c2 - Sorry for the generalities. I lack enough hard data to be quite specific. Extrapolations from historical precedent lack the kinds of details we might otherwise want to enjoy.
Whether or not Qualcomm has enough muscle to blaze an entirely new trail for multinational corporations doing business in China is an open question. However, if larger and more influential concerns have not succeeded, I'd give less than 20% odds that Qualcomm sets a new precedent. So far they have been following the script perfectly. Therefore I suggest we project the future as though it continues to play along, and try to identify points of possible departure.
You wrote "The manufacturers pay for the ASICs. Period. Full stop. No payment, no ASICs. Ergo, no phones. No problem. End of story. "
True. But I would ask you in return "who precisely do the manufacturers pay to get these ASICS", and "How does the answer 'A Chinese FAB licensed by Qualcomm (China) LLP' strike you"?
Before you (and the rest of the thread) jump down my throat, please consider that not everything plays out into the future as it remains today. We had better hope so, because the next 30 years worth of growth and success are priced into a slice at the moment. And then some, IMHO.
If history is any guide, what will happen is that initially the national activity (with respect to China) will be a net importer, just as you suggest. Of people, of technology and of piece parts. However, a condition of being allowed to begin to tap the Chinese market is invariably a commitment to re-invest in the local economy and to source activities locally, usually wrapped in language like "wherever possible" or "with reasonable commercial efforts" or "provided that sufficient commercial justification exists..." and so on.
Engage logic circuits.
With a market of billions of Chinese nationals at stake, there is considerable economic impetus within the country to make extremely difficult activities become feasible with "reasonable commercial efforts" and so on.
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. The only thing they would need to be commercially viable is a customer, a license and the masks. It's not a big stretch from there to see the enterprising investors behind this local foundary taking great and patient pains to point out to the government that production of these three key ingredients would surely be within "reasonable commercial efforts" of Qualcomm (China) LLP, provided that appropriate fees and revenues flow between itself and Qualcomm (China) LLP (of course).
This foundary could even be a subsidiary of another major multinational already licensed to produce ASICs in other jurisdictions. The variations on such a theme are endless.
From there we take an even shorter leap to the point where national manufacturing capability exists without flow of materials from the parent. Thus instead of royalties flowing back to the multinational parent, they flow nationally, which flows are then re-invested back into the local economy and so on.
It's not like I'm inventing this scenario off the top of my head. Or that it is unusual in the grand scheme of things. In fact, what is unusual is for such a scenario NOT to play out. Particularly when the game has 30 one-year innings.
I am sure that the good folks at Qualcomm know this. But even if it makes lousy business sense (over the long term) they MUST go there. Because wireless phones have utility depending on the fact that wherever you might want to switch it on it will happen to work. And Qualcomm, playing second fiddle to GSM, can't afford to have a large corner of the planet in which it does not play.
Again, I also think that instead of "will Qualcomm get royalties or not" we should be discussing "how much royalties will Qualcomm get". And setting for ourselves a series of tests by which we will measure whether or not our projections are reasonable, and then sitting back and applying our tests.
This whole dialog on China being a huge market for Qualcomm strikes me as a lot of hand waving so far, and historical precedents have had a lot of such hands chopped off at the elbow as time progressed. Financially speaking.
And as investors contemplating a 30 year payback horizon, we darn well better be looking well beyond the end of our nose at "what is" and into "what is likely to be".
John |
