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Qualcomm under investigation in China

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. But why? Read on for more info!
December 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?