In mid-April, Apple and Qualcomm called a halt on their lengthy wrangle over patent royalties. The knock-on effects have been felt in China, where the government has been trying to loosen the US semiconductor giant’s grip on mobile chip technology.
The estimates are that Apple will pay about $7.50 per phone in royalties as a result of the truce and Qualcomm will once more become Apple’s sole supplier of mobile phone chips.
In doing so, it displaces Intel, which Apple had brought in to provide competition after accusing Qualcomm of monopolistic pricing practices. In turn Qualcomm had accused Apple of infringing its patents by passing on core technology to help Intel.
Yet Intel’s relative inexperience in smartphone chip design threatened Apple’s ability to launch 5G phones at the same pace as rivals Huawei and Samsung, forcing it back towards Qualcomm.
Qualcomm has argued with Huawei about a similar issue since the Chinese giant stopped royalty payments in April 2017. An interim deal was agreed in January and analysts expect that the truce with Apple should see Qualcomm push for a fuller settlement with Huawei too.
Qualcomm is still being watched closely by regulators. The European Union fined it €1 billion last year for antitrust behaviour over the way it charged royalties and a US judge is evaluating a Federal Trade Commission proposal along similar lines. Both actions followed in the footsteps of the Chinese government, which fined Qualcomm $975 million in 2015 for antitrust behaviour and forced it to start working with domestic chip companies.
The entity that resulted from this settlement was Huaxintong Semiconductors (HXT): a joint venture that Qualcomm established with the Guizhou provincial government in 2016.
Qualcomm took a 45% stake in HXT, which was tasked with designing advanced server chips. As we wrote in WiC358, the plan looked like one of the Chinese government’s fabled ‘win-win situations’. The Guizhou authorities were building a reputation as the province to base cloud computing centres in, drawing on its cheaper electricity and cooler climate. And the idea was that HXT would design the chips that power the servers going into all the data centres.
For Qualcomm the JV had upside in helping to diversify its product range and compete head on with Intel in this chip category. However, just as Intel has struggled to break Qualcomm’s stranglehold over mobile chips, Qualcomm has found it difficult to make a dent in Intel’s dominant market share for semiconductors for servers.
That meant analysts weren’t too surprised when the server chip business was one of the first casualties of Qualcomm’s efforts to rein in costs in the face of its multiple legal battles, as well as a hostile takeover attempt from Singapore-based Broadcom last year.
Last December it was reported that Qualcomm was firing most of the employees working in its data centre business. HXT pledged to carry on regardless as it had just started mass production of its Thang Long 4,800 server processor. However, The Information reported last month that HXT would also shut down by the end of April.
As a blogger on Baijiahao concluded: “The JV was a goner the moment that Qualcomm announced it was no longer in the server chip business.”
Qualcomm still has another joint venture in China, JLQ Technology, which it set up in 2017. The partnership with Datang and two local private equity groups focuses on designing lower-end chips for smartphones. It was also established in Guizhou, but is switching its base to western China’s tech hub, Chengdu.
Qualcomm’s mixed messages on its partnership strategy may signal a more cautious approach to being seen as aligning with the Made in China 2025 campaign, which has drawn fire from overseas as an aggressive, state-backed industrial strategy. However, at least one local party is unhappy with the tie-up with JLQ on smartphone chips. That’s Tsinghua Unigroup, which has argued that the JLQ initiative is a spoiling tactic to impede the growth of its own Spreadtrum Communications, which operates in the same segment.
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