Qualcomm, Inc. (QCOM) Faces Chinese Probe


Qualcomm Inc. (QCOMAnalyst Report), the largest manufacturer of mobile chipsets, declared that the company is facing an anti-monopoly investigation by the National Development and Reform Commission (NDRC), the regulatory authority of China. The company stated that it isn’t aware of any activity that violates the anti-monopoly law in China and will continue to cooperate with NDRC. Qualcomm currently has a Zacks Rank #3 (Hold).

The investigation is likely to impede Qualcomm’s growth in China.  China – the largest emerging market – contributed approximately 49% of Qualcomm’s total revenue in fiscal 2013 (ended Sep 2013). China Mobile Ltd. (CHLSnapshot Report), the largest Chinese wireless operator, is expected to launch 4G TD-LTE network throughout the country in early 2014. Qualcomm is a major chipset developer for the TD-LTE network and the upcoming deployment by China Mobile was seen as a significant future growth potential.

Aggressive competition in the mobile phone chipset market may hurt Qualcomm’s profit in the future. The company is facing severe competitive threat from its closest rival, Intel Corp. (INTCAnalyst Report), which has been redesigning its chipsets for the mobile computing market. Intel has started shipping its first multi-mode LTE baseband modem.

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Competition is likely to emanate from formidable rivals like Broadcom and Nvidia. Broadcom Corp. (BRCMAnalyst Report) has introduced its first LTE baseband chipset in the market and Nvidia introduced Tegra 4i, its first LTE-integrated application processor.

Low-cost chipset suppliers such as, Mediatek of Taiwan, RDAMiceoelectronics Inc. and Spreadtrum Communications of China are also major competitors. Although, the global smartphone market is expected to maintain its momentum in the next 4-5 years, the major thrust is likely to come from the low-cost emerging markets, which may pressurize Qualcomm’s margins.