Forewarned by Qualcomm’s legendarily predatory licensing policies elsewhere, China has adopted a two-pronged strategy for minimising royalty payments by Chinese manufacturers.
First was a China government investigation into monopoly abuse, the second is to fib about handset shipments.
Qualcomm’ president Derek Aberle says “they are only reporting something less than 100 per cent of their sales”.
Since half Qualcomm’s sales last year were in China, this is a problem for Qualcomm reflected in a recent drop in its share price
The other China prong in its strategy is the investigation by China’s National Development and Reform Commission [NDRC] which is deliberating on whether Qualcomm has charged higher prices to Chinese manufacturers than it charges manufacturers in other counties.
If it decides Yes, then Qualcomm would be abusing its monopoly.
Today it is reported that the NDRC has decided that Qualcomm has got a monopoly in China. This is seen as a preliminary step towards announcing that Qualcomm has abused the monopoly.
If/when the NDRC declares that Qualcomm is abusing its monopoly, the NDRC can fine Qualcomm up to 10% of its China-based revenue.
Since Qualcomm’s revenues are running at about $25 billion a year at the moment – with half coming from China – that means Qualcomm is looking at a fine of around $1.2 billion.
So it’s probably best for Qualcomm to play ball with the Chinese manufacturers, give them decent royalty rates and turn a blind eye to their under-reporting of handset sales.
Qualcomm, it seems, has met its match.