Qualcomm’s Licensing Revenue Plagued by Antitrust Charges
Qualcomm’s dominant position affected Icera
So far in this series, we’ve seen that the antitrust probes from various countries are directly affecting Qualcomm’s (QCOM) revenues and profits. Now we’ll look at the other side of the coin and see how Qualcomm’s dominant position in the mobile chip business affected Nvidia’s (NVDA) subsidiary Icera.
European Commission’s delayed response
In June 2010, British phone maker Icera filed a complaint with the EC (European Commission) over anticompetitive practices adopted by Qualcomm. It said that Qualcomm had been selling chips below cost between 2009 and 2011, putting price pressure on smaller European (VGK) competitors. The EC opened an investigation in July 2015 and filed charges in December 2015.
By the time the EC took action on Icera’s complaint, it was too late. Nvidia, which acquired Icera in 2011 to participate in the smartphone trend, shut down the business in fiscal 2Q16 to concentrate on high-growth sectors such as gaming, cloud computing, and the automotive sector. Nvidia incurred a $125 million restructuring charge to dissolve Icera.
Why did Nvidia dissolve Icera?
Nvidia acquired Icera to benefit from the latter’s smartphone modems. At the time, the smartphone market was fast-growing. However, the company failed to break Qualcomm’s dominance in the market. Moreover, the entry of lower-priced Chinese manufacturers further aggravated the price war. Despite this, Nvidia secured a contract for Google’s (GOOG) Android-based tablets, but its chips failed to make an impact.
Above all, growth in the smartphone chip market slowed. In order to reduce losses, Nvidia decided to exit the mobile market and dissolve Icera.
Smartphone chip market
According to Strategy Analytics, the global smartphone applications processor market grew 1.5% YoY (year-over-year) to $5 billion in 2Q15. Qualcomm continued to dominate the market with a 45% share, followed by Apple (AAPL) and MediaTek. This market is expected to grow at a compounded annual growth rate of 2.4% from 2014 to 2019, according to Research and Markets.
In the last part of this series, we’ll look at the EC’s antitrust trend in 2015.
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