Xiaomi, Lenovo Stand to Gain From China’s Qualcomm Settlement

Qualcomm Smartphone Processor

Photographer: Brent Lewin/Bloomberg

China’s antitrust regulator fined Qualcomm Inc. a record $975 million for practices it said hurt consumers. The real winner may be the nation’s smartphone makers.

Companies like Xiaomi Corp., Lenovo Group Ltd., Huawei Technologies Co. and ZTE Corp. stand to gain because, in addition to the fine levied by China’s National Development and Reform Commission, Qualcomm also agreed to new terms to license the chipmaker’s technology, according to five analysts surveyed by Bloomberg News.

As part of the accord to end an investigation that lasted more than a year, Qualcomm agreed to stop bundling other patents with the rights to its technology essential for connecting phones with high-speed wireless networks. It will also start calculating royalty fees at 65 percent of the wholesale price of phones sold in China, instead of the full price previously. That’s a boon to Chinese vendors, said Roger Sheng, a Shanghai-based analyst at Gartner Inc.

“The discounted royalty will provide more profit for Chinese manufacturers,” such as Huawei and Lenovo, Sheng said.

China is the world’s largest smartphone market with more than 1.29 billion wireless accounts at the end of December. Xiaomi had the second-largest share last quarter with 13 percent of the market, trailing Apple Inc.’s 17 percent. Lenovo ranked third in the country and Huawei fourth, Counterpoint Technology Market Research said last month.

“The behavior of Qualcomm restricted competition in the market, curbed technology innovation and harmed the interests of consumers,” the regulator said in a statement.

China Market

Hou Mingjuan, a Beijing-based Qualcomm spokeswoman, didn’t immediately return calls or reply to an e-mailed request for comment. Qualcomm, which said it was disappointed with the results of the commission’s probe, will continue investments in China and will boost ties with the country’s semiconductor industry, Xinhua reported, citing Qualcomm President Derek Aberle.

Whether the changes Qualcomm accepted will benefit consumers is another issue, said Kiranjeet Kaur, a Singapore-based analyst at International Data Corp.

“The question remains if the handset prices will become any cheaper eventually, or if vendors will pocket the savings they get,” Kaur said. “Either way, it should help the Chinese companies in the domestic market.”

In the competitive China market, foreign products like Apple’s iPhone and Samsung Electronics Co.’s Galaxy S phone compete with products from hundreds of local vendors.

‘Positive’ Conclusion

Joe Kelly, a spokesman for Shenzhen-based Huawei, said he had no information available immediately. Angela Lee, a spokeswoman for Lenovo, declined to comment, as did Xiaomi spokesman Tony Wei. Both Xiaomi and Lenovo are based in Beijing.

ZTE, based in Shenzhen in southern China, welcomed Qualcomm’s accord with the NDRC, said spokesman David Dai.

“The conclusion of the National Development and Reform Commission’s investigation of the Qualcomm case is positive for the development and protection of intellectual property rights in China,” Dai said. It “will help promote fair competition for technology innovators.”

In addition to paying lower royalties, the end of bundling patents by Qualcomm may also give a boost in licensing opportunities to the larger Chinese vendors who have made investments in research and development, said Nicole Peng, a Shanghai-based analyst with researcher Canalys.

“The change in license bundling and cross licensing will directly benefit the major Chinese vendors which own a large number of relevant wireless patents such as Huawei and ZTE, possibly Lenovo,” Peng said.