QUALCOMM INVESTIGATED UNDER CHINESE ANTITRUST LAW
c.2013 New York Times News Service
Qualcomm, the San Diego-based mobile chip maker, has become the target of an antitrust investigation led by the National Development and Reform Commission, China’s top economic planning body — a disclosure that raised concerns about the company’s prospects in its fastest-growing market.
‘‘The NDRC has advised that the substance of the investigation is confidential,’’ Qualcomm said on its website Monday. ‘‘The Company is not aware of any charge by the NDRC that Qualcomm has violated the AML,” or Anti-Monopoly Law.
The Chinese government has been heightening its corporate scrutiny in recent months, focusing on corruption as well as business practices that contribute to higher prices. On Sunday, Chinese media reported that the reform commission would center its antitrust investigations on six industries — aviation, chemical, automobile, household appliances, medical and telecommunications — and step up its fight against pricing monopolies.
Qualcomm receives most of its revenue from smartphone chips, and the majority of its profit comes from licensing cellphone network and handset technology. The company reaped 49 percent of its total revenue from China in the financial year that ended in September, a sum that amounted to $12.3 billion. A portion of this revenue came from phones that were assembled in China but sold in foreign markets.
News of the investigation comes as China Mobile, the country’s largest cellphone carrier with 800 million subscribers, is preparing to introduce high-speed 4G wireless upgrades next year, which will probably require the use of Qualcomm technology. The timing of the investigation has led some to question whether the Chinese government may be trying to gain leverage for its upcoming royalty negotiations with the U.S. company.
Tavis McCourt, a financial analyst at Raymond James, said his company suspected ‘‘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,’’ Reuters reported.
Three government entities are entrusted with investigating and enforcing the Chinese Anti-Monopoly Law, which was passed in 2007: the State Administration for Industry and Commerce, the Ministry of Commerce and the reform commission. The fact that the antitrust investigation is coming from the commission, which is in charge of price supervision and inspection, suggests that the government’s objective is to make 4G service more affordable.
This year, the commission led an inquiry into six foreign dairy companies, including Mead Johnson Nutrition and Groupe Danone, after allegations that they broke anti-monopoly rules and fixed prices. The investigation resulted in a fine of $109 million, a record for anti-monopoly violations in China, according to Xinhua, the state-run news agency.
The previous record was set in January 2013, when the commission penalized six liquid-crystal-display makers from South Korea and Taiwan roughly $56 million for price fixing.
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The commission’s investigation into Qualcomm also comes just days after the company’s chief executive, Paul E. Jacobs, acknowledged that U.S. restrictions on Chinese telecommunications companies and revelations concerning surveillance by the National Security Agency had hurt Qualcomm’s business in China.
According to recent news reports, executives at Cisco Systems have said that Chinese customers with ties to the government may be reducing purchases of Cisco equipment in response to the NSA disclosures and a law passed by the U.S. Congress this year that prohibits federal agencies from buying information technology equipment from Chinese companies without approval. On Nov. 14, Cisco reported that orders from China fell 18 percent in the current quarter, while worldwide revenue was expected to decline 8 percent to 10 percent in the same period.