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Qualcomm's China Troubles Cloud $6.8 Billion Quarter

24 July 2014

Qualcomm Inc. has said that it expects losses as a result of the China National Development and Reform Commission (NDRC) investigation into its licensing practises under Chinese anti-monopoly law but that it cannot at present estimate the possible range of the loss.

In addition, as part of the reporting of its third fiscal quarter financial results, Qualcomm (San Diego, Calif.) said it is in dispute with one licensee in China, that some Chinese licensees are under-reporting their 3G/4G devices sales and yet others that are unlicensed may seek to delay signing licences while the NDRC investigation is going on. Qualcomm did not name the licensee with which it is in dispute.

Qualcomm was the original developer of code division multiple access (CDMA) mobile communications protocols and holds many patents related to 3G and 4G communications. The company has also been very successful in recent years selling modem chipsets and application processors for mobile phones and has a policy of only selling its chips to licensees. The NDRC investigation was announced in November 2013 (see China Launches Antitrust Investigation of Qualcomm)

In its 10-Q submission to the Securities and Exchange Commission Qualcomm acknowledged that the NDRC gives itself wide-ranging powers with regard to companies that are deemed to violate Chinese anti-monopoly law including fining a company between 1 and 10 percent of its revenues for the previous year.

No indication was given as to why Qualcomm thinks it will be found against by the NDRC investigation or how soon the investigation will reach a conclusion.

Venture capital for China

However, at the same time as presenting information about its problems in China Qualcomm Ventures announced a commitment to invest up to $150 million into Chinese startups that further the development of mobile technologies in such as areas as: the Internet, e-commerce, semiconductors, education and health.

Qualcomm has invested in Chinese companies for may years – including handset maker Xiaomi, Android developer Thundersoft Software – but said the latest initiative is driven by the strengthening Chinese startup community in mobile and wireless. Qualcomm said that it sees China as a strong player in the semiconductor industry and wants to increase investments in this area.

Nonetheless Qualcomm reported a record third fiscal quarter, ended June 29, with a net income of $2.24 billion on revenues of $6.81 billion for the quarter. The revenue was up 9 percent year-on-year and up 7 percent sequentially. The net income was up 42 percent year-on-year and up 14 percent sequentially.

"We are pleased to report another record quarter with revenues, earnings per share and chip shipments reaching all-time highs, driven by broad-based demand for our industry-leading 3G/4G chipset solutions," said Steve Mollenkopf, CEO of Qualcomm Incorporated. “Looking forward, although we have lowered our near-term financial outlook for the licensing business."

In a statement Qualcomm said: "We expect calendar year 2014 3G/4G device shipments to be approximately 1.3 billion globally. However, our estimate of calendar year 2014 3G/4G device shipments that we currently expect to be reported to us is approximately 1.04 billion to 1.13 billion, which is adjusted for units that we believe may not be reported to us, are in dispute or are currently unlicensed. We are taking steps to address these issues, although the timing of any resolution is uncertain."

Related links and articles:

www.qualcomm.com

IHS Technology Semiconductor & Components Page

News articles:

China Launches Antitrust Investigation of Qualcomm

Apple Posts $37.4 Billion in Q3 Sales

Success in 3G/4G Reference Platforms Requires More Than Chipsets

TSMC's Q2 Sales Flag Strong 2014 Chip Market



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