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Qualcomm (QCOM) Files Lawsuit Against China-Based Meizu
QUALCOMM Incorporated (QCOM - Free Report) , the world’s leading mobile chipset manufacturer, has filed a lawsuit against smartphone maker, Meizu, in China over the payment of licensing fees. In 2015, the company had inked agreement with the Chinese government for charging Chinese companies for the use of its intellectual properties (IP). The lawsuit is intended to be a litmus test of the implementation of the agreement by Chinese authorities.
According to Qualcomm, as many as 100 Chinese companies had agreed to pay licensing fees, with the exception of Meizu. By using Qualcomm’s technology without a license, Meizu could hamper its competitive edge in the country, as licensees will incur higher costs of manufacturing smartphones. Moreover, technology licensing fees comprise a major chunk of revenues for Qualcomm. Should the Chinese authorities fail to enforce the licensing agreement properly, the trend of non payment of these fees may spill over to other licensees, which will hurt Qualcomm’s top line, going forward.
Other Competitive Pressures
For long, Qualcomm has operated as the undisputed leader in the mobile chipset space. However, in recent times, the company has been facing challenges from low-cost chip manufacturers like MediaTek and Rockchip as well as handset manufacturers’ SoC (System on Chip) projects, such as Exynos by Samsung. Likewise, manufacturers like Sony Corp. have been increasingly adopting MediaTek’s SoC for their product lines, bringing in desperate times for Qualcomm. Reflecting this trend, Qualcomm’s chip-making revenues fell 22% on a year-over-year basis in 2015 due to a 10% drop in shipments. Further, the company is anticipating a 13% decline in shipments this quarter.
Meanwhile, there have also been reports that Cupertino, CL-based Apple Inc. (AAPL - Free Report) is contemplating over choosing Intel Corporation (INTC - Free Report) for LTE modems for its next line of iPhones.
Qualcomm currently carries a Zacks Rank #3 (Hold).
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