Qualcomm ends China antitrust dispute, to pay $975 mn

Qualcomm has agreed to pay approximately $975 million fine (6.088 billion Chinese Yuan Renminbi) to China’s National Development and Reform Commission (NDRC) thereby ending China antitrust dispute.

The NDRC has issued an Administrative Sanction Decision finding that Qualcomm has violated the Anti-Monopoly Law (AML).

Qualcomm has agreed to implement a rectification plan that modifies certain of its business practices in China and that fully satisfies the requirements of the NDRC’s order. Although Qualcomm is disappointed with the results of the investigation, it is pleased that the NDRC has reviewed and approved the Company’s rectification plan. Qualcomm will not pursue further legal proceedings contesting the NDRC’s findings.

As per the rectification plan, Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such offer, it will negotiate with the licensee in good faith and provide fair consideration for such rights.

For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5 percent for 3G devices (including multimode 3G/4G devices) and 3.5 percent for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65 percent of the net selling price of the device.

Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.

Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement.

However, this does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement.

“We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology,” said Derek Aberle, president, Qualcomm.

“We appreciate the NDRC’s acknowledgment of the value and importance of Qualcomm’s technology and many contributions to China, and look forward to its future support of our business in China,” added Aberle.

Steve Mollenkopf, CEO, Qualcomm said, “We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China and pursuing the many opportunities ahead.”

In view of this development, Qualcomm has updated its guidance. Revenues is estimated to be $26.3 billion to $28.0 billion compared to previous guidance range of $26.0 billion to $28.0 billion. GAAP diluted earnings per share is estimated to be $3.56 to $3.76 (which includes an approximately $975 million charge, or $0.58 per share, related to the fine imposed by the NDRC), compared to our prior guidance range of $4.04 to $4.34.

Non-GAAP diluted earnings per share is estimated to be $4.85 to $5.05 (which excludes the charge from the fine imposed by the NDRC), compared to our prior guidance range of $4.75 to $5.05.

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