QUALCOMM, Inc. (NASDAQ:QCOM), the San Diego-based semiconductor company, is facing difficulties collecting its royalties in China, for its chips that are used in smartphones made in China, due to Beijing’s tough stance on monopolies and royalty payments. Gordon Chang, author of ‘The Coming Collapse of China’, discussed in an interview on ‘Bloomberg West‘ about issues faced by Qualcomm in China. The Chinese handset manufacturers are now waiting to see how tough Beijing will get, so Qualcomm is finding it hard to sign up anyone to pay their royalties.
QUALCOMM, Inc. (NASDAQ:QCOM) is placed very badly, because 69% of its revenue comes from licensed chips that it doesn’t make, so such laws that challenge the very basic laws of intellectual property will hit the company very hard. In fact, they may not be paid for up to 200 million phones.
Gordon Chang continues to reiterate that there is “a real effort to undermine foreign companies” in China. He went on to say that, “if Qualcomm wants to know what its future will be in the country, it should look at what happened to that search engine [Google]”, which is no longer a major presence in China, being replaced by Baidu, a locally based search engine. In fact, he mentions that the Chinese authorities will “force manufacturers to use other technologies”. This can only be countered with a long-term campaign, but given QUALCOMM, Inc. (NASDAQ:QCOM) does not have so much in assets, such a long campaign will be disastrous. Additionally, the effect on Qualcomm of losing royalties from China, which is the biggest market for smart phones, will be immense. They will need to invest in research and development and patents.
Additionally, QUALCOMM, Inc. (NASDAQ:QCOM) has been investing in tech startups in China to show its good intentions.
“Bringing their production into China and building their chips there, is what the government wants, because once it learns this know how, this technology, it will be able to take it and give it to local companies so essentially Qualcomm is going to lose its business,” Chang said.