Qualcomm Inc. (QCOM), the largest manufacturer of wireless semiconductor globally, is in troubled water at present. Recently, Bloomberg reported that Samsung Electronics Co., has decided to use its own microprocessor in its upcoming next-version of Galaxy S smartphone instead of Qualcomm’s 810 Snapdragon chipset.
Although Samsung has not cited any reason officially, Bloomberg reports quoted an unconfirmed source that the 810 Snapdragon processors are getting overheated during test runs.
Samsung is the largest manufacturer of smartphones globally. Also the company is the second-largest customer of Qualcomm’s chipsets. In fiscal 2014, Qualcomm generated around $18.7 billion in revenues from the chipset business of which Samsung commands a significant 12%.
Qualcomm’s Snapdragon platform provides chipsets for some of the bestselling smartphones of Samsung. Therefore, loss of a major client like Samsung will be a big blow for Qualcomm.
To add to the woes, Qualcomm is in deep trouble in China as the company may have to settle for lower royalty payment for its technology licensing in that country. In Nov 2013, the Chinese regulatory authority, National Development and Reform Commission (NDRC), had initiated a probe into the company’s monopolistic practices in that country.
Following that, the NDRC determined that Qualcomm is exercising monopolistic power in the country. The regulator stated that it is trying to wrap up the case as soon as possible.
China provides a major growth opportunity to Qualcomm as China Mobile Ltd. (CHL), China Unicom Ltd. (CHU) and China Telecom Corp. Ltd. ((CHA) have ramped up the deployment of 4G LTE (either TDD or FDD format) in recent times.
Qualcomm might also have to forego royalties of TDD-LTE as a settlement in China. Such unfavorable actions will severely impair the company’s patent portfolio and consequently its highly profitable patent licensing business globally.
Additionally, Qualcomm declared that the company is facing a fresh regulatory investigation in the U.S and Europe. The European Commission is investigating rebates and other financial incentives related to the sale of the company’s chips, whereas the U.S. Federal Trade Commission is executing an initial inquiry on Qualcomm’s licensing terms. Qualcomm currently carries a Zacks Rank #3 (Hold).
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