Qualcomm Struggles to Collect Royalties in China

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July 25 (Bloomberg) -- Qualcomm said it’s struggling to collect license revenue from handset makers in China, the world’s largest mobile-phone market, threatening profit growth. “The Coming Collapse of China” Author Gordon Chang speaks on “Bloomberg West” (Source: Bloomberg)

China for a couple of decades, paul weiss.

-- gordon chang.

What is going on here?

You have chinese handset manufacturers saying, why do i have to pay qualcomm.

It is very difficult for the san diego-based company to be able to sign up in the buddy to pay them royalties, because they are all going to see out -- going to wait to see how tough beijing will be on the company.

It is an enormous development, because it suggests that the very basic laws of intellectual property, where qualcomm has 59% of its income coming from licensed chipset it makes, the very basis of intellectual property is not going to hold up if china does not want it to.

That is certainly the case.

We have seen since 2009 with a concerted attack on google a real effort to undermine foreign business in china.

If qualcomm wants to see what its future is going to be in the country, it should look at what happens to that search engine.

Google is still in china, but no longer the force it once was.

What the chinese government wants to do is help local companies.

Baidu became very big in terms of market share.

The same thing is going to happen because the chinese government will force manufacturers to try to use other technologies.

I don't know if they will be successful or not, but what it says is that qualcomm is going to have to wage a long-term campaign and it does not have much in the way of assets to do that.

Qualcomm is also being investigated under china's anti-monopoly law.

Has qualcomm done anything wrong that we know of?

We really don't know, and we may not know for quite some time.

This has nothing to do with right or wrong.

They decided they would roll out their four g network in china and they are doing that right now.

They were offended by the idea of paying royalties to a foreign company.

A were going to attack ball club.

-- so they were going to attack qualcomm.

Qualcomm is not the only company.

Since the reform commission a year ago has gone after all sorts of companies.

We have a long pattern of targets and almost all of them are foreign.

Even if qualcomm did something wrong, most chinese companies end up doing practices that are much worse and they just skate by because this is open season on foreigners.

We talk so much about facebook and twitter, which are blocked in china.

Now we are talking about hardware companies.

Licensing is qualcomm's most profitable business.

China is the biggest smartphone market in the world.

How much could this hurt qualcomm?

This is the worst nightmare for qualcomm.

They built an entire business that has now become the first or second largest chip company in the world, and yet you have a situation where they're very business is about regional development and enforcing patents and doing intellectual property.

If those don't hold up, their model falls apart.

Some companies are saying, if one chip maker is not paying you, why should i? the other thing that looks like it's happening is some companies are just saying, you know, you think i sold 100,000 phones this quarter, i only sold 10,000 with your chips in it.

What are you going to do about it?

Qualcomm says there are about 2 million phones that they are not getting paid for that they are owed for.

Big deal.

Described the profits -- process by which a company like qualcomm tries to maintain a foot on the ground, the gladhanding that goes on, the long dinners with chinese officials.

I want to hear more about how they actually try to keep these relationships strong.

What qualcomm has been doing recently is to show it is a good chinese citizen.

It has started to invest into tech startups in china.

It has something like $150 so far.

They are also bringing their production into china.

They will be making chips there.

That is where the chinese government wants, because once they start to learn all of this knowhow and technology, they will be able to take it and give it to local companies.

Essentially, qualcomm is going to lose its business.

Of course, there's the whining and dining aspect to this, but qualcomm is looking to invest in these companies and i think that is the wrong thing for them to do.

The chinese are going to say, o, my gosh, the americans are now owning our companies.

We've got to get back at them.

I think this makes qualcomm a much bigger target.

Qualcomm, i should say, has been through this before.

They have been through this all over the world.

And they have eventually prevailed everywhere they have faced this, including china.

But it is worrisome for all of the reasons that gordon sites, that china will be the future of wireless and that qualcomm may not have the steak they have had their in the past.

Thank you, gordon chang, as always.

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