Qualcomm and China – 2/3rds of the way there: A Follow-up on some past posts.

Back in January, I wrote about Qualcomm’s position in China. At the time, there were rumors that the company was nearing an agreement with the Chinese government addressing the company’s operations there. In that post I predicted that

Companies run afoul of something [in China], and then slowly work their way out. The typical pattern is the company admits some form of wrong-doing (aka self-criticism), pays a fine and moves on. After a decent interval, they announce a major investment in China – open an R&D center, endow a few university research departments, or roll out a major training program. These are usually on the scale of $1 billion (so this $40 million investment is just a start). Then after some further period of time, we start to hear about a few other headlines that are kept out of the spotlight.

A month later the company announced the first part of that reaching a settlement with the anti-trust authorities and agreeing to pay ~$1 billion fine.

Earlier this week, Qualcomm announced that they were going to co-invest in a $280 million funding for SJ Semiconductor. Never heard of SJ Semiconductor? You are would not be alone in that. This seems to fit with the second part of my prediction, but I would not be surprised to see more investments in the near future.

The third piece holds that Qualcomm will quietly reduce the rates it charges its customers in China has already begun. In their settlement with the government in February, they did announce lower rates. But I think there is another piece hovering out there, another shoe waiting to drop softly. My guess is that the impact of the new royalty program is further-reaching and more dilutive than Qualcomm expected. Perhaps there were undisclosed terms in the agreement with the government or someone just outsmarted them. Given the way the company has been lowering forecasts and the way they capitulated to activist Jana partners, the Street clearly believes the company’s outlook has more to fall.

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