AH SnapDragon Qualcomm 1.6

Qualcomm’s China Worries Predicted To Result In Snowball Effect For The Company

December 29, 2014 - Written By John Anon

Qualcomm is an extremely popular company in recent times. Barely a device is released without one of Qualcomm’s Snapdragon processors contained within. MediaTek are biting into the Snapdragon dominance, however ‘Snapdragon’ has become a kind of buzzword for the industry and when listed as part of the specs seems to automatically offer users reassurance of a good processor. In spite of the continued rise and popularity of Qualcomm and their Snapdragon range of processor, they have more recently been very much on the backfoot. Especially in China. For those that don’t know, this is because of an antitrust investigation China has been conducting into the behavior of Qualcomm.

Now the investigation is not new news and in fact is pretty much concluded now. In fact, it is already widely understood that the result of the investigation is not good news for Qualcomm, This will consist of what is expected to be quite a hefty financial fine. The fine will inevitably hurt Qualcomm’s bottom line. However, that will not be anywhere near as worrying as the other demands of the investigation. As well as a fine, Qualcomm are highly expected to have to reach some form of agreement to the way they conduct patent licensing in China. This will be the real kicker for Qualcomm, as it means they will not be collecting (or controlling) patent licenses like they have in the past. As patent licensing actually equates to a large proportion of Qualcomm’s overall income (again, especially in China), it is expected that this will be what really hurts the San Diego company. For instance, it is being reported that half of Qualcomm’s 2014 global revenue (total equating to $26.5 billion) came from China. Furthermore, it is reported that more than half of Qualcomm’s $8 billion net income was based on royalties received (which was relative to the selling prices of the devices). Which interestingly (and due to the patent licensing in question) includes royalties on devices which contain Qualcomm competitor chipsets instead of their own. This is why the patent aspect of the ongoing antitrust investigation is what will hurt Qualcomm more than anything.

However, to add further weight to Qualcomm’s worries, the patent agreement will not actually be the end of the situation. Instead, analysts are predicting that such an agreement will actually result in a snowball effect for the chip company resulting in even further problems and losses worldwide. This is thought to be because the patent licensing is an integral part of the relationships and contractual agreements between Qualcomm and the big OEMs like Samsung and LG. As the China licensing changes come into effect, it is is predicted that this will have a knock-on effect for Qualcomm’s already in place agreements with the big manufacturers, who will be then looking to further redress the situation and the way in which patent licensing benefits them. Although, at the moment, this is only speculated, we might find sooner rather than later we will hear of what the knock-on effect for Qualcomm is. Either way though, it does look like Qualcomm have some worrying issues to address in both the near and long term futures.