Qualcomm faces antitrust probe in China


* Chinese regulator not saying why Qualcomm investigated

* China key growth market for smartphones

* Qualcomm shares down after probe news

By Supantha Mukherjee and Neha Alawadhi

Nov 25 (Reuters) - Qualcomm Inc said on Monday itfaces an antitrust probe in China, sending its shares lower asinvestors worried the investigation could hurt the chipmaker'sbusiness in the fast-growing smartphone market.

The company said it was not aware of any antitrustviolations but would cooperate with the probe by China'sNational Development and Reform Commission (NDRC).

The NDRC did not say why the company was being investigated,according to Qualcomm.

China's state media on Sunday quoted an NDRC official sayingthe country would focus antitrust investigations on sixindustries, ranging from technology to medicine.

Qualcomm, the world's biggest maker of cellphone chips, seesChina as a key market as growth in smartphones shifts away fromthe United States to developing countries and as China Mobile prepares to upgrade to high-speed networks usingtechnology developed by Qualcomm.

The U.S. company reported $12.3 billion in revenue from Chinain the 12 months through September, equal to 49 percent of itstotal revenue.

But many of the smartphones made in China are exported, sothe Chinese market actually accounts for about a fifth ofQualcomm's chip shipments and licensing revenue, according toRaymond James analyst Tavis McCourt.

Some analysts speculate the government may be seekingleverage in royalty negotiations with Qualcomm ahead of theexpected rollout of new 4G wireless infrastructure in 2014.Others theorize that Beijing may be moving to support localsuppliers trying to compete with Qualcomm, the global leader in4G technology, also known as Long-Term Evolution (LTE).

In February, the NDRC attracted attention when it fined sixKorean and Taiwanese makers of liquid crystal displays about $57million for price fixing.

With Broadcom Corp, Intel Corp and otherchipmakers missing targets for their own LTE components,Qualcomm is the main player in LTE, which China Mobile plans toroll out next year to allow for faster data transfer rates overcellphones.

"We suspect this investigation is related to the forthcominglaunch of TD-LTE by China Mobile in early 2014 and thenegotiations on chip pricing and license pricing betweenQualcomm and Chinese-based handset (manufacturers) that arelikely occurring right now," McCourt wrote in an note toclients.

A Qualcomm spokesman declined to comment.

With growth in the smartphone industry shifting away fromwealthy markets toward China, Qualcomm and other U.S. chipmakershave increased their focus on supplying components for low-costphones. And they are competing more with local chipmakers.

A new wave of Asian smartphone makers has also emerged tohelp meet demand for low-end handsets: companies such as LenovoGroup Ltd, ZTE Corp and Xiaomi Tech, therising star of cheap, made-in-China smartphones.

The Chinese government appears to be pushing for localtechnology suppliers, said Evercore Partners analyst MarkMcKechnie.

In the last few months, organizations affiliated with theChinese government spent nearly $3 billion to buy Chinese mobilechipmakers Spreadtrum Communications Inc and RDAMicroelectronics Inc. Both companies have technologythat competes with Qualcomm's.

China Mobile, the world's biggest mobile carrier with 800million subscribers, is investing billions of dollars to upgradeits infrastructure to LTE so clients can enjoy speedier Internetand data access.

"You're getting ready to have this battle over 4G royaltiesand now you have this antitrust investigation," said WilliamsFinancial analyst Cody Acree. "It may well be that this reformcommission is beginning to throw up reasons and excuses for whyChina doesn't pay royalties on 4G."

The NDRC is China's top economic planning body and regulatesprices. It has launched nearly 20 pricing-related probes ofdomestic and foreign firms in the last three years, according toofficial media reports and research published by law firms.

The NDRC fined six companies, including Mead JohnsonNutrition Co, Danone SA and New Zealand dairygiant Fonterra, a total of $110 million in Augustfollowing a four-month investigation into price fixing andanti-competitive practices by foreign makers of baby formula.

In August, sources told Reuters that a senior Chineseofficial had put pressure on about 30 foreign firms, includingGeneral Electric Co and Siemens, to admit toantitrust violations and warned them against using externallawyers to fight accusations from regulators.

Shares of San Diego-based Qualcomm were down 1 percent at$72.23 in afternoon trading on the Nasdaq.

Infrastructure spending on 4G will nearly triple to $24.3billion in 2013 from $8.7 billion in 2012, according to researchfirm IHS iSuppli, fueled by network expansions in major marketssuch as China, Japan and Germany.

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