Qualcomm Monopoly? The end of the Chinese smartphone

When it comes to Qualcomm, the industry has a joke: Qualcomm has more lawyers than engineers. But it now seems that Qualcomm, even with more lawyers, seems useless in the case of a Qualcomm monopoly on the NDRC.

At number 11th this month, Qualcomm's president, Derrick Abely, exchanged views with the national Development and Reform Commission on issues related to antitrust investigations and was interviewed for enquiries. This is the third time since the NDRC launched a high-level antitrust investigation in the past year, the top Qualcomm has been interviewed by the NDRC. According to the Thursday statistics, because of the impact of the news, Qualcomm reported 76.17 U.S. dollars, the share price fell 6.65%, the market capitalisation of more than 9.1 billion dollars.

In fact, not only in China, over the past more than 10 years, Qualcomm Patent licensing mode and chip sales model in Europe and the United States, Korea, Japan and India have been questioned, antitrust and intellectual property disputes. Why so?

Because Qualcomm has a number of standards necessary patents, mobile phone manufacturers do not use its patents, such as Apple, Samsung, ZTE, Huawei and so on are Qualcomm's users, and as long as the use of Qualcomm's chip, Qualcomm will charge a 5% of the price of each mobile phone royalties, the industry known as "high-pass tax

According to statistics, 70% of last year's high net profits came from patent licensing fees, a unique business model in the world. Even Qualcomm's rival, MediaTek, is working for Qualcomm because its chips cannot circumvent its patents, and Qualcomm has asked MediaTek to provide its clients ' lists and sales, and to charge customers downstream of MediaTek's clients with royalties.

Beyond that, allowing the handset makers to complain is Qualcomm's free return license, which means that Qualcomm can enjoy the technological innovations of these firms for free, a model that can be said to hinder innovation in less innovative companies.

However, even if Qualcomm's monopoly in China is established, Qualcomm will change its patent licensing strategy in the Chinese market, the competitiveness and profitability of China's smartphone industry is bound to improve significantly? not necessarily. We also invited the author to talk about the logic behind this:

The NDRC's investigation into the use of patent monopolies in the Chinese market has finally made significant progress in silence, and the NDRC has once again become the focus of industry attention by identifying the monopolistic facts of Qualcomm. In fact, the debate about whether patents hinder innovation and profitability in industry, such as smartphones, is not only in China, but in the global spotlight.

For example, a previous report entitled "The Smartphone royalty stack:surveying royalty demands for the RS Within Xiandai" shows that In the field of mobile phones, the cost of patent licensing is much higher than the cost of hardware manufacturing, and it has also sparked controversy in the industry.

Back to the recent continued fermentation of Qualcomm whether there is a patent monopoly in China's investigation. Although the industry from many angles, such as high Qualcomm higher patent licensing fees to make its net profit margin even higher than the current Apple, Qualcomm suspected of violating China's anti-monopoly law of several provisions. But we think that the final public statement by the NDRC, which is not what some media have said from insiders, is the fact that there is a monopoly on Qualcomm in China. We are more concerned about the fact that the antitrust investigation in China through Qualcomm is a matter of common sense (not what is called a professional) in the development of China's smartphone industry.

Here, let us first say our understanding of the net profit margin of the enterprise. The impact of a company's net profit margin is not only the enterprise products (including software, hardware and services) itself, but also related to its industry, industrial development in different periods, the enterprise's own innovation (commercial value), cost, management and many other factors. So to judge an enterprise net profit margin should be a rather complicated professional problem, only through the public simple financial results and subtraction to get an enterprise profit margin level, even compared with other enterprises is inevitable biased and fair.

The most obvious example is the recent release of the global Fortune 500, under the same market position, technology companies that sell hardware are more profitable than companies that provide software services or network value-added services, such as the smart mobile end market or the software market giants, and Samsung and Apple have more revenue and profitability than Microsoft, Google, Amazon and Oracle are tall. But Microsoft and Google have been far more profitable than Apple and Samsung in the traditional dotcom boom of Wintel and Google's dominant PC industry, and these are undoubtedly closely related to the many factors we have described earlier.

We are not here to justify the monopoly that may exist in China, but to look at the problem as being comprehensive and objective, at least in accordance with the minimum common sense. This leads to the fact that China's smartphone industry is generally low in profit margin (low profitability), but also the relevant industry alliances and manufacturers to the development and Reform Commission to investigate the main drivers of Qualcomm Monopoly. Regardless of the end result, it is the core to explore how to improve the profitability of the smartphone industry in China.

Let us assume that Qualcomm in China monopoly The fact that Qualcomm to change the patent licensing strategy in the Chinese market, our smartphone industry-related manufacturers have achieved satisfactory results, China's smartphone industry competitiveness and profitability will certainly be greatly improved? Believe that familiar with the development of China's smartphone industry, the majority of people in the industry will give a negative answer. Why?

The first is our ability to innovate. This is not just China's smartphone industry, it can be said that many of China's industries have been outstanding problems. Only real innovation can enhance the brand influence and the premium ability of related products. But it is impossible to measure the innovation ability to avoid the patent, especially the accumulation of the basic patent. Specific to communications and smartphone-related patents. According to the Chinese Taiwan "National Research Institute" analysis of data, as at the end of 2013, the United States has the most 4G standard necessary patents, the total number of 1661 pieces, China ranked second, there are 1247, ranked third of the South Korea's 1062. 4G ERA in the network side, Huawei, ZTE and other Chinese manufacturers have mastered a strong patent advantage.

In this respect, some people may say that since China's patent accumulation is not very backward, why will it be so passive? It is to be explained that the Institute's report is based on the statistical data of the European Telecommunication Standards Association (ETSI) and that ETSI only accepts patent filings and external disclosures, Does not examine whether these patents are the standard necessary patents. Does this mean that we also have a "big and weak" problem in the accumulation of patents? But in terms of quantity, there are few other Chinese companies that can claim considerable patent build-up except China's Huawei and ZTE.

The second is the competitive way of China's smartphone industry. From the emergence of the so-called "China Cool Alliance" in China's smartphone industry, low price and low profit are still the main way to survive and develop. This is in addition to the above innovation, the inherent thinking and way of Chinese enterprises is the most fundamental reason. See Lee Together, then is a life-and-death price war, this from our current hundreds of mobile phone companies and just started the 4G smartphone has fallen into the thousands of dollars in the fact that has been well validated.

Last but not least, we are most concerned that, in addition to the reasons that hinder the real power of our smartphone industry, the excessive marketing in the smartphone industry is likely to allow us to go slant in the future as the smart industry develops.

Look at the release of our mobile phone today, not what the industry first, is a new business model, and even rose to "feelings." But mobile phone or mobile phone, like crab, how to fry, it is eggplant flavor. So how to sink the heart, the product itself to do a good job, really to the market and users really need the mobile phone is the fundamental. The result of excessive marketing is not to pick up the "hammer" smashed their feet, is to let "steel plate" scald himself.

Samsung, the industry's recognized King of marketing (from inputs to ideas), has been the best proof of the negative impact of multiple marketing in successive quarterly earnings declines. The important thing is, over marketing behind, reflect our industry impetuous and quick success, so on, we mentioned the obstacles to the real growth of the industry can change, even to the next new industry, we still do not have the opportunity to do big.

To sum up, we believe that Qualcomm in China there is a monopoly, is only our smart phone industry is not strong surface reasons, our industry (including enterprises) inherent and new thinking and development methods are fundamental.

The so-called specimen concurrently governs, the internal cause is the development basis, the external cause only changes the condition. Therefore, we strongly support the development and Reform Commission to investigate Qualcomm Monopoly, but also hope that our own industries and enterprises can reflect on their own. After all, the pain of a Qualcomm monopoly is more damaging to our industry than the war in China's mobile phone industry.