<Ergo, sooner or later (if not already) we will see a Chinese foundary with all of the processes and equipment necessary to build ASICs for Qualcomm. >
John, I am rubbing my hands with glee. Since 1986 I have been advocating getting involved with China. First with my old company, BP Oil International and in recent years with QUALCOMM. I'm delighted with proceedings and China's acceptance of QUALCOMM nirvana.
I hope that China does everything from foundry work, to handset manufacture and on to helping with the design of later cyberphone designs for 2010.
China has got 1.3 billion people who would love to get involved with such profitable business and since they can do it cheaper and better than QUALCOMM's traditional suppliers, I'm all for it.
Of course, it won't be too many years before China becomes too expensive and new production needs to be opened up in India, Bangladesh and the like [subject to political acceptance allowing reasonable agreements in those countries].
My mother, who was born in China during the last foreign association, would be thrilled were she alive to see these developments. She retained a lifelong association with China and it's great to see China getting back into the international sphere in a big way and using foreign capital and technology to do so.
Hu Jintao is getting the reign and reins of the dragon at an opportune time.
For a while, they'll buy QUALCOMM ASICs made by foreign foundries. But that shouldn't last too many years.
When they have got things humming, they'll be able to start exporting handsets to the rest of the world at lowwwww prices. Demand will be enormous. They'll pay a 7% royalty for exports. The internal royalty is only 2% and will be trivial. So trivial that we can ignore the TD-SCDMA as an attempt to play out negotiations a bit more, or at least provide a fig leaf for QUALCOMM and China to use while they negotiate more substantive issues.
Your theory that no money will leave China is false. Well, it's sort of true. The money will leave China before it even gets there - the money will come from the 7% royalty on exports. The 2% will go into internal development. As will profits from joint venture companies China establishes or has established with QUALCOMM.
But the 7% won't disappear into the China, never to be seen again. There might also be other income from China - BREW, Graviton, Eudora, and the long list of QUALCOMM interests which will be sold in China.
There's a small glitch in your theory too. QUALCOMM has signed most favoured nation deals with Korea to the effect that nobody gets a better deal. Korea whined like a fleet of 747s that China had to pay only 2%, so Korean royalties should be lowered. QUALCOMM patiently explained that China's exports would involve a 7% royalty and that if Korea would like to take that royalty deal too, they are welcome.
QUALCOMM can't lower China's rate without being sued by Korea.
Korea dropped the subject and stopped whining, going back to giggling as they carted their truckloads of CDMA profits to the bank. Whining and giggling are incompatible activities - go on, try it!
We won't be seeing any lowering of royalties or renegotiation of them. QUALCOMM has now got CDMA success worldwide with growing market share. Their royalties should have been higher, but they had to accept lower rates in the early days and are stuck with them now. But they certainly won't be lowering them at all.
That's my theory. So, I agree that a lot of money will go in and never come out. But there'll be lots more orbiting outside the black hole event horizon, being generated by the enormous gravitational field within.
Mqurice |
