The regulatory investigation is seen as an effort by the government to bolster the position of Chinese companies in their licensing negotiations with Qualcomm (QCOM). Device makers have to pay royalties to the chip maker for the processors used in smartphones on the new 3G/4G networks, Reuters notes.
Chinese carriers — including China Mobile (CHL), China Unicom (CHU) and China Telecom (CHA) — are investing $16.4 billion in rolling out faster LTE networks across China. The new networks give Qualcomm – whose chips support both 3G and 4G Chinese networks — a six-to-nine month lead over other chip manufacturers in the rapidly expanding Chinese market.
In a research note, Raymond James analyst Tavis McCourt said that the investigation was likely linked to the upcoming launch of China Mobile’s 4G network early next year and “the negotiations on chip pricing and license pricing between Qualcomm and Chinese-based handset (makers) that are likely occurring right now.”
China is already a significant revenue source for Qualcomm, generating $12.3 billion in revenue over the twelve month period that ended in September.
Qualcomm says it will cooperate with Chinese regulators. QCOM shares rose modestly in Tuesday morning trading.