said it knows of no charge by the agency that it violated the law. Qualcomm gets revenue from sales of smartphone chips and collects license fees from wireless providers for the shipment of most Internet-capable handsets.

  The Chinese government has been stepping up corporate scrutiny as new leadership expands an anti-corruption drive and cracks down on business practices that lead to consumer price increases.

  China may also be trying to help local competitors such as Spreadtrum Communications, Inc (展訊通信) by slowing Qualcomm’s push to broaden the reach of its chips and technology in the country, said Cody Acree, an analyst at Williams Financial Group in Dallas.

  “There’s a lot more to this than any kind of antitrust investigation,” Acree said. “To the extent that you can stymie Qualcomm’s efforts, all the better.”

  Qualcomm’s customers in China include Lenovo Group (聯想), Huawei Technologies Co (華為) and ZTE Corp (中興), according to data compiled by Bloomberg.

  Since no specific accusations have been made, few handset manufacturers committed to Qualcomm will switch immediately as it takes 12 to 18 months to bring a new design to market, said David Wolf, managing director of Allison and Partners’ China practice counseling US, Chinese and European clients.

  Spreadtrum, based in Pudong, China, earlier this year agreed to be acquired by Tsinghua Unigroup Ltd (清華控股), a state-owned company, for US$1.78 billion.

  China Mobile Ltd (中國移動), the world’s largest wireless carrier, has not paid Qualcomm licensing fees after opting to use an alternative technology for its current data network that the Chinese government said was not covered by the US company’s patents.

  Qualcomm said it expected that to change next year as China shifts to a higher-speed technology for mobile networks called long-term evolution, or LTE. Underscoring the importance of the market, company executives said at an analyst day in New York last week that the network shift means Qualcomm will be able to supply chips and get licensing fees from China Mobile.

  Now, the commission’s probe raises doubts about that potential licensing revenue, said Gus Richard, an analyst at Piper Jaffray & Co.

  The Qualcomm inquiry may be part of a broader investigation by the Chinese government agency aimed at keeping consumer prices from rising too quickly, and may not be a challenge to Qualcomm directly, said Mark McKechnie, an analyst at New York- based Evercore Partners LLC.

  “This looks like more of a broader effort over in China,” he said. “It’s probably more about the chips than the royalties.”

  In the market for the most advanced Internet-capable phones, Qualcomm has a share of about 60 percent and profit margins of less than 20 percent, McKechnie said.

  That indicates it is facing tough competition and makes it more difficult to show evidence of a monopoly, he said.
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