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Qualcomm in a Tight Spot: Faces a Series of Antitrust Cases

Regulatory proceedings against Qualcomm Inc.QCOM are on the rise with the handset chip maker facing antitrust cases in various countries.

Earlier this year, South Korea's Fair Trade Commission initiated a probe against the company, primarily related to its licensing business.

Qualcomm recently revealed that the regulatory body has alleged that some of its patent-licensing practices are illegal and anti-competitive. Also, the Korea Fair Trade Commission has called for changes in Qualcomm's business practices.

Notably, the size of any potential penalty is yet undecided. Meanwhile, Qualcomm intends to strongly vindicate before the commission against the allegations, as the regulatory body must prove the charges against the company.

Other Probes

In Jul 2015, the European Union (EU) Competition Commission announced the initiation of two probes to determine whether the company has been abusing its dominant position in the market. Moreover, according to a report by The Wall Street Journal, Qualcomm might face fines of up to $2.5 billion or 10% of its global revenues if proved guilty in the EU investigations.

Additionally, the company is facing or has faced regulatory investigations in China, Japan, Europe as well as in the U.S. In all the cases, the regulators' main concern is Qualcomm's licensing model and misuse of its powerful intellectual property rights (patents) to maintain market dominance. Notably, the European Commission is also investigating rebates and other financial incentives related to the sale of the company's chips, whereas the U.S. Federal Trade Commission is proceeding with an initial enquiry on Qualcomm's licensing terms.

In Feb 2015, Qualcomm paid a fine of $975 million and also agreed to lower licensing fees in order to settle a 14-month old investigation in China, currently the largest market for the company. Notably, in 2009, the EU regulatory authority imposed a record Euro 1.06 billion ($1.15 billion) fine on Intel Corp. INTC for similar reasons.

Our Take

Qualcomm is the largest baseband chipset developer for mobile handsets globally. The company's chips are used in high-end smartphones developed by Apple Inc. AAPL and several handsets using Alphabet Inc. GOOGL developed Android operating software.

We believe settlement of several regulatory issues is a major concern for Qualcomm at this juncture because if found guilty, the penalty imposed may hurt the company's profits considerably.

Qualcomm currently carries a Zacks Rank #5 (Strong Sell).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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