[The chip crisis continues to ferment, and the US chip giant Qualcomm has been hit hard.] The severe sanctions imposed by the U.S. government have exposed ZTE to the risk of "shock," but at the same time it has also caused heavy losses to U.S. chip giant Qualcomm.
Qualcomm is the most important chip supplier for ZTE mobile phones. The ban on ZTE will not only seriously affect the revenue of Qualcomm, but also make it a victim of Sino-US trade disputes. Just last Thursday, the Chinese Ministry of Commerce stated that the mergers and acquisitions of Qualcomm and NXP had negative effects on the market and they were still reviewing. Qualcomm's acquisition of NXP requires 9 countries to agree, but currently China has failed to pass.
In addition to the revenue impacted by the ZTE event and the acquisition of NXP's resistance, Qualcomm is currently faced with multiple catastrophes such as the monopoly of technology monopoly, customers becoming rivals, continuous declining performance, and stock price crash. The chip giant is experiencing “to the darkâ€. time".
ZTE is banned and Qualcomm has been hit hard
On April 16, the U.S. Department of Commerce announced that ZTE violated US sanctions and prohibited US companies from selling components, goods, software, and technology to ZTE until March 13, 2025.
For the aforementioned ban, Zeng Xingyi, chairman of ZTE, bluntly said that “sanctions will prompt the company to enter shock immediately after a few days.†Sanctions will impose obligations and obligations on the company’s partners and suppliers including thousands of US companies. Direct damage.
In Yin Yimin's "Ten Thousands of Partners," Qualcomm may be the most injured.
Qualcomm is the most important chip supplier for ZTE mobile phones. According to IHSMarkit data from research institutes, the global shipments of ZTE mobile phones last year were 46.4 million, and more than half used Qualcomm Snapdragon chips. CounterpointResearch analysts said in an interview with the China Business News that if the price per chip is $25, Qualcomm’s revenue from ZTE will be close to $500 million.
For Qualcomm, the greater trouble may be to become a victim of the US launching a trade war - the Chinese Ministry of Commerce has not yet released its deal to acquire NXP Semiconductors.
NXP Semiconductors (NXP) is the world’s largest automotive semiconductor company. Qualcomm announced in October 2016 that it had acquired US$38 billion in huge sums of money to acquire NXP. Under pressure from all parties, the purchase price soared to US$44 billion. According to some analysts, Qualcomm and NXP have strong business complementarities. After the acquisition of NXP, Qualcomm’s competitiveness in the areas of Internet of Things and automotive chips will be greatly enhanced.
According to antitrust-related laws, this transaction needs to be approved by the regulatory agencies of nine countries and regions. Today, 18 months have passed and only China has not released the transaction.
On the 19th of this month, three days after the US-sanctioned ZTE ban was issued, a spokesman for the Ministry of Commerce stated that it is reviewing Qualcomm and NXP mergers and acquisitions according to law. The transaction will have far-reaching effects in the industry and may be detrimental to market competition.
In the face of the uncertainties of the Chinese regulatory authorities, Qualcomm recently issued a statement saying that the company and NXP have extended the agreement to July 25, Eastern Time. If it is still not approved by China's antitrust regulator, Qualcomm will pay NXP $2 billion in termination fees in accordance with a previously signed agreement. This will be a huge loss.
When it comes to acquisitions, it has to be said that Qualcomm has just freed itself from the hostile takeover case of semiconductor giant Botong, and its acquisition of NXP has also been blocked, and the constant ups and downs may be beyond Qualcomm's expectations.
"High-Pass Taxes" provoke anger and customers become opponents
In fact, Qualcomm’s days in the past few years have always been unpleasant. The company’s technical monopoly of “sucking gold†has been heavily punished by regulatory authorities in various countries, and it has been gradually abandoned by customers.
Qualcomm’s revenue is mainly derived from the sale of processors and the collection of patent licensing fees from mobile phone manufacturers. The latter's profit margin is much higher than the former. The financial report shows that in 2017, the profit rate for processor sales was 17%, and the profit margin for patents was 80%. In China, mobile phone brands such as Xiaomi, vivo and OPPO all purchased chip patents from Qualcomm. But this good business has not been done well.
In February 2015, the National Development and Reform Commission of the People's Republic of China issued the largest amount of fines in the history of domestic anti-trust laws. Qualcomm was fined RMB 6.088 billion for its monopolistic behavior and was ordered to make corrections because of Qualcomm’s CDMA, WCD-MA, and LTE. The wireless communications standard market for essential patent licenses and the baseband chip market have a dominant position in the market and they have abused market dominance.
In January this year, the European Commission announced that it had decided to impose a fine of 997 million euros (approximately 1.229 billion U.S. dollars) on Qualcomm because of misuse of its market dominance in exchange for Apple’s smartphones and tablets in the form of payment to Apple. Exclusive use of Qualcomm chips in computers.
The monopoly position in the smart phone chip market allows Qualcomm to pay huge fines. At the end of last year, data released by the market research firm CounterpointResearch showed that Qualcomm’s global intelligent system-on-chip (SoC) market share in the third quarter of 2017 was as high as 42%, far ahead of other rivals.
Chart: Qualcomm's global market share for smart machine-on-chip (SoC) systems reached 42% in 2017 Q:Source:CounterpointResearch
However, the current new situation is enough to make Qualcomm headache because past large customers are not willing to continue paying huge patent licensing fees. They are looking for new partners, or independent research and development of chips.
Apple and Samsung, which had the highest mobile phone shipments in the world, were once the most important customers of Qualcomm, but both companies are now working hard to develop their own chips.
In 2017, Apple and Qualcomm "turned their faces." Reluctant to pay Qualcomm for core wireless technology patent fees, Qualcomm asked China to ban all Apple iPhones that use Qualcomm wireless communications technology. Apple has sued Qualcomm for patent monopoly in the United States, Britain, and China, and has proposed compensation of one billion US dollars and one billion yuan in the United States and China respectively.
After some "tear" around the wireless communication chip (baseband chip) patents and Qualcomm, Apple firmly determined to develop its own chips. In May of this year, Apple dug Esin Terzioglu, vice president of mobile phone chip engineering department of Qualcomm, responsible for the development of its wireless system chip.
Qualcomm's other major customer, Samsung, has developed Exynos chips (CPUs) for many years, and its technical strength is no longer under Qualcomm. In recent years, more and more Samsung handsets have started to use their own CPU chips. In August 2017, Samsung defended against Qualcomm’s monopoly and announced that it will reduce the use of Qualcomm chips in the new generation of its flagship Galaxy S9. The use of Qualcomm chips will be less than 40% of the total.
In China, Huawei's Hass and Kirin chip technology is progressing rapidly and is also being used on a large scale in Huawei's own mobile phones. According to data provided by Huawei, in 2017, Huawei delivered a total of 153 million smartphones, of which 70 million used Hass chips, which accounted for 46% of the total.
At present, after ZTE is punished by the sanctions, an upsurge of chip research and development is booming in China. It can be expected that Chinese mobile phone companies will further reduce their dependence on Qualcomm chips in the future.
While major customers turned to independent research and development chips, Qualcomm's old rival, PC chip giant Intel, also issued a battle to Qualcomm. In May last year, when Apple and Qualcomm were in court, Intel issued a document on its official website saying that "Intel is ready, willing and able to compete with Qualcomm for years in this market." In fact, Apple has announced that Move down to Intel or MediaTek's baseband chip on the iPhone and iPad. After the news came out, it caused the stock price of Qualcomm to drop.
Performance continues to decline, stock price drops sharply
Qualcomm’s crisis has been reflected in its financial report.
From the second quarter of 2015, Qualcomm’s revenue and net profit have shown a clear downward trend. In the fourth quarter of 2017, net profit dropped by 89% year-on-year to US$200 million, a record low for many years.
Entering 2018, Qualcomm’s move to reduce expenses and layoffs further confirmed the company’s crisis.
In early January, Qualcomm announced that in order to respond to Broadcom’s hostile takeover, it launched a $1 billion cost-cutting plan, which includes employee salaries, administrative expenses, and daily operating expenses.
In April of this year, Qualcomm submitted to the US government in a document submitted that the company will lay off 1,500 people in June this year. A Qualcomm spokesperson said: “Only the layoffs can ensure the long-term development and success of the company. This is also the responsibility of the majority of shareholders.â€
A series of difficulties caused Qualcomm's share price to continue to decline in the near future. Since the end of January this year, Qualcomm's share price has fallen by nearly 25%.
For a long period of time, Qualcomm was the overlord in the mobile phone field. MediaTek can only survive in the low-end market, and Intel has been catching up. However, today, Qualcomm faces the loss of market share, the opposition of major customers, and the impact of the US's ban on the sale of ZTE. Qualcomm can be said to be a crisis. If there is no effective countermeasure, it is likely to be in a strong enemy. Lost its leading position in the market.
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