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Qualcomm Sees More China Trouble, Faces Probes in U.S., Europe

Regulatory woes weigh on stock.

Reuters / Albert Gea

Qualcomm warned on Wednesday that an antitrust investigation and problems collecting royalties could harm its business in China next year, and it also disclosed new regulatory investigations in the United States and Europe.

China’s expanding high-speed 4G network is driving demand for smartphones with leading-edge technology, but Qualcomm’s opportunities have been clouded by an 11-month-old antitrust investigation there.

Wall Street is worried. Qualcomm could face a fine of more than $1 billion in China as a result of the National Development and Reform Commission (NDRC) investigation, and the company could be forced to make concessions that would hurt its highly profitable business of charging royalties on phones that use its patents.

Qualcomm also said it faces a new probe by the European Commission about rebates and other financial incentives in the sale of its chips. Another preliminary investigation by the U.S. Federal Trade Commission concerns a potential breach of licensing terms, the company said.

On Wednesday, Qualcomm’s shares slid about six percent to $72.50 in extended trading from a $77.20 close on the Nasdaq.

“We’re continuing to cooperate with the NDRC. We’ve continued to meet with them regularly, exchange some ideas for potential ways to resolve it,” Qualcomm President Derek Aberle said in a telephone interview. “But we don’t have an ability to update in terms of expectations and timing.”

Qualcomm has also been struggling to collect licensing revenue from some device makers in China, including local manufacturers the U.S. chipmaker has done little or no business with in the past.

Any concessions on royalties that Qualcomm is forced to make in China could spread to manufacturers in other countries, some investors said.

“What people are most worried about is the ability to fence in this issue to Chinese vendors if there’s a reduced royalty rate, or does it spread to other geographies,” Standard Life portfolio manager Brian Fox said.

Qualcomm said it was difficult to predict the outcome of the U.S. and European investigations.

The European probe is separate from a four-year-old complaint to the European Commission from a subsidiary of Nvidia over alleged patent-related incentives and exclusionary pricing by Qualcomm.

Qualcomm forecast revenue for fiscal 2015 of between $26.8 billion and $28.8 billion. Analysts on average expected $28.91 billion, according to Thomson Reuters I/B/E/S.

The company also expects non-GAAP earnings per share in fiscal 2015 to be between $5.05 and $5.35. Analysts on average expected $5.58.

The chipmaker reported revenue of $6.69 billion for its fiscal fourth quarter, ended Sept. 28, up three percent from the year-ago period. Analysts on average had expected $7.016 billion.

Qualcomm posted fourth-quarter net income of $1.89 billion, up 26 percent from a year ago. GAAP earnings per share were $1.11, while non-GAAP earnings were $1.26 per share.

(Reporting by Noel Randewich; Editing by Andre Grenon and Lisa Shumaker)

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