QUALCOMM, Inc. (NASDAQ:QCOM) has disclosed that Chinese regulators have opened up an anti-monopoly investigation into the company’s business practices. The National Development and Reform Commission, which is in charge of regulating prices in China, did not disclose the substance of the investigation to Qualcomm, saying that the details were confidential, reports Matt Egan at Fox Business.
“We will continue to cooperate with the NDRC as it conducts its confidential investigation,” Qualcomm said in a statement.
Qualcomm stock fluctuates
News of the investigation pushed QUALCOMM, Inc. (NASDAQ:QCOM)’s stock price down more than 2%, though it has already regained of the lost ground. Qualcomm’s revenue was up 33% sequentially for the third quarter, and while its EPS was below consensus this was partially due to litigation costs. Qualcomm increased shipments of MSM to 190 million, beating the high-end guidance of 181 million, but margins were lower because sales included a larger percentage of lower-tiered products than in previous quarters. Apple Inc. (NASDAQ:AAPL) is Qualcomm’s biggest client, and larger than expected sales of the iPhone 4 and 4S contributed to the falling average selling price. Qualcomm stands to benefit as customers transition to the newer models like the iPhone 5 which use the newer 4G chips.
China and India a heavy influence for Qualcomm
QUALCOMM, Inc. (NASDAQ:QCOM) specifically mentioned the Chinese markets as one factor in its confident guidance for next year, and it could be that growth which has spooked the NDRC. It shipped 224 million 3G and 4G devices to China and India last year, and it will ship 281 million to the two countries combined by the end of this year. There is good reason to expect more sales growth next year, legal action notwithstanding, and William Blair analysts Anil Doradla and Brian Nugent say that the 2014 outlook for the company is above consensus.
At this point, there is so little information about the probe that it’s difficult for investors to speculate how it should affect the company’s stock price. While the announcement clearly surprised people, there’s no guarantee that the investigation will lead to legal action against the chip maker, and even if it does the legal battle will likely be fairly drawn out, so it’s unlikely to have a real impact in the near future.