China looks to impose a hefty fine on Qualcomm to protect local device makers

PCWorld News

China is said to be close to imposing a fine of more than US$1 billion on chipmaker Qualcomm, indicating it intends to protect local manufacturers who it says have been overcharged by the dominant player.

China’s National Development and Reform Commission has been investigating Qualcomm for engaging in possibly anti-competitive behavior by overcharging device makers in the country. Reports emerged on Monday that China was close to imposing a fine of at least US$1 billion, although Qualcomm wouldn’t confirm that.

China started investigating how Qualcomm licenses its technology following complaints from local device makers. Qualcomm’s Snapdragon chips go into many smartphones, and its wireless technology is licensed for use in a majority of 3G, 4G and LTE modems.

Last year the company said that the probe was disrupting its business in China, and making it harder to collect royalties.

If Qualcomm settles with China, it will have to renegotiate licensing deals with local companies at lower prices, analysts said.

China is trying to create a favorable business environment for local device makers and semiconductor companies as the country aims to become self-reliant in technology, said Jim McGregor, principal analyst at Tirias Research. Qualcomm has no choice but to play within the controlled business environment, which is less-than-ideal for foreign players, McGregor said.

Cheaper licensing rates could help Chinese companies market even lower-cost handsets, a segment where they are already taking over a growing share of worldwide smartphone shipments.

Licensing and royalty business practices come under close inspection by the Chinese government, said Dean McCarron, principal analyst at Mercury Research.

He cited the example of China’s approval of the Microsoft purchase of Nokia last year. One of the conditions for approval was Microsoft not increasing the patent licensing fees following the acquisition.

For Qualcomm, it’s just best to pay the fine and move on.

“You wouldn’t want something like this hanging over you for years,” McCarron said.

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