Silicon Valley companies are fast becoming collateral damage in the US’s escalating tech war with China.
Beijing — riled by Washington’s charges last month against five Chinese military officials for cyberspying — is taking an even harder line against US companies caught in the country’s crackdown on market abuses, The Post has learned.
China’s antitrust regulator is investigating complaints that US companies, including chipmaker Qualcomm and sound pioneer Dolby Labs, are charging higher prices in China than other countries.
The National Development and Reform Commission is threatening to cap the fees firms get from licensing their technologies to companies in China, taking a bite out of revenue, sources said.
“Qualcomm is in very big trouble in China,” said one source who met this month with Chinese regulators. “I know they are very nervous.”
Qualcomm owns the patents on many chips used in cellular phones, especially those using older technologies. It generates between 5 and 10 percent of its $25 billion in annual revenue from Chinese royalties, although at least half comes from Apple and Samsung phones sold in China whose royalties would not be affected, according to analysts.
An even bigger issue for Qualcomm is China Mobile. The country’s biggest wireless carrier is rolling out a faster LTE network that is expected to drive up demand for Qualcomm chips and boost royalties — that is, unless regulators stand in the way.
“We are and will continue cooperating fully with the NDRC,” said a Qualcomm spokeswoman.
The investigation into Qualcomm should make other American chipmakers nervous, in particular Intel, the source added. “We have a long-standing and healthy relationship with China,” said an Intel spokesman.
Similarly, Dolby sound, which is used by Chinese broadcasters and TV set-top box makers, generates 9 percent of its annual revenue, or $82 million, from Chinese royalty payments.
Dolby declined to comment after disclosing it was under investigation in China in a regulatory filing.
Meanwhile, the US has been returning fire in the ongoing tech war.
The Committee on Foreign Investment in the US, or CFIUS, has been blocking attempts by Chinese companies to buy US businesses, such as when Huawei tried to buy server tech firm 3Leaf Systems in 2011.
“I know of a bunch of Chinese deals that did not go through,” said one source, noting that many of those failed attempts have gone unreported in the media. “I’ve never seen CFIUS so concerned about China.”
CFIUS is conducting a tough investigation of Chinese company Lenovo’s proposed acquisitions of IBM’s low-end servers business and Motorola Mobility. (One of Intel’s biggest customers is Lenovo.)
Mandarin Capital Partners Founder Alberto Forchielli, who advises companies on pushing deeper into the world’s biggest market, said the deal could be held up by concerns that China “is not living up to [World Trade Organization] standards.”
“A month ago, I would have said the Lenovo-IBM deal was going to go through,” Forchielli told The Post. “But now I am not so sure.”