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Qualcomm's $6.1 billion antitrust penalty: the highest in China

In the early morning of February 10, Beijing time, China's national development and Reform Commission (NDRC) announced that it would impose a fine of 6.088 billion yuan on Qualcomm and set a rate for Smartphone manufacturers to license their technology, thus ending the investigation that threatened the growth of Qualcomm in the Chinese market. The penalty has also become the largest anti-monopoly fine in China so far.

In a statement on Monday, Qualcomm said the NDRC ruled the company in violation of China's antitrust law and said it did not dispute the ruling. Qualcomm was fined 6.088 billion yuan (US $975 million), the statement said. In addition, the NDRC has set terms for Chinese mobile phone manufacturers to pay royalties for the use of Qualcomm chip designs.

The main terms of the correction plan are as follows:

-For necessary Chinese patents related to 3G and 4G technologies, the patent authorization provided by Qualcomm will be distinguished from other patents. Qualcomm will provide a list of patents during the negotiations. If Qualcomm seeks cross licensing with certain Chinese licensees, it will negotiate with them in good faith and be fair to such rights.

- for China's necessary patents related to China's market sales of brand equipment and Qualcomm related 3G and 4G technologies, Qualcomm will charge 5% of the licensing fee to 3G devices (including 3G/4G multimode devices), and 3.5% of the license fees will be charged to 4G devices without CDMA and WCDMA technology, including three mode LTE-TDD. In both cases, the authorization fee is calculated on the basis of 65% of the net sales price of the equipment.

-Starting January 1, 2015, Qualcomm will allow current licensees to choose new terms when selling branded devices for the Chinese market.

-For chip customers whose license agreement is not considered unreasonable by the national development and Reform Commission of China, or whose terms of license agreement are not considered unreasonable, Qualcomm will not adjust the sales mode of baseband chips. However, this does not require Qualcomm to sell chips to unauthorized entities, nor does it apply to chip customers who refuse to report sales of authorized devices to Qualcomm. Qualcomm's patent licensing agreement requires customers to report sales of licensed devices.

The investigation lasted for one year

The deal has led to a more than a year long investigation, which has damaged Qualcomm's ability to collect copyright revenue in the Chinese market. Some mobile phone manufacturers have delayed or paid less royalties. Qualcomm has essential technologies for mobile phone systems, and makes profits by licensing these patented technologies to mobile phone manufacturers. Most of its profits come from this business.

As a concession to the Chinese authorities, Qualcomm said it would license 3G and 4G basic technology patents and would no longer require the right to use these patents to be tied to other patents of the company. Qualcomm will charge Chinese mobile phone manufacturers patent licensing fees at rates similar to those in other parts of the world, allaying concerns in the market that the company may be forced to offer discounts to settle the investigation. Although the copyright rates are similar in percentage terms, the value of the mobile phone as the basis for billing will be assessed at 65% of the total price of the device.

Derek aberle, President of Qualcomm, said: 'this rate is consistent with what we charge globally. '

After the news, the shares of Qualcomm rose in after hours trading in New York.

As of the end of the last financial quarter, Qualcomm held $31.6 billion in cash and securities. In this quarter, 74% of its revenue came from chip sales, while 58% of its operating profit came from authorized revenue. In the past five years, Qualcomm's total royalty revenue has exceeded $30 billion.

Qualcomm said it currently expects revenue to range from $26.3 billion to $28 billion in the current fiscal year ending September, compared with its forecast on January 28 that its annual revenue will reach a minimum of $26 billion. Excluding certain one-time items, the company's annual earnings per share are expected to range from $4.85 to $5.05, higher than the previous forecast of $4.75 to $5.05.

In addition to Qualcomm, Microsoft and Symantec are also the targets of the Chinese government's investigation, which strengthens the market's concern about whether China is using the investigation to provide support for domestic enterprises.