For Qualcomm, China settlement may be just the beginning

A visitor holds a new Samsung Galaxy Note 4 smartphone after its presentation at the Unpacked 2014 Episode 2 event ahead of the IFA Electronics show in Berlin, Sept 3, 2014. [Photo/Agencies]

Qualcomm is expected by industry sources to agree to changes in how it charges royalties on cellphones sold in China. Qualcomm earned about half of its global revenue of $26.5 billion in China for the fiscal year ended Sept 28.

An agreement to lower royalty rates charged by Qualcomm on phones sold in China could affect its contractual relationships not just with local manufacturers such as Huawei, Lenovo, ZTE and Xiaomi Inc, but also with bigger global players that make and sell phones in China, such as Apple Inc and Samsung Electronics, said patent lawyers consulted by Reuters.

At a meeting with analysts in November, Qualcomm President Derek Aberle did not directly answer a question about when the chipmaker's largest licensees' contracts would be due for renegotiation, or how those renegotiations would be affected by potential concessions Qualcomm could make in China.

"If Qualcomm comes to an agreement with China's government to materially reduce its royalty rates, then what happens with their agreements with LG, Samsung and Apple?" said Ascendiant Capital analyst Cody Acree. "It becomes a snowball that's really hard to see the end to."

On the back foot

The China probe is the latest anti-trust investigation faced by Qualcomm, which was hit with a $20 million fine in South Korea in 2009 and was forced to renegotiate licensing agreements with Nokia and others by the European Commission in 2007.

"Qualcomm has more problems than just in China," said Donald Merino, who advises companies on patents in Asia. "They have a problem in the US as well because the US is devaluing the patent system."

China to form final ruling on Qualcomm case