TELECOMS – New Comments Hint At Qualcomm Settlement Soon

Bottom line: China is likely to wrap up its probe of Qualcomm by year end with a record fine of more than $1 billion and Qualcomm’s agreement to significantly change its licensing practices.

End draws near in Qualcomm probe

After filling the headlines for much of the summer, news on the flood of anti-trust investigations against major foreign firms suddenly came to a halt in the fall, giving the movement an almost seasonal feel. But the story looks set to pop back into the headlines soon, with signs that China’s National Development and Reform Commission (NDRC) is getting ready to levy a record fine for anti-competitive behavior against leading global cellphone chip maker Qualcomm (Nasdaq: QCOM). The signals are coming in new comments this week from Qualcomm’s top 2 executives, as well as from China’s Premier Li Keqiang.

I have to admit that my own view on this situation has changed quite a bit since the probe was first revealed over the summer. At that time, Qualcomm seemed to be one of a wide range of foreign firms that were suddenly being targeted by Beijing for anti-trust probes. Others being investigated included software giant Microsoft (Nasdaq: MSFT) and most of the world’s top luxury car makers. In one of the first probes to formally wrap up, Germany’s Audi, the top selling luxury car brand in China, was fined about $40 million.

At first I agreed with the foreign view that the wide range of probes seemed to be unfairly targeting multinationals, and that the Qualcomm probe almost certainly came as Beijing sided with complaints from its important growing field of domestic smartphone makers like Huawei and ZTE (HKEx: 763; Shenzhen: 000063). But one of the factors that’s changed my view since then is word the US and Europe have recently launched their own similar investigations. Reports detailing some of Qualcomm’s licensing practices also seemed to show the company places some extreme conditions on its customers.

Now signs are growing that the Qualcomm investigation may be in its final stages, and that the final amount of its penalty could be far larger than the $40 million levied on Audi. The sum could even be bigger than the record fine of nearly $500 million imposed on British drugmaker GlaxoSmithKline (London: GSK) in June for paying millions of dollars in bribes to doctors and health care professionals who bought its products. (previous post)

All that said, let’s look at the latest reports including comments from Qualcomm’s top 2 executives. In the most direct comments, Chairman Paul Jacobs has been quoted in reports from China this week saying his company is holding “difficult discussions” with the NDRC to try to resolve the disagreements over its licensing practices. (English article) At nearly the same time, Qualcomm CEO Steve Mollenkopf, speaking at the company’s annual investor day in the US, cited the China issue when it gave a more conservative than usual outlook for its growth over the next 5 years. (English article)

In separate remarks at the same Internet event attended by Jacobs in China, Chinese Premier Li Keqiang tried to put a more upbeat face on the probe, saying Qualcomm’s opportunities in China will be far greater than its challenges. (English article) Li also stressed the need for a “level playing field”, as his remarks tried to satisfy unhappy Chinese smartphone makers as well as critics who complain of anti-western bias in the probe.

The sudden reappearance of the anti-trust probes is partly due to timing, since both Jacobs and Li were at an event in Hangzhou this week, and Qualcomm held its annual investor day in the US at the same time. Still, the sudden flurry of noise reinforces previous reports that the Qualcomm probe is winding down, and we should probably expect announcement of a comprehensive settlement by year end. That could easily include a fine of more than $1 billion, and changes to Qualcomm’s licensing practices that put a significant damper on its revenue growth.

Related posts:

 

(Visited 72 times, 1 visits today)