US chipmaker Qualcomm has been fined CNY6.088 billion (about $975 million) by China’s antitrust regulator and has agreed to modify its licensing practices and reduce royalties to satisfy the government’s anti-competitive ruling.
The company, which made about $7.57 billion last fiscal year in royalties from licensing its patents and other IP, announced yesterday it has reached a resolution with the National Development and Reform Commission (NDRC), which found that it had violated the country’s anti-monopoly law.
Qualcomm said in a statement that it was disappointed with the results of the investigation but was pleased the NDRC has approved its rectification plan. The company said it will not pursue further legal proceedings contesting the NDRC’s findings.
Qualcomm CEO Steve Mollenkopf claimed the resolution has removed the uncertainty surrounding its business in China. “We will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead.”
The NDRC investigation began in late 2013. The chip giant had been in talks with the regulator for months, but the dialogue went quiet after it said in September it was willing to modify its pricing in China to put an end to the antitrust probe.
Rumours had been circulating since late December that a deal had been reached and that just the specific terms were being worked out, with an announcement expected before Chinese New Year, which starts 19 February.
Derek Aberle, president of Qualcomm, said in January at CES in Las Vegas that reaching a resolution was “one of the highest priorities for our management team”.
Under the terms of the agreement, the company will lower the royalty base to 65 per cent of the net selling price of the device (down from 100 per cent) for branded devices sold in China that use its essential patents. Royalties would be cut to 5 per cent for 3G devices and 3.5 per cent for 4G devices that do not implement CDMA or WCDMA – rates reportedly similar to what it charges in other countries.
Qualcomm also will offer licences to its 3G and 4G patents separately from licences to its other patents and will provide patent lists during the negotiation process. In addition, it will not make the sale of baseband chips a condition for its chip customers that sign a licence agreement.
Based on the fine imposed, the company updated its financial guidance for fiscal year ending 27 September, lowering its GAAP diluted earnings per share estimate to $3.56 to $3.76, compared to the prior range of $4.04 to $4.34. Its revenue estimate was raised slightly on the low-end to $26.3 billion to $28 billion compared to the prior range of $26 billion to $28 billion.