Learning not to eat fish 400 miles from the ocean
1840 hrs. local time
Two days ago, QUALCOMM (QCOM) announced that its chipset business was the subject of an investigation by China’s powerful National Development and Reform Commission. Details are sketchy, as the company has been instructed to keep the details to itself. It appears, however, that the issue is whether QCOM’s chipset business, QUALCOMM CDMA Technologies, is an effective monopoly in China.
Yesterday I got a note from Edmond Lococo at Bloomberg, who was curious about the degree to which QCOM’s critical China business will take a hit as a result. (Full disclosure: QCOM was a client from 2000 to 2004, but I have had no direct interaction with the company for nine years.)
As I told Edmond, reports of QCOM’s monopoly are exaggerated, to say the least. Apple makes their own chips, as does Huawei, and MicroTek and local upstart Spreadtrum been supplying China’s smartphone market for years. To suggest that Qualcomm has anything approaching a monopoly defies the facts: one need only check the specs on the 10 most popular phones in China to ascertain as much.
Impact on QUALOMM
At this point, though, it is hard to say what impact this will have on QCOM’s sales in China, which represents some 49% of the company’s revenues. There have been no specific accusations made, and few handset manufacturers who are committed to the QCOM architecture are likely to change on the basis of an unspecified investigation, particularly for those devices well along in the development cycle.
Where this may impact QCOM will be in the case of companies who are not committed to the architecture for devices in development, but who are looking to make a decision on chipsets in the coming months. This means that the longer this goes on, or if there are accusations of a specific nature levied at QCOM, there may be a meaningful impact. In the meantime, however, I expect many manufacturers to take a “wait-and-see” attitude.
Why Qualcomm, and Why Now?
There could be any number of reasons behind this: it could be concern about Snowden’s allegations; retaliation for Huawei’s treatment in the US; a growing nationalist discomfort with the success some foreign companies have enjoyed in China; or, indeed, a specific issue with QCOM. But suggesting any or all of these reasons at this time is little more than speculation.
As this all plays out, I expect we will learn more, and that we will soon know whether this is aimed at a single company, or whether all foreign enterprises in China should be concerned.
In the meantime, the wise course for any company would be to assume that “the bell is tolling for thee,” and address the specter of a changing business climate head-on.
- Qualcomm faces monopoly probe in China (utsandiego.com)
- China Targets Qualcomm With Antitrust Probe (technewsworld.com)
- China’s probe into smartphone chip maker Qualcomm likely tied to $16 billion rollout of commercial services by Chinese telecoms carriers – @ReutersBiz (reuters.com)
- China probe may be aimed at Qualcomm’s 4G royalties (news.yahoo.com)
- Qualcomm under anti-monopoly probe in China (zdnet.com)