China handset firms accuse Qualcomm

Chinese handset-makers have told a government inquiry that Qualcomm is charging them up to ten times more for its technologies than other foreign firms.

In a submission to the anti-monopoly probe into the US chip firm, an industry group, Mobile China Alliance,  says Qualcomm's high licence fees have had a “serious impact” on the domestic industry, Shanghai newspaper China Business News reports.

However, the group admits that even if Qualcomm cut its technology licence charges as a result of the investigation, the members are unlikely to benefit because of the intense competition between them.

MCA was set up under the government-backed China Communications Industry Association 15 months ago. Its members include handset-makers such as Lenovo, ZTE and Coolpad and chip firms like Spreadtrum. It said it had interviewed more than 20 companies for the report, which it filed with the National Development and Reform Commission (NDRC) on Sunday.

The NDRC began an inquiry into Qualcomm under China’s anti-monopoly law in November. An adverse finding could mean a penalty of as much as $1.2 billion.

The China Business News report says the NDRC investigation has three purposes:

...first, [the NDRC] probably hopes Qualcomm will reduce its licence fees for LTE chipsets; second, most likely to protect domestic businesses; and third it proceeds from national security considerations.

It says Qualcomm is planning to charge Chinese firms 4% of the retail price for use of its LTE technologies.

Yet although MCA chief Wang Yanhui says the Qualcomm inquiry is a "good thing", his members are not greatly enthusiastic about it.

"China handset vendor competition is very fierce. Even if Qualcomm reduce its prices, they still won't be able to easily grow their profit space."

Update: An earlier version of this post quoted a Beijing Daily News story which wrongly reported that Qualcomm had made a formal offer to the NDRC to drop the inquiry.  In fact, it was InterDigital which had made the submission to the NDRC. Beijing Daily News had inaccurately interpreted its name. 

China spends more on importing chips than oil

China spends a lot more on importing chips than oil.  According to iSuppli, China last year imported $192 billion in integrated chips and a mere $120 billion in oil.

This matters in China - and in the telecom sector in particular - because despite tipping all of that cash into semiconductor industry's pockets, domestic handset firms are well back in the queue for the Qualcomm and ARM chips that power top-range devices.

More than half of China Mobile’s recent TD-LTE handset tender went to devices using Qualcomm chips. Among Chinese firms, only Huawei's Hisilicon chip unit won a share.

A paper by State Council Research Office a month ago said 80% of China’s chips come from abroad, China Business News reports.  A touch sourly, the report notes that:

China in one year produces 1.18b handsets, 350m computers and 130m colour TVs - all no. 1 worldwide. But the high-end patent fees embedded in these reduces all of us to manual workers for the international vendors.

In truth China industry lacks the scale as well as the expertise of the big US, Korean and Taiwan chip players.

iSuppli senior semiconductor analyst Vincent Gu points out to China Business News that Taiwan fab TSMC has annual sales of $10 billion, greater than China's top four companies combined. TSMC and Intel are investing $10b each year, and China just $400-$500m.

In this thoughtful blog on the topic, Dieter Ernst, a senior fellow at the East-West Center, says the gap between China’s chip consumption and production grew from $5.7b in 1999 to $100.5b in 2011, aided in particular in the last few years by steepling imports of advanced wireless chips. He writes:

China remains way behind the technology frontier in both fabrication and design, reflected in a weak portfolio of essential semiconductor patents. China still has a long way to go before it can shape, or even co-shape, the industry’s technology trajectory.

One reason is that while China is deeply integrated into the global semiconductor production chain, “China’s leadership views such deep global integration primarily as a threat to its domestic innovation capacity, rather than an opportunity.”

Additionally, the sector is caught between by two disconnected drivers - the government’s indigenous innovation policy and the industry’s own real-world practice of global technology sourcing.

The result is “a fragmented innovation system that is ill-equipped” to respond to the challenges of the global value chain.

Qualcomm sweeps aside Chinese firms in TD-LTE device tender

Qualcomm-powered devices have dominated China Mobile’s just-completed TD-LTE tender, sweeping aside local firms.

The 200,000-unit tender was not large by Chinese standards, and comprised mostly data cards and MiFi devices, but is significant as China Mobile’s biggest single procurement of 4G terminals to date.

A rueful piece in 21^st Century Business records that the only China-built chipset to win was Huawei’s Hisilicon, which was used primarily in Huawei’s own devices.

Qualcomm won primarily because of its ability to support ‘5 modes and 10 bands’ (the modes are GSM, W-CDMA, HSPA, TD-LTE and FDD-LTE; the bands vary from market to market). Moreover, the US firm last year gave a big assist to China Mobile’s plan to make TD fully global by declaring that all of its chips would support both modes of LTE.

The outcome of the tender “frustrated” local players Spreadtrum and Leadcore, and Taiwan’s Mediatek, the story said.

An executive from one firm complained that at the current stage, the market was all about data cards and CPE, which didn’t require “all modes”.

He said the 4G handset era, still a year or so away, would allow domestic chip players to play to their strengths in pricing, but also called on operators “to give us more opportunities and time.”

In the meantime, for focus for all three firms would be on developing multi-mode single chip products, the article says.

China Mobile: Apple is in the driver's seat

Chairman Xi frustrated by lack of Qualcomm chips

Click to read more ...

China's soaring patent filings

The China patent bandwagon rolls on.

It is now the world’s fastest-growing source of patent applications and has overtaken Korea to become the fourth biggest, according to the World Intellectual Property Organization (WIPO).

The volume of Chinese patent applications grew 56% last year, accounting for nearly 60% of the net growth in filings under the Patent Cooperation Treaty (PCT), WIPO’s 2010 figures show.

By comparison, total US and UK filings declined for the third year in a row.

The raw numbers disguise the much thinner quality of Chinese technologies. Most of the filings are under the utility model, which offers a lower patent threshold and is for a shorter term – typically seven to ten years, compared with 20 years for a full patent.

The utility model is available in China, Japan and Germany, though not in the US or the UK.

China accounted for most UM activity worldwide in 2009, with applications up 38% (2010 figures are not yet available).

For anxious Americans fretting over the mounting number of Sputnik moments, this may be lukewarm comfort.

Thomson Reuters last October predicted that China would overtake the US and Japan for the largest number of (domestic) patent applications in 2011. While most of these would be UM filings, China is expected to reach the milestone this year, a year ahead of the original 2008 forecast.

Americans may also be alarmed that last year, for the first time, the US Patent and Trademark Office granted most patents to non-residents that residents.

The WIPO list once more puts Japan’s Panasonic Corp. at the top of its corporate rankings, with 2,154 applications last year, followed by Chinese telecom vendor ZTE (1,863), Qualcomm third (1,677) and ZTE rival Huawei in fourth place (1,528).