Qualcomm CEO Sees Major Progress in China
July 28 2016 - 3:30PM
Dow Jones News
By Don Clark
China has flipped from being Qualcomm Inc.'s biggest problem to
the force driving a new upturn in business for the big mobile chip
maker.
Steve Mollenkopf, chief executive of the San Diego-based
company, on Thursday said Qualcomm is benefiting both from more
patent licensing deals in China and a new crop of handset makers in
the country that are taking sales from international rivals.
Another factor, he said, is that Chinese consumers are upgrading
phones quickly to stay abreast of the latest technical features --
a trend that benefits Qualcomm's chip sales and requires handset
makers to keep introducing new models quickly.
"It's definitely a feature game," Mr. Mollenkopf said during a
meeting with Wall Street Journal reporters and editors. "If you are
behind in providing features it causes a problem."
Qualcomm is a pioneer in cellular technology, selling modems
that manage wireless communications that often are combined with
processors that carry out other key functions in handsets.
Mr. Mollenkopf's remarks came after Qualcomm last week topped
expectations with third-quarter financial results that included a
22% jump in profit. The company's stock, already up 12% on the year
before the announcement, has risen another 12%.
China has played a major role in Qualcomm's sales for years, but
has posed a series of challenges lately. The country's antitrust
authorities conducted a lengthy investigation of the company's
patent licensing practices, which resulted in a February 2015
settlement that required Qualcomm to pay a $975 million fine and
required modifications to its licensing practices.
The company had hoped the settlement would prompt hardware
makers in the country to quickly sign licensing deals. But many
dragged their feet or didn't provide accurate figures on their
sales volumes needed to calculate royalty payments, Qualcomm
executives said.
But that picture has changed, as Qualcomm recently announced a
series of licensing deals with the country's biggest manufacturers
and said many smaller ones have also complied. The company said
last week it reaped more than $200 million in the latest quarter in
"catch-up" payments and other additional revenue associated with
easing the licensing problems in China.
At the same time, Qualcomm's chip business has gained as vendors
introduce more handsets with 4G cellular technology and more
Chinese manufacturers report strong sales. Foreign players such as
Apple Inc. and Samsung Electronics Co. are encountering strong
opposition from established Chinese companies such as China's
Huawei Technologies Co. and Xiaomi Corp., as well as newer brands
such as Oppo Mobile Telecommunications Corp. and Vivo Electronics
Corp.
Mr. Mollenkopf said the Chinese companies have thrived by
innovating quickly, specializing in midprice phones and marketing
aggressively in the country's midsize cities -- while laying the
groundwork for expansion elsewhere.
"What they are adding next is the ability to go international,"
he said.
Qualcomm is trying to court the handset makers by helping to add
technologies that Chinese consumers care about most, such as longer
battery life and faster transmission speeds to upload data, Mr.
Mollenkopf said.
The company also attracted attention this week by agreeing to
pay $19.5 million to settle claims that women at the company
receive lower pay and fewer chances for promotion than men. The
deal, which must be approved by a federal court, will affect
roughly 3,300 current and former Qualcomm employees, primarily in
technical roles.
The chip maker agreed to measures that include hiring
independent consultants and an internal compliance officer, ramping
up training, and conducting regular pay-equity and promotion
analyses.
Qualcomm didn't admit violating the law.
Mr. Mollenkopf said he felt the company had legal defenses
against the allegations, but preferred to "move beyond it" and try
to act as a positive force to address diversity and discrimination
issues that have long troubled tech companies.
"It's an area we feel strongly about," he said. "It's no secret
that the technology industry doesn't have a lot to be proud of, and
Qualcomm is no different."
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
July 28, 2016 15:15 ET (19:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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