Qualcomm has reached an agreement with the government of China to pay a fine of $975 million for the settlement of investigations on alleged anti-competitive practices.
The fine on Qualcomm is the largest amount that China has ever placed on a company in its corporate history, ending an investigation that has lasted for 14 months.
In addition to the fine, Qualcomm is required to decrease the royalty rates for the company's patents that are being used in the country, which would help smartphone companies in China such as Xiaomi and Huawei.
The antitrust investigation into Qualcomm clouded the company's opportunities to take advantage of the increasing demand for smartphones in China due to the country's rapidly expanding high-speed 4G network. The investigation also made it difficult for Qualcomm to collect royalty payments from smartphone manufacturers.
In a statement, Qualcomm said that it would not be contesting the finding of the National Development and Reform Commission of China that the company was in violation of antitrust regulations. However, Derek Aberle, the president of Qualcomm, said that while the company respect's the NDRC's authority, it does not believe that the outcome of similar antitrust investigations into Qualcomm in the United States and Europe will lead to similar results.
While the shares of Qualcomm jumped by 1.6 percent to $68.18 per share in after-hours trading after the settlement of the investigation, the company was forced to decrease its estimate for full-year earnings because of the fine. According to Qualcomm, the penalty will cost about 58 cents per share.
"It removes a significant source of uncertainly from our business and positions our licensing group to really participate in the full growth of the wireless market in China," said Qualcomm CEO Steve Mollenkopf in a phone interview with Reuters, with the executive expressing the company's relief that the case is over.
Under the agreement, Qualcomm will be offering licenses to its current 3G and 4G essential patents in China in separate from its other patents. The new agreement will also now be calculating royalties from only 65 percent of the sale price of devices, instead of from the full price.
Wall Street analysts believe that the limited concessions granted to the licensing business of Qualcomm in China may affect the company's license deals in several other countries.
"That's the first time I've ever seen them in writing agree to that and it begs the question of why 65 percent is the right number in China and it's not the right number everywhere," said Stacy Rasgon, an analyst for Bernstein.
