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Chipmaker Qualcomm’s Case with the U.S FTC Goes to Trial
| 01/07/2019
The U.S. Federal Trade Commission’s has an antitrust case against chipmaker Qualcomm after alleging that the company has abused the monopoly on mobile chip technology. The case between the two will be going to trial today, and the outcome is expected to have a major impact on the smartphone sector.
QCOM Price Could Tank
The FTC’s case against Qualcomm going to trial isn’t a good thing as it could affect the price of their stock. On March 26, 2018, the agency announced that it was investigating Facebook regarding its privacy practices after reports surfaced on the Cambridge Analytica case. The announcement by FTC to investigate Facebook saw its shares lose more than five percent, and dropped below the $150 for the first time since July 2018.
Qualcomm is now facing a trial against the FTC and this would likely see the stock drop below its current price of $56.45. The company could also face a heavy fine similar to what it experienced in Europe and this would likely see its price fall even deeper. QCOM dipped from $68.60 to $65.03 after the company was fined by EU regulators.
Apple Looks on with Interest
The case will be handled by U.S. District Judge Lucy Koh, in San Jose, California. If the FTC comes out victorious, then the chipmaker will be forced to make amends to its practices for licensing a trove of patents to some tech manufacturers such as Apple Inc. (AAPL.O).
The case has generated a lot of interest within the tech industry as Apple also has a pending lawsuit making similar claims against Qualcomm. According to Canaccord Genuity analyst T. Michael Walkley in his research note, the outcome is expected to have a major impact on the settlement discussions that will take place between the two companies.
Even though Qualcomm is regarded as one of the leading smartphone chip manufacturer, most of its profits are obtained via licensing patents to other companies.
The lawsuit by FTC was first filed in 2017, with the agency claiming that Qualcomm practices an anticompetitive “no license, no chips” policy which enabled the company to supply processors to phone manufacturer only if they abide by the inflated licensing terms presented to them.
FTC further claimed that Qualcomm bullied Apple into agreeing on an anticompetitive deal. The deal will see the iPhone manufacturer received financial rebates if they buy chips only from Qualcomm. This effectively affects other competing chipmakers such as Intel Corp (INTC.O).
Qualcomm has however denied such allegations and claimed that it became a dominant chipmaker via technical leadership, adding that the rates for its patent licensing were reasonable considering the groundbreaking research and development efforts.
According to the court filing on December 31, Qualcomm stated that the agency “seeks to enjoin legitimate, procompetitive business practices that facilitated the growth of a phenomenally successful industry that bears all the hallmarks of healthy and vigorous competition,”
Qualcomm has been in the limelight over the past few months as regulators have investigated its activities in South Korea, China, Taiwan, and Europe. The company accused Apple of playing a role in the regulatory actions taken against them.
In January 2018, Qualcomm was handed a 997 million euro ($1.14 billion) fine by European antitrust officials. The regulators accused the company of paying billions of dollars to Apple to ensure that they don’t purchase chips from its competitors. Qualcomm has however appealed the fine placed on it.
The two tech companies have been locked in a global legal battle. After Apple filed its antitrust case, Qualcomm replied by accusing the iPhone maker of using patented technology without having the necessary permission.
Qualcomm was victorious in the rulings last month, with Apple asked to limit the sales of iPhone in both Germany and China.
Apple has embarked on a slight recovery following the massive drop it experienced this week. Qualcomm is meanwhile 0.65 points up for the day and losing the case against the FTC will most likely affect QCOM prices negatively.
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