* Chinese regulator not saying why Qualcomm investigated
* China key growth market for smartphones
* Qualcomm shares down after probe news
By Supantha Mukherjee and Neha Alawadhi
Nov 25 Qualcomm Inc said on Monday it
faces an antitrust probe in China, sending its shares lower as
investors worried the investigation could hurt the chipmaker's
business in the fast-growing smartphone market.
The company said it was not aware of any antitrust
violations but would cooperate with the probe by China's
National Development and Reform Commission (NDRC).
The NDRC did not say why the company was being investigated,
according to Qualcomm.
China's state media on Sunday quoted an NDRC official saying
the country would focus antitrust investigations on six
industries, ranging from technology to medicine.
Qualcomm, the world's biggest maker of cellphone chips, sees
China as a key market as growth in smartphones shifts away from
the United States to developing countries and as China Mobile
prepares to upgrade to high-speed networks using
technology developed by Qualcomm.
The U.S. company reported $12.3 billion in revenue from China
in the 12 months through September, equal to 49 percent of its
But many of the smartphones made in China are exported, so
the Chinese market actually accounts for about a fifth of
Qualcomm's chip shipments and licensing revenue, according to
Raymond James analyst Tavis McCourt.
Some analysts speculate the government may be seeking
leverage in royalty negotiations with Qualcomm ahead of the
expected rollout of new 4G wireless infrastructure in 2014.
Others theorize that Beijing may be moving to support local
suppliers trying to compete with Qualcomm, the global leader in
4G technology, also known as Long-Term Evolution (LTE).
In February, the NDRC attracted attention when it fined six
Korean and Taiwanese makers of liquid crystal displays about $57
million for price fixing.
With Broadcom Corp, Intel Corp and other
chipmakers missing targets for their own LTE components,
Qualcomm is the main player in LTE, which China Mobile plans to
roll out next year to allow for faster data transfer rates over
"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 (manufacturers) that are
likely occurring right now," McCourt wrote in an note to
A Qualcomm spokesman declined to comment.
With growth in the smartphone industry shifting away from
wealthy markets toward China, Qualcomm and other U.S. chipmakers
have increased their focus on supplying components for low-cost
phones. And they are competing more with local chipmakers.
A new wave of Asian smartphone makers has also emerged to
help meet demand for low-end handsets: companies such as Lenovo
Group Ltd, ZTE Corp and Xiaomi Tech, the
rising star of cheap, made-in-China smartphones.
The Chinese government appears to be pushing for local
technology suppliers, said Evercore Partners analyst Mark
In the last few months, organizations affiliated with the
Chinese government spent nearly $3 billion to buy Chinese mobile
chipmakers Spreadtrum Communications Inc and RDA
Microelectronics Inc. Both companies have technology
that competes with Qualcomm's.
China Mobile, the world's biggest mobile carrier with 800
million subscribers, is investing billions of dollars to upgrade
its infrastructure to LTE so clients can enjoy speedier Internet
and data access.
"You're getting ready to have this battle over 4G royalties
and now you have this antitrust investigation," said Williams
Financial analyst Cody Acree. "It may well be that this reform
commission is beginning to throw up reasons and excuses for why
China doesn't pay royalties on 4G."
The NDRC is China's top economic planning body and regulates
prices. It has launched nearly 20 pricing-related probes of
domestic and foreign firms in the last three years, according to
official media reports and research published by law firms.
The NDRC fined six companies, including Mead Johnson
Nutrition Co, Danone SA and New Zealand dairy
giant Fonterra, a total of $110 million in August
following a four-month investigation into price fixing and
anti-competitive practices by foreign makers of baby formula.
In August, sources told Reuters that a senior Chinese
official had put pressure on about 30 foreign firms, including
General Electric Co and Siemens, to admit to
antitrust violations and warned them against using external
lawyers to fight accusations from regulators.
Shares of San Diego-based Qualcomm were down 1 percent at
$72.23 in afternoon trading on the Nasdaq.
Infrastructure spending on 4G will nearly triple to $24.3
billion in 2013 from $8.7 billion in 2012, according to research
firm IHS iSuppli, fueled by network expansions in major markets
such as China, Japan and Germany.