With antitrust deal done, Qualcomm still faces China challenges

Tue Feb 10, 2015 5:26am EST
 
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By Noel Randewich and Gerry Shih

SAN FRANCISCO/BEIJING (Reuters) - Even after agreeing to pay a record near-$1 billion fine in China for antitrust violations, U.S. chipmaker Qualcomm Inc faces big challenges in its most important market.

As low-cost, low-margin Chinese smartphone manufacturers such as Xiaomi Inc and Huawei Technologies push into other developing markets, they are driving down average handset prices - bad news for San Diego-based Qualcomm, which collects royalties based on the handset's value.

Qualcomm could see its margins slip, eroding its profits, as firms like Xiaomi and Huawei push their budget devices into markets such as India and Latin America.

"You've got all these Chinese companies - like Xiaomi, Huawei and Lenovo - that want to go global and take share from Samsung Electronics, HTC and presumably even Apple, but they're going to do it at much lower price points," said Bernstein analyst Stacy Rasgon.

While sales of high-end devices like Apple's iPhone remain robust - and generate hefty profits for Qualcomm - the average selling prices for smartphones in developing countries will fall to $102 by 2018 from $135 last year, predicts IDC. In the United States, smartphones often sell for more than $600 without a contract.

CHEAP CHINESE CHIPS

Qualcomm, a long-time leader in wireless chip technology, is also under increasing competition from Taiwan's MediaTek and a handful of small Chinese chipmakers that specialize in making chips for low-priced phones.   Continued...

 
The sign hanging outside the Qualcomm booth is seen at the International Consumer Electronics show (CES) in Las Vegas, Nevada January 6, 2015.   REUTERS/Rick Wilking