Qualcomm.jpg (Photo : Reuters)
Wireless telecommunications company Qualcomm may be generating tons of money from China's smartphone market, but the mobile technology giant admits facing "significant challenges" in its recent report.
Although Qualcomm is benefiting from the growing mobile industry in China, the company pointed out some serious risks thwarting its way.
Financial analysts interpret Qualcomm's latest earning report as an impact caused by several reasons. One of which is that local handset manufacturers who are in partnership with Qualcomm are on the hook for extensive royalty payments. These said payments are what Qualcomm is relying on.
Chris Rolland of FBR & Co. explained that if a Chinese mobile company sells a smartphone with Qualcomm technology for $200, $8 of which will be paid to Qualcomm.
However, Qualcomm said in its latest report that Chinese manufacturers are either skipping payments for the royalties or underreporting the number of phones sold in transactions. This has become a huge problem for the company, as 30 percent of its total revenue comes from its licensing business.
Qualcomm's stock price is greatly affected by the Chinese mobile market condition, market investors conclude; therefore, the company gained less than 4 percent this year. Qualcomm also lost more than 2 percent in the past six months.
But some financial analysts are unfazed with Qualcomm's woes in China.
Srini Pajjuri of the Credit Lyonnais Securities Asia (CLSA) said that even if the China royalty revenue goes down to zero and suggests a near worst-case scenario, the stock trading will still be at 17x. He pointed out that top mobile companies like Huawei, Coolpad, Lenovo, Xiaomi and ZTE are conforming.
Meanwhile, Qualcomm's problems are not limited to licensing and royalty only. The company is now under a government investigation in line with China's anti-monopoly law.
Mark Sue of the RBC Capital Markets said that it could take 12 months before Qualcomm is cleared out from the investigation.
Overall, investors said that Qualcomm is depending on a close to 20-percent revenue from China and expects a long-term partnership with the country.
