Current article (from Yahoo thread):
whampoafn.net.
Whampoa Financial
Qualcomm's China play
This entry was posted on 5/29/2007 10:37 AM and is filed under Stock.
No, I'm not talking about CDMA2000, EV-DO or MediaFlo, none of which will get much play here on the mainland, at least by the way things look now. I am however talking about TD-SCDMA, the "so-called" home grown 3G standard here in China. Apparently it's not as "home grown" as people might think, and Qualcomm(QCOM) holds the patent to some core TD technologies and China wants to lowball Qualcomm and pay less than 3 percent. Right now, the talk is at an impasse, according to this article.(in Chinese)
Qualcomm can't afford to play hardball with China, this isn't Nokia(NOK) or Broadcom(BRCM), negotiation through litigation won't work, and China has a long memory. What's at stake here is a huge market for 3G and beyond. Qualcomm isn't the only player around. To succeed, it must dial down the heavy handed tactics it has used in past with other licensees or governments. China having paid through its nose for royalty during 1G and 2G(RMB 250 billion and 500 billion respectively) is bent on changing the economics of how it does business in the future: a stake in the technology and reduced license fees. While it may not be music to Qualcomm's ear, it is nonetheless a fact the company just have to live with. In fact, I think Qualcomm's management needs to be more pro-active in courting Beijing, lower licensing terms and if need be share some second tier proprietary technologies. China, a firm believer of "you scratch my back" will likely in turn open its huge market to Qualcomm, which as of now is dominated by European firms(think GSM and WCDMA). Then there's the 4G roadmap. China is leaning pretty heavily towards WiMax, a direct competitor of Qualcomm's Flarion unit. A better relationship between Qualcomm and Beijing will likely alter the dynamics in that market as well.
I'm not saying "where China goes, the rest of the world will follow", but China will likely be one of the global trend setters for the direction of future consumer technology. Qualcomm needs to hop on the bandwagon now while Beijing is still interested in negotiating rather than dictating.
Disclosure: I own shares in Qualcomm
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