Chapter 303: Qualcomm’s Predicament
Translator: Nyoi-Bo Studio Editor: Nyoi-Bo Studio
Qualcomm’s recent days had been very difficult. The situation of the company’s market could be described as “crisis around every corner” and “surrounded by perils.” It was on the verge of “life and death.” Since last year, Qualcomm conducted three rounds of lay-offs and fired 80% of their R&D personnel to save labor expenses. The company’s main executives took the initiative to lower their salaries and earned only 20% of their previous salary. They also implemented a variety of other cost-saving methods. They were doing all they could to save money and avoid expanding their losses.
Even so, although they gave their all, Qualcomm’s net loss for this year was still as high as $3 billion! Qualcomm, which maintained their profitability for many years, suffered such a large loss for the first time.
How was this possible?
One must know that Qualcomm held tens of thousands of communication technology patents. Simply based on the patent fees it collected, it could earn a lot of money every year. If they could make a lot of money without even really doing anything, how was it possible for them to lose money?
Like Nokia, the company experienced ups and downs for more than 30 years. There had been many crises and it had been sold for cheap several times. However, it never collapsed. Instead, it regained its life by collecting patent fees and finally occupying a special place in the market again. As long as the people on this planet still needed communication functions, the related communication companies would not close down. It would be difficult for them to close down!
The same was true for Qualcomm. But Qualcomm also had to make money! Without enough profit, how could Qualcomm executives and employees enjoy the material life? Without enough profit, how would they carry out follow-up research and development? Patents did not fall from the sky, they were made with money! However, the current Qualcomm not only had no money, but they were also suffering huge losses. What was the reason?
Inside the office, Zheng Junming, President of Qualcomm’s branch in Z country, reported to President Christian Amon, “Mr. Amon, the company’s revenue in Z country this year has plunged 70% from last year. It is predicted that it will be very difficult for revenues to exceed $30 billion.”
“$30 billion?” Christian Amon was taken aback. He frowned severely. “Why is our performance so bad?” He smacked his head and spread his hands out as he complained to Zheng Junming, “I’ve listened to your suggestion and moved the company headquarters to Z country. 70% of the executives also came to Z country and tried hard to adapt to the environment. I even learned many phrases from the Z language. But why is this happening? Why don’t the consumers in Z country like us? Why do they still choose to overlook us? Just where are we getting things wrongs to be treated like this?”
It was a blow to Christian Amon. He was deeply disappointed and despondent. The Z country market was very important to him. He even left his hometown and came to this mysterious eastern country. He took the initiative to express his goodwill and sincerity repeatedly. As a result, he achieved commercial success.
In the end, the reality was a bucket of cold water. Qualcomm was steadily losing ground in Z country’s market, revenues plunged 70% compared with last year. He felt a deep sense of failure. A faint whisper of withdrawing from Z country’s market appeared in his mind, but it was immediately dispelled. Qualcomm could not afford the price of exiting Z country’s market. This was especially so after entering the 5G era. It was only in Z country that Qualcomm’s 5G chip could get better sales, which resulted in more patent fees collected.
The reason was that Z country was the country that truly entered the 5G era! Only Z country invested trillions of dollars to deploy more than 10 million 5G base stations nationwide. All cities were covered by the 5G network. The density of the 5G base stations in other countries was lower than that of Z country due to costs, population density, technical strength, etc. In addition, the usage fee of 5G services in other countries was higher, resulting in only a small range of coverage. It was difficult to fully roll out the 5G network. One of the most direct data was this: with the exception of Z country, the total number of 5G base stations in other countries was less than 8 million. This led to the fact that Qualcomm’s 5G chips were difficult to sell in all other countries except Z country. It was hard for most users to experience the speed and convenience brought by 5G.
Of course, there was one other reason. The percentage of patent fees collected by Qualcomm was too high. Qualcomm received 3.5% of the patent fee for the traditional 4G mobile phone. Whereas, there was an additional 5% for the 5G mobile phone. Hence, the total patent license fee was 8.5%. It meant that Qualcomm took $255 from the sale of a mobile phone with a price of $3,000. This additional cost was naturally borne by consumers. However, due to the incomplete coverage of 5G signals, the experience was similar to that of 4G mobile phones. Moreover, the 5G package was more expensive. So after some thought, consumers still chose to continue using 4G mobile phones. Therefore, Qualcomm’s 5G chip could only obtain significant sales number in Z country’s market.
In addition, the Snapdragon CPU had a good reputation in Z country’s market and was welcomed by consumers. The revenues from Z country’s market once accounted for 75% of Qualcomm’s global revenue. This was also why, after the outbreak of the “Backdoor Incident” of Android systems, Qualcomm decided to move its headquarters to Z country despite severe criticisms. It was so they could win the trust of Z country’s consumers.
Even if Qualcomm had done so much, their executives inevitably felt helpless and dejected in the face of a 70% drop in revenue.
Zheng Junming consoled, “Mr. Amon, this is not a problem with our marketing strategy.” He analyzed, “The reason for the decline in the company’s revenue is mainly the performance and price of the company’s products. It has not been acknowledged or favored by consumers, resulting in hardware manufacturers choosing to collaborate with Hua Yao or Xing Hai Technologies. Our latest Snapdragon 8550 made with the 5-nanometer process only has a running benchmark of 610,000 points. It cannot be compared to the 780,000 points of the SX-2000 or the 650,000 points of Hua Yao’s Kirin 1220. The performance of our high-end product is not as good as them. Even if there is a gap in performance, as long as the gap is not too big, consumers can accept it. However, because Mossey Electrics is our OEM, our chip manufacturing cost is higher, resulting in higher prices. Besides the Soc, we also charge a communication patent fee of 5% for each mobile phone (3.5% discount compared with other countries). This percentage is not high. Based on the current high-end flagships that are sold for a starting price of $2,000, it is just another additional $100 on top of it.”
The sharp drop in mobile phone prices was also one of the reasons for the decline in Qualcomm’s revenue.
“But Hua Yao only charges 3.5% of the 5G patent license fee. Also, it does not charge extra patent fees for the 5G baseband sold. This means that all mobile phones equipped with Qualcomm chips will cost about $100 to $200 yuan more per unit. Hardware manufacturers will, of course, abandon us. Mr. Amon, we must adjust our business strategy! If this continues, our remaining market share will be taken over by Hua Yao and Xing Hai Technologies. We’ll completely lose the Z country market.” Zheng Junming expressed the ideas that he had been hiding in his heart for a long time.
Christian Amon shook his head. How could they adjust? Qualcomm was merely a company specializing in communication technology. They only had two means of profit: selling Soc and collecting patent fees. It was not comparable to Hua Yao, which manufactured all its software and hardware. It was totally not comparable to Xing Hai Technologies, which possessed countless core technologies. Only by acting like a tyrant in the area of patents could Qualcomm continue to survive.
Of course, Zheng Junming understood this. Hence, he made a suggestion that brightened up the eyes of President Christian Amon. “Yes, Xing Hai Technologies has highly advanced technologies such as work assistants, virtual factories, etc. But it faces limitations by Hua Yao Company in the communication field. It only has a few communication patents on hand. If we collaborate with Xing Hai Technologies, it will be an alliance of the strong. We will be able to improve Qualcomm’s current status!”
Christian Amon immediately got Zheng Junming to contact Ling Jundong of Xing Hai Technologies to express their eager desire to collaborate.
At the Xing Hai Headquarters, in the conference room, after listening to the situation as narrated by Ling Jundong, Chen Jin was slightly stunned. Then, he immediately smiled. “What you are talking about is the Qualcomm that claims to be ‘Z empire’s conscience and will annihilate the Fruit Company in the name of justice?’”