Sieren's China: Why Qualcomm is willing to swallow a bitter pill

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http://www.dw.de/sierens-china-why-qualcomm-is-willing-to-swallow-a-bitter-pill/a-18267739

Did Qualcomm violate antitrust law in China, or didn’t it? Either way, the US chipmaker has agreed to pay a hefty fine in order to hold onto its position in the Chinese market. DW columnist Frank Sieren explains why.

Sieren's China: Why Qualcomm is willing to swallow a bitter pill
Frank Sieren
18.02.2015

The stock market is crazy. Qualcomm, the world's biggest cellphone chip maker, has just been hit with a record fine of $975 million (882 million euros) in a Chinese antitrust probe, and what happens to its share price? It shoots up. Qualcomm shares were up 3 percent after the news of the fine was reported last Wednesday. The probe by China's National Development and Reform Commission (NDRC) found that Qualcomm violated the country's anti-monopoly law and charged unfairly high licensing fees.

Beijing is thin-skinned when it thinks that western companies are ripping off the Chinese with dubious business practices. The record fine was imposed after 14 months of investigations and numerous raids. The authorities can demand a fine of up to 10 percent of a company's annual revenue. Amounting to 8 percent of its sales in China, $975 million is still 20 percent off the maximum amount.

However steep the fine may be, investors and Qualcomm's managers are relieved that the issue is finally resolved. In 2014 around 50 percent of the company's revenue ($26.5 billion) was generated in China. It has no desire to jeopardize its standing there by appealing against the fine. An expensive mobile market is better than no mobile market, when that market is the world's biggest.

There has been no discussion about whether or not the price should be determined by the market rather than by the state.