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Qualcomm, the world’s largest mobile chip maker, will pay a $975 million fine and make changes to its business practices in China to settle an antitrust investigation that had dogged the company for more than 14 months.
Qualcomm officials announced the settlement Feb. 9, saying that while they disagreed with the country’s National Development and Reform Commission (NDRC)—essentially China’s anti-monopoly agency—which found that the chip maker had violated China’s 2008 antitrust laws, they will not dispute the settlement or pursue further legal action.
What’s important now for Qualcomm—which in the last fiscal year generated more than half of its revenues in China, and which has continued to invest heavily in its operations in the country—is to put the case behind it, according to Qualcomm executives.
“We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology,” Qualcomm President Derek Aberle said in a statement.
The settlement comes after what Reuters reported earlier in the day had been fruitful negotiations between Qualcomm and the NDRC last week. Along with the fine, Qualcomm also agreed to make changes in its business policies as part of what officials called a “rectification plan.” Included in the plan is the agreement that Qualcomm will offer licenses to its current 3G and 4G patents in China separately from licenses to other patents, and that it will give patents lists during negotiations.
In addition, Qualcomm changed the royalties it will charge for licenses of Qualcomm’s 3G and 4G technologies in China, charging 5 percent for 3G devices and 3.5 percent for 4G devices that don’t use CDMA or WCDMA. Current licensees in China will be able to leverage the new royalties for branded devices in use as of Jan. 1, and will not conditionally sell its baseband chips to force customers into signing licensing agreements with terms that Chinese regulators say are unreasonable.
Chinese regulators started the investigation in November 2013, and the ongoing probe has been a drag on the company’s overall business. With the settlement, Qualcomm can now move forward, according to CEO Steve Mollenkopf.
“We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead,” Mollenkopf said in a statement.
During a conference call with analyst and journalists, the CEO said the settlement “brings certainty to our … business in the world’s largest wireless market.”
It also strengthens Qualcomm’s relationships with partners in the Chinese market, Mollenkopf said. The chip maker has made significant investments in the country. Most recently, Qualcomm in December announced it was investing $40 million in four Chinese tech vendors that are developing products in such areas as mobile, wireless and the Internet of things (IoT). The money came from a $150 million strategic venture fund aimed at the Chinese market.
Qualcomm Settles Antitrust Dispute With China for $975 Million
In addition, the settlement with Chinese regulators will enable Qualcomm to focus more of its attention on the issue of some licensees that the chip maker said have underreported product sales. Qualcomm officials have said they had reached an agreement with one of these partners, but during the conference call, Aberle said the underreporting is continuing with other vendors.
The agreement with the NDRC already has boosted Qualcomm’s financial picture, according to Aberle. The company increased the lower end of its fiscal 2015 revenue guidance, from $26 billion to $26.3 billion. He said that—assuming all sales by partners were reported—about 10 to 12 percent of products would be impacted by the new royalty fees.
The settlement is welcomed good news at a time when Qualcomm is dealing with a range of challenges. The company in December announced it was cutting 600 jobs, and that was followed by reports that major customer Samsung had decided to use its own processor rather than Qualcomm’s new 64-bit Snapdragon 810 in its upcoming Galaxy S6 smartphone due to overheating issues. During a conference call Jan. 28 to discuss the company’s latest quarterly numbers, Mollenkopf said he was pleased with how the Snapdragon 810 was performing in the market, noting that there were more than 60 device designs based on the system-on-a-chip (SoC) in the pipeline, and more to come. However, he admitted that a top customer—he declined to way which one—had decided not to use the chip.
Mollenkopf also said that with the next Snapdragon version—the 820—Qualcomm will return to leveraging its own custom 64-bit ARM-based CPU architecture, as it has done in the past. He said the company had used an ARM CPU for the Snapdragon 810 to accelerate Qualcomm’s use of a 64-bit chip.
A few days after the conference call, a number of smartphone makers—including Microsoft, Motorola Mobility, LG Electronics and Xiaomi—threw their support behind Qualcomm and the 810.