China Investigates Qualcomm (QCOM) In Bid To Benefit State-Owned Telecom Giants In 4G Market, Analysts Say

 @SophieXSong on November 26 2013 11:11 AM
Qualcomm
Paul Jacobs, chairman and CEO of Qualcomm. REUTERS/Fred Greaves

China’s investigation into Qualcomm, Inc. (Nasdaq:QCOM), the world’s largest smartphone chip maker, may be a tactic to pave way for the rollout of commercial fourth-generation cellular services by the Chinese state-owned telecom carriers.

The anti-trust probe by the National Development and Reform Commission (NDRC), the nation's top economic planning body and price regulator, is likely a measure that will allow domestic telecom giants to gain leverage in royalty negotiations ahead of the $16 billion rollout of new high-speed mobile networks, according to analysts, Reuters reported on Tuesday.

"We suspect this investigation is related to the forthcoming launch of TD-LTE by China Mobile in early 2014 and the negotiations on chip pricing and license pricing between Qualcomm and Chinese-based handset (makers) that are likely occurring right now," McCourt wrote in a note to clients.

The big three - China Mobile Ltd. (NYSE:CHL), China Unicom Limited (NYSE:CHU) and China Telecom Corporation Limited (NYSE:CHA), will be upgrading their infrastructure to Long-Term Evolution (LTE) to allow customers access to speedier Internet and data access – they have jointly invested more than 100 billion yuan ($16.4 billion) in the new networks.

With competitors like Broadcom Corp. (Nasdaq:BRCM), Intel Corp. (Nasdaq:INTC) and other chipmakers missing targets for their own LTE components, Qualcomm is the main player in the LTE space. At the company’ annual investor day last week, CEO Paul Jacobs and other executives focused on China and the upcoming LTE there as big opportunities.

"This is a big deal for Qualcomm," said Alen Lin, a telecoms analyst at BNP Paribas in Hong Kong, according to Reuters. "For the first 6-9 months Qualcomm will be the only chipset provider that can support a handset using both 3G and 4G in the China market."

China is a market the American chipmaker cannot ignore as smartphone growth shifts from the U.S. to developing nations. Qualcomm reported $12.3 billion in revenue from China in the 12 months through September, nearly half of its total revenue, but many of the phones made in China are exported.

Beijing may also aim to support local chipmakers in competition with Qualcomm, the global leader in 4G technology. In recent months, organizations affiliated with the Chinese government spent nearly $3 billion to buy Chinese chipmakers Spreadtrum Communications Inc. and RDA Microelectronics Inc.

"China's domestic chipset manufacturers are in disarray," said Duncan Clark, chairman of BA, a Beijing-based technology consultancy, according to Reuters. "They're trying to re-boot their whole chipset industry."

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