American chipmaker Qualcomm is in trouble in South Korea. The country’s antitrust regulator has fined the company roughly $850 million (1.03 trillion won) for its patent royalty activities in South Korea.
Many of you are familiar with Qualcomm for its chips. The next time you read the tech specs of your favorite smartphone, chances are that you’ll find a Qualcomm chip. The company manufactures LTE modems, ARM-based systems on a chip for various Android phones and more.
But there’s another lucrative side of the business. Qualcomm makes a significant portion of its revenue from licensing deals thanks to a healthy portfolio of patents related to wireless technologies. While revenue from chips is growing faster than licensing revenue, it still represents 32.8 percent of the company’s total revenue according to the company’s latest earnings report.
But a three-year investigation in South Korea led to today’s fine. According to the regulator, Qualcomm should have shared more patents with other chip makers. Competitors include Samsung, Intel and MediaTek.
In addition to this issue, the company also forced phone makers to license too many patents. As Qualcomm is a key supplier for many phone makers, the company told them that they would need to purchase a bunch of licenses, even some they don’t need. It’s hard to say no when Qualcomm provides the brain of your device.
And yet, the company is probably not ready to turn its back to its lucrative patent licensing business. While the ruling comes from South Korea, other countries could look at Qualcomm’s business practices more closely.
Qualcomm will appeal the ruling but will likely have to pay the fine before the appeal anyway. If the fine is adjusted or canceled later down the road, the South Korean administration will reimburse Qualcomm. So the fine should have a direct impact on Qualcomm’s quarterly earnings.