Qualcomm Slapped $773M Fine By Taiwan Antitrust Regulators

Leading wireless chipset manufacturer, Qualcomm Inc QCOM has recently been fined around $23.4 billion Taiwan dollars (approximately U.S. $773 million) by the Taiwan Fair Trade Commission ("TFTC") on grounds of anti-trust violations of its chip technology. Qualcomm is being accused for the prices charged for its mobile phone chips and patents, which are in violation of Taiwanese competition law. Notably, Taiwanese companies purchased $30 billion worth of Qualcomm baseband chips.

Currently, Qualcomm is a Zacks Rank #3 (Hold) stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

As per TFTC's investigation, Qualcomm has been violating antitrust rules for at least seven years and has collected roughly $400 billion Taiwan dollars (U.S. $13 billion) in licensing fees from local companies during that time.

Moreover, TFTC has drawn attention towards Qualcomm misusing its monopoly market status over key mobile phone standards. The chipset manufacturer has been accused of not providing products to clients who do not agree with the company's conditions.

Meanwhile, Qualcomm has also drawn scrutiny from regulators around the world. Regulators in South Korea, China, Japan, the European Union and elsewhere are investigating the company's practices.

However, Qualcomm disagrees with TFTC's decision. The company aims to appeal to the Taiwanese courts after receiving TFTC's formal decision, which is expected in the next few weeks. The fine bears no relationship to Qualcomm's revenues or activities in Taiwan. The company will appeal the amount of the fine and the method used to calculate it.

The decision by the Taiwanese regulator is the latest challenge to Qualcomm's business model, which involves selling chips and licensing a suite of patents related to their utilization. While the regulatory and legal attacks differ to some extent, Qualcomm has been commonly alleged due to its monopolistic strategies in the chipset market.

The company continues to receive charges for unfair business practices and licensing royalty payments.

In December 2016, South Korea's regulatory authority for economic competition, Korea Fair Trade Commission (KFTC), imposed an administrative fine of approximately 1.03 trillion South Korean Won (approximately U.S. $865 million) on Qualcomm due to unfair business practices.

In May 2017, Qualcomm settled a licensing dispute with BlackBerry Limited BBRY by paying $940 million.

Meanwhile, the ongoing $1-billion lawsuit dispute with tech giant Apple Inc AAPL continues to get bitter, which is badly affecting the company's margins.

European regulators have also expressed antitrust concerns over Qualcomm's bid to buy NXP Semiconductors N.V. NXPI.

The U.S. Federal Trade Commission is also suing Qualcomm over its licensing practices.

We expect Qualcomm to quickly resolve all such disputes and focus on its growth strategies. Moreover, aggressive competition in the mobile phone chipset market remain headwinds for the company. The company faces severe competitive threats from its closest rival, Intel Corporation INTC, which has been redesigning chipsets for the mobile computing market. We wait to see if this hurts Qualcomm's sales in the fiscal second quarter.

Price Performance

Over the past month, shares of Qualcomm have returned 6.1% compared with the industry's gain of 3.3%.

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