Qualcomm in anti-monopoly probe

An investigation launched by China's top economic planner against Qualcomm Inc related to an anti-monopoly law may be aimed at winning concessions on royalty payments from the world's largest maker of chips for smartphones, and may not be a challenge to Qualcomm directly, a US financial analyst said.

"Although the investigation is allegedly about Qualcomm's monopoly status, it is common for the Chinese government to use such investigations as a pretext to pressure multinationals for concessions on technology transfer and lower royalty payments," Jim Fink, an analyst with the Investing Daily news and information website, told China Daily in an interview Tuesday.

Qualcomm, which generates half its revenue from China, did not disclose details related to the probe, other than that the National Development and Reform Commission had started it, and that it told Qualcomm that specific details of the probe are confidential, the California-based company said Tuesday.

"The company is not aware of any charge by the NDRC that Qualcomm has violated the (anti-monopoly law)," Qualcomm said.

Qi Fei, a company spokeswoman based in Beijing, said Qualcomm intends to do its "best" to "cooperate with the NDRC". The commission did not respond to China Daily's request for an interview.

Qualcomm's business in China falls into two parts - mobile phone chipset production and patent licensing. Most mobile phone companies such as Lenovo Group Co Ltd, as well as telecom equipment manufacturers Huawei Technologies Co Ltd and ZTE Corp, are Qualcomm's major clients in China.

Qualcomm reported $12.3 billion in revenue from China in the 12 months through September, equal to 49 percent of its total revenue.

Fink said the Qualcomm investigation is complicated given that authorities in China consider mobile communications to be important to the nation's national security, especially in light of recent disclosures that the US National Security Agency has intercepted mobile calls worldwide.

"This issue is coming to a head now because China's mobile telecommunications infrastructure is moving in 2014 towards fourth-generation LTE technology - a technology that is much more dependent on Qualcomm's smartphone chips," Fink said.

Since Qualcomm gets almost half its total revenue from China, "it's in the company's interest to play ball with Chinese regulators", the analyst said.

Founded in 1985, Qualcomm was known for inventing a digital wireless technology named Code Division Multiple Access (CDMA). The technology later became the core part of some mainstream third generation (3G) telecommunications standards such as Wideband Code Division Multiple Access.

About 5 percent of each mobile phone's cost goes to Qualcomm as a licensing fee, Xiang Ligang, a Beijing-based telecom expert, said. That does not include chipset charges if mobile phone companies use Qualcomm's chips.

Chinese mobile phone vendors have long been complaining that Qualcomm takes a tough stance in pricing negotiations. With fierce competition in the domestic market, many Chinese cell phone firms have to constantly push their products' prices down, but because costs change little, they suffer squeezed profits.

"Qualcomm's chipsets are of good quality and reliable, but we just cannot afford them," an official from a Shenzhen-based mobile phone enterprise said, asking not to be named.

It seems that Qualcomm's competitiveness is going to extend to the 4G stage. Roger Sheng, an analyst with research firm Gartner Inc, said he has seen no other rivals to compete with Qualcomm in Long Term Evolution 4G chipsets, at least in the short term.

China enacted the Anti-Monopoly Law in 2008. The country strengthened its punishments over monopoly cases this year.