Qualcomm Anticipates Fine in Korean Probe of Anticompetitive Practices

7/22/09Follow @bvbigelow

[Updated July 23 at 8:30 a.m PT: South Korea's antitrust watchdog set a $208M fine. More details are here.]

Qualcomm, the San Diego wireless technology giant, has remained resilient through the recession so far, and today the chipmaker raised its forecast for fiscal-year revenue and operating income due to a healthy demand for its products.  Chairman and CEO Paul Jacobs notes today the company has “strong underlying fundamentals.”

But there’s a potential mine below the waterline. Qualcomm says today in its quarterly report that a pending ruling by the Korea Fair Trade Commission, or KFTC, could blow a hole in its financial forecast. In its statement, Qualcomm says it anticipates the commission will impose a substantial fine on the company. Yet because of the uncertainties inherent in the process, Qualcomm says it does not include provisions for the consequences of injunctions, damages or fines related to any pending legal matters in its business outlook.

Qualcomm has been minimizing the ramifications of the Korean investigation of its business practices since 2006, when the company disclosed that commission officials had visited its Korean offices (as opposed to “raided.”) In a statement at the time, Qualcomm said the Korean officials were seeking information about its dealings with Samsung, LG and Pantech Curitel. That seemed to be the end of it—until March, when Qualcomm disclosed the commission had made formal allegations about “the lawfulness of certain business practices.”

Now Qualcomm says the commission’s legal decision is expected shortly, following seven days of hearings concerning allegations of what the Korean commission considers its “anticompetitive practices.” Qualcomm says the allegations are related to its integration of multimedia technologies in its chipsets as well as rebates and discounts offered to customers.

The commission “may order modifications to some or all of those practices,” Qualcomm says. “However, until the order is issued, we are unable to assess any impact. We are also anticipating that the KFTC will impose a fine and, while we cannot estimate the amount or a reasonable range of potential loss, we expect it will be substantial and could have a material impact on our results of operations.”

Qualcomm executives declined further comment in their conference call this afternoon with financial analysts. When one analyst asked how the inquiry might affect Qualcomm’s customer relations, Don Rosenberg, Qualcomm’s general counsel and executive vice president said, “We of course have quite good relationships with our customers in Korea and they have been quite supportive of us. But as Paul [Jacobs] said, we don’t want to comment.”

The company notes that if it isn’t satisfied with the commission’s decision, which may take a number of months, it will pursue all avenues of appeal.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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