"China continues to present significant opportunities for us, particularly with the rollout of 4G LTE, but also presents significant challenges, as our business practices continue to be the subject of an investigation by the China National Development and Reform Commission," Qualcomm said in its earnings release. "We also believe that certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us."
The wireless chip designer's royalty-payment dispute with Chinese smartphone makers has been an overhang on its stock. Qualcomm stock has fallen 8% since issuing its Q3 earnings results on July 24. Shares were flat, near 75, in early trading in the stock market today.
Because of Chinese payment collection uncertainty, Qualcomm recently excluded 215 million 3G and 4G devices — representing 16.5% of expected 2014 shipments — from its market estimates.
The China NDRC is conducting an anti-monopoly review involving Qualcomm. BMO Capital's Long, who says he recently met with Qualcomm executives, says Qualcomm is likely to garner some royalties from China.
"The situation in China remains murky," said Long in a new research report. "We believe the current (stock) valuation assumes almost no China royalties, which is, in our view, an unreasonable outcome, given the desire of the Chinese to export.
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