Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Qualcomm Inc. can easily afford an $853 million fine assessed by South Korea's antitrust authority. But the company's run-ins with regulators around the world are threatening to do longer-term damage to Qualcomm’s business model.

The South Korean agency said the U.S. chipmaker acted improperly in licensing some of its important patents on mobile phone technology. In echoes of Qualcomm’s headaches in other parts of the globe, the antitrust regulator also said Qualcomm twisted the arms of customers to pay for patents to buy Qualcomm’s processors, which are essential building blocks of nearly every smartphone sold in the world.

Qualcomm's stock price has increased 22 percent since 2011, but it hasn't kept pace with an index of chip companies. Share prices over the last five years, indexed to 100:
Source: Bloomberg

The fine barely dents Qualcomm’s considerable bank balance. The $853 million penalty works out to about 5 percent of Qualcomm’s $18.6 billion in cash and short-term securities. The same was true of Qualcomm’s $975 million fine last year from China’s antitrust authorities, which investigated similar issues as their South Korean counterparts. Regulators in the U.S. and Europe have also poked Qualcomm over how the company uses its dominance in mobile phone technology.

The trouble for Qualcomm is regulators may do what the power of the markets has not: break Qualcomm’s uniquely intertwined businesses.

Qualcomm has two core business units. One makes the computer chips and wireless modems for smartphones and other computing devices. The other collects fees from smartphone makers that use Qualcomm’s patents. The patent segment accounts for the majority of Qualcomm’s profits, and it uses the patent royalty money to fund research and development on new chip technology. The interconnection of the businesses has been a beautiful thing for investors.

Short Circuit
Qualcomm makes the majority of its pretax earnings from its segment that collects royalties on the company's patents
Source: Bloomberg
Note: Qualcomm's fiscal year ends each September.

As a result of Qualcomm's settlement with China's regulatory authority, companies that pay Qualcomm for its patents were able to cut the fees they were paying. The risk for Qualcomm is the same thing will happen in South Korea. One of South Korea’s biggest companies, Samsung Electronics Co. , is also one of Qualcomm’s largest customers. If other countries follow the blueprint of China and South Korea, it could erode Qualcomm’s steady stream of high-margin profits from its patent royalties. (Qualcomm said it would appeal South Korea's antitrust decision and called it "unprecedented and insupportable.")

The regulatory issues exacerbate the troubles Qualcomm faces from fundamental changes in the mobile phone industry. Apple Inc. has started using modem chips from Qualcomm rival Intel Corp. in some models of the iPhone 7. Apple, Samsung and some other big smartphone companies are increasingly developing their own chips rather than relying on Qualcomm. Smartphone sales also are running out of steam, forcing Qualcomm to look to other computer areas such as data centers for potential sources of growth. 

None of Qualcomm's enemies, whether it's antitrust regulators or competitors, can deal a fatal blow to a company with enormous financial firepower and arguably the best mobile processors in the industry. But the repeated nicks here and there accumulate into long-term danger for Qualcomm. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Samsung is a big Qualcomm customer but a competitor as well because it also makes mobile chips.

To contact the author of this story:
Shira Ovide in New York at

To contact the editor responsible for this story:
Daniel Niemi at