Qualcomm is striving to change its business model and offer itself as a useful contributor to China.
There are, however, telltale signs that Qualcomm is striving to change its business model and “offer itself as a useful contributor to China,” according to Dieter Ernst, a senior East-West Center fellow. Even if not all the way to BFF, Qualcomm appears to be cultivating an image as a “Friend of China.”
While it waits for a Chinese blessing on its NXP acquisition deal, Qualcomm announced Thursday that China’s four large smartphone vendors – Lenovo, Oppo, Vivo and Xiaomi – have each signed a Memorandum of Understanding for the multi-year purchase of Qualcomm’s RF front-end solutions.
Simultaneously, Qualcomm unveiled the launch of its “5G Pioneer” initiative with six Chinese companies. Supporters of the collaboration are Lenovo, Oppo, Vivo, Xiaomi, ZTE and Wingtech. The group’s goal is to accelerate the availability of commercial 5G premium-tier devices expected in 2019.
Mired in troubles both in the United States (Apple vs Qualcomm; Broadcom’s pursuit of Qualcomm as a hostile takeover target) and elsewhere in the world, Qualcomm is holding its 2018 China Tech Day this week in Beijing. The event appears to be designed to curry favor with both Chinese authorities and U.S. media. The mobile chip giant flew in a bevy of American reporters to cover the event.
Qualcomm’s Beijing extravaganza comes on the heels of clearance from antitrust regulators in European Union and South Korea on its pending NXP acquisition.
Still standing in the way, though, is a regulatory hurdle erected by China’s Ministry of Commerce (Mofcom).
Some observers now appear optimistic about eventual Chinese approval. So, we contacted a few sources – including well-known China hands such as Ernst – to explore possible policy changes by China that might work in Qualcomm’s favor.
Ernst said that his sources also tell him that Qualcomm is “now actively engaged with Chinese smart phone companies and China’s NDRC (National Development and Reform Commission) 5G project.
He also quoted a well-informed Chinese source saying that unless the U.S. President Trump makes good with his threat of open trade warfare, Qualcomm’s NXP deal should not be a problem in China.
The main reason for optimism is that “China is not so strong in the area where NXP plays”. In sum, Qualcomm/NXP can contribute to China’s Intelligent & Connected Vehicles Program, based on NXP’s strengths in chips for connected and autonomous cars.
5 factors Qualcomm should consider
There are also several factors Qualcomm should consider, toward shaping China’s response to the Qualcomm-NXP deal, said Ernst.
First, he said, Qualcomm should consider “increasing the importance of competition policy as a tool to foster China’s innovation strategy, drawing on recent attempts to move toward a unified competition policy.” Ernst was referring to New Antitrust IP Guidelines recently announced by China’s powerful IP Strategy Implementation Working Group.
The second factor is established practice. By now, Qualcomm should understand China’s playbook: Don’t block deals, but delay by requiring adjustments, in response to requests from powerful local companies. China’s view was articulated during a Mofcom meeting last July with leading Chinese mobile communications and chip companies, Ernst pointed out.
Third, look to established precedents. Foreign companies have been pressed to enter deals with Chinese companies to gain approval.
Fourth, an industrial logic is at work. “What contribution can Qualcomm/NXP make to China’s Intelligent & Connected Vehicles Program, based on NXP’s strengths in chips for connected and autonomous cars?” If China approves the deal, China will make sure that it will become its gain.
Fifth, let’s not get carried away. “In contrast to IBM and Intel, Qualcomm may still have a long route to becoming a ‘Friend of China,’” Ernst observed. At the end of that road, China might deem Qualcomm eligible for special consideration.
Next page on EE Times US: Qualcomm has weaker cards to play