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Will Qualcomm's investment win China's trust?

Posted: 16 Dec 2014 ?? ?Print Version ?Bookmark and Share

Keywords:monopoly? licencing fees? start-ups? mobile ecosystem?

Qualcomm may be in deep trouble in China, and the company is well aware of it.

It remains to be seen, however, how the company's $150 million public relations gambit to invest in China's mobile ecosystem will actually help diffuse alleged accusations of Qualcomm's monopolistic behaviour in China.

The San Diego, Calif.-based mobile chip giant has been coping with anti-monopoly investigations in China since late last year. The allegations of Qualcomm overcharging in China and abusing its market position could lead to record fines of more than $1 billion. That's bad enough, but even worse for Qualcomm and Qualcomm's investors is that Qualcomm could be forced to accept lower royalty payments in its highly profitable licensing business. This generally accounts for about a third of sales and two-thirds of profit.

In fact, during the latest quarterly results' announcement, Qualcomm said some Chinese licencees were under-reporting their sales, acknowledging that the company is in a licensing dispute with another Chinese company. As the situation escalates, other Chinese licencees feel also emboldened, thinking that they, too, can hedge their royalty payments to Qualcomm. All this cuts into Qualcomm's royalty revenue, the chip giant said.

Qualcomm said under-reporting is dragging down its estimates for the reported number of devices being shipped with its chips.

Against that backdrop, Qualcomm late last week announced $40 million of investment in four Chinese companiesmostly software and algorithm developersand the China Walden Venture Investments, L.P. fund. These five entities are the first beneficiaries of Qualcomm's previously announced $150 million strategic China Venture fund.

The five winners are: 7Invensun, an eye-tracking solution provider; Chukong Technologies, a mobile entertainment platform provider; inPlug, a smart home device/platform solution provider; Unisound, a voice recognition and processing technology provider; and the China Walden Ventures Investment.

Reaching the right people?

The $64 billion question is whether Qualcomm's actions will appear in China as just a public relations campaign, or viewed as serious efforts to breach China's mobile ecosystem. If the latter is the case, Qualcomm could hope that its investment activities will go a long way to win rapport from the Chinese mobile industry.

But here's the thing: Is Qualcomm reaching the right people in China? Further, is $150 million enough to buy goodwill from Chinese authorities?

The answers remain murky at best.

In winning not only legal but "perception" battles in China, Qualcomm must appeal to not just "China's mobile industry," but a much broader audienceincluding politicians, bureaucrats, investors, the semiconductor industry and mobile operators, all of whom are hot to trot for power grab.

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