Qualcomm under investigation in China

by: Shawn IngramDecember 9, 2013

Qualcomm MWC 2013 - 1

Qualcomm is one of about 30 tech companies that are currently under investigation by the National Development and Reform Commission (NDRC) of China for their business practices.

A report from EET Asia says the NDRC is investigating Qualcomm over concerns that it isn’t following the Chinese Anti-Monopoly Law. There are no details as to why Qualcomm may have run afoul of the law, however, as the investigation is currently confidential. Qualcomm claims it doesn’t see how it could be in violation of the law, and can’t offer any insight as to why. Prominent investment portal SeekingAlpha boldly claims for Qualcomm: “China is no concern.”

[quote qtext=”Qualcomm’s chip technology is far ahead of any competitors with an unparalleled patent portfolio that provides tremendous royalty revenue. However on lower-end chips where there is increasing competition from the likes of Intel (INTC), which is moving slowly into mobile, and domestic Chinese manufacturers, Qualcomm typically has margins of less than 20%, which is not indicative of a monopoly. The Chinese probes are about two separate issues that don’t have to do with Qualcomm being a monopoly.” qperson=”SeekingProfits” qsource=”SeekingAlpha” qposition=”center”]

One possibility is the Chinese government is using the Anti-Monopoly Law to keep OEMs from using Qualcomm chips in their smartphones. Qualcomm is one of the few chipmakers that has chipsets ready for the China Mobile’s TD-LTE network which will launch in 2014.

Phone makers are now in the process of making phones to support the network. By exerting pressure on Qualcomm the Chinese government could push those phone manufacturers to choose chipsets from other chipmakers. Many of those other chipmakers, however, don’t have chipsets ready for the China Mobile TD-LTE network just yet.Qualcomm Market Share 2013

The Chinese government is in the midst of a PR war against Western companies. These efforts happen periodically to boost the government's standing among the populace and tend to recede as quickly as they start. China remains dependent on Western companies to continue to modernize and develop its economy; it is not about to recede from the world. This issue is purely transitory. SeekingAlpha

By investigating Qualcomm the Chinese government may be able to get the chipmaker to sell some of its chipsets at lower prices than usual. If that happens, there’s a good chance the NDRC investigation will just disappear with no action taken against Qualcomm. The entire move, it would seem, is nothing more than theater to help Chinese companies at the expense of the U.S. company. In the end, this investigation may amount to nothing.

Qualcomm, like many other tech companies, is seeing a lot of growth in China as more people there buy smartphones. The company already has its processors and radio chipsets in most smartphones in the U.S., but it might not have the same control of the market in China if the NDRC has its way.

There are several other chipmakers that can step in to take the place of Qualcomm if manufacturers have to choose. Companies like Taiwanese chipmaker MediaTek and NVIDIA could step in to take part of the market. It’s easy to say that’s good for competition, but with the rate at which Qualcomm is already innovating with its processors, it doesn’t seem to need any added competition.

Do you think the NDRC has a case against Qualcomm? Or is this just theater to get some cheaper chips?

  • atomic

    Yep, so basically just like the US trying to scare off Chinese smartphone makers on the basis they are spying when they have no proof, and they do it themselves.

    • pickett

      Pretty much this, and didn’t Obama veto an Apple sales ban, but not a Samsung sales ban.

    • NeedName

      you have that point, and qualcomm really does have a monopoly on radio frequency chips. even sammy and a few others companies tried to form a company to create competition. . . of course they couldn’t decide on a single thing thus it was dissolved. nonetheless, qualcomm has the market when it comes to radio chips like LTE.

  • Luka Mlinar

    Another reasons why patents are slowing down the progress of theology. Tesla is rolling in his grave right about now.

  • cbstryker

    Or the Chinese could be worried about the vulnerabilities in “Western” chipsets: http://www.osnews.com/story/27416

  • rebirthofcool

    Mediatek SOC sells cheaper but no way it could better Qualcomm chips

  • Roberto Tomás

    Qualcomm would bend over backwards and then some to get into the market in China, investigation or not. But the argument that an investigation increases their want to lower prices and get into the market is backwards.

    China wants Qualcomm tech. It is good for China because it quells the fears that China will reject US tech companies, gives tangible results to the openness of the market, and gives them a 4G that Korea doesn’t control. The only reason they ar investigating is so no one can get in trouble for inviting the tech company into the broadcast market in China. It is preemptive.

    This is because of Qualcomm’s IP strategy, which is legal in the US, that shoe-horns in newer tech contractually on the back of older tech and could be challenged in China. No one wants to be responsible for that later down the road, so they are challenging the system to pick it up now. Or else just live with the consequences of having, to the eyes of the Chinese, an unfair competitive field during the next generation of mobile tech (in favor of Qualcomm)

    Despite concerns in the US that China is behaving defensively in tech, it only announced investigations in the most quiet of manners. I read Caixin and People’s Daily, and neither of them have articles that caught my eye this morning – ie, there’s no news.

  • wric01

    Like most gov, if you become too successful the gov. comes in for their cut.