Earlier this month,Qualcommagreed to an antitrust settlement with the Chinese government to the tune of $975 million -- the most ever paid to settle such disputes in China -- and then a few days later, South Korea said its government was looking into similar monopolistic practices by Qualcomm. This shouldn't come as much of a surprise, as the U.S. government and European Union are investigating the company for much the same thing.
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While the monetary penalties hurt in the short term, it's the patent royalty changes that will impact Qualcomm down the road.
A recentarticlein The Wall Street Journalnotedthat the settlement Qualcomm paid to China was basically a slap on the wrist. While it was expensive, the company paid a fee it can afford -- equivalent of 8% of its annual sales in China -- and gets to keep the majority of its patent licensing in place.
What does change through the settlement is how the company makes some of its cross patent deals with Chinese companies. In the past, Qualcomm may have used its dominant mobile processor position to forge cross-patent deals with companies like ZTE and Huawei without paying a dime; now they have to offer compensation to the Chinese companies.
Qualcomm's royalty rates to other Chinese smartphone makers like Xiaomi will also change as well. The company technically collects the same royalty percentage on each mobile device sold that it used to, but under a lower average selling price (65% of the ASP compared to the previous 100%).
Which leads us to the latest South Korean investigation.
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Been there, done that
Investors may remember that South Korea came knocking on Qualcomm's door back in 2009 -- on antitrust grounds -- and the company wound up settling for $200 million.
South Korea's Fair Trade Commission is looking into possible monopolistic practices by Qualcomm, and it's likely the company will have to eventually fork over some cash, again. Of course, any changes to Qualcomm's business practices as a result of the settlement will mean it may have to change how it does business with South Korean companies -- namelySamsung. If that happens, Qualcomm may end up receiving a lower amount per device for South Korean mobile products, as it now does with China.
The long-term impact
Qualcomm is a massive mobile processor and radio frequency company making chips for Samsung, Apple, and host of others. Any fines it pays to settle antitrust problems aren't the real problem, here.
Qualcomm has lowered its 2015 forecasts by $0.58 per share because of the patent issues, and it's still uncertain how patent licensing changes from Europe, the U.S., and South Korea will impact the company.
What's important for investors to remember is that Qualcomm still retains its 3G and 4G patent advantage in China, even after the settlement. Qualcomm can't collect as much on each device as it used to, but the patents certainly haven't gone away. In fact, Morningstar analyst Brian Colellosaid that the new Chinese patent rules may make it easier for Qualcomm to collect on some device patents, sign deals with new vendors, and more accurately audit Chinese OEM device sales.
While initial patent revenue will decline (and could decline even more if Qualcomm settles with the other countries), anynew patent restrictions shouldn't remove the company from its dominant mobile position, and as with the case in China, some new opportunities may actually come from it.
The article Qualcomm's Antitrust Woes Are Far From Over originally appeared on Fool.com.
Chris Neiger has no position in any stocks mentioned. And while he doesn't hold any patents like Qualcomm does, he has a few killer technology ideas that are sure to make him the big bucks... if only he could remember them. He really should write these things down. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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