Qualcomm Still Challenged In China After Settlement

Makers of low-cost smartphones and chips are expected to ratchet up the pressure on Qualcomm

Qualcomm has agreed to pay $1 billion to settle antitrust violations in China, however, the company still faces some major challenges in the country. The issue is native smartphone makers that sell phones at low costs and with low margins.

Qualcomm pressured by Chinese smartphone makers

Noel Randewich and Gerry Shih of Reuters report that Chinese smartphone manufacturers like Xiaomi and Huawei Technologies have been aggressively pushing into other developing markets. The result so far has been lower smartphone prices.

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That’s bad for makers of more expensive smartphones—and for Qualcomm, which collects royalties on those more expensive phones. The less expensive the phone is, the lower the royalty Qualcomm can collect on it. As a result, it’s expected that Qualcomm’s margins and profits will fall as Xiaomi and other Chinese companies push into Latin America, India and other developing countries.

Qualcomm does enjoy plenty of profits from Apple’s iPhone and other expensive smartphones, but IDC expects to see the average selling price for smartphones to decline from $135 last year to $102 in 2018 in developing markets. In the U.S. though, smartphones frequently sell for over $600 without a contract.

Chinese chipmakers also pressure Qualcomm

In addition to China’s manufacturers of less expensive smartphones, Qualcomm also faces pressure from Asian chip makers that sell their chips for less. MediaTek in Taiwan and several smaller Chinese chip makers are focused on manufacturing less expensive chips that are designed for inexpensive phones.

Although Qualcomm led the market in LTE, Intel, MediaTek, Marvell and Huawei’s HiSilicon are rapidly closing the technology gap. In last year’s second quarter, Qualcomm saw its global LTE baseband chip share fall from 95% the previous year to 89%. Sravan Kundojjala of Strategy Analytics told Reuters that emerging chip makers in China are to blame for Qualcomm’s falling market share.

The company slashed its guidance for full year revenue in January, mainly because it lost a major customer, which was said to be Samsung. Qualcomm management also said they expect pressure from rising Chinese competition in both medium and high-end devices.

As of this writing, shares of Qualcomm were up 2.52% to $68.80 per share