Qualcomm share price up, agrees to pay $975 million fine to China

Qualcomm Inc announced on Monday that it has agreed to pay a fine of $975 million following more than a year-long investigation from Chinese antitrust regulators.

The San Diego-based company said it was found in breach of anti-monopoly law by the National Development and Reform Commission and it agreed to comply with the penalties, which also include a change on Qualcomms royalty fees in China.

The move the lower royalties will most likely benefited local smartphone manufacturers, such as Xiaomi and Huawei.

Despite being one of the worlds biggest smartphone chip makers Qualcomm generates the better half of its profit through royalties paid by companies that utilize its chips. During the past financial year, China accounted for around half of Qualcomm total revenue.

For financial 2013 the company reported around $7.57 billion from royalty fees on licensing patents and other intellectual property.

In line with the agreement with Chinas regulators Qualcomm will offer separate licenses for its 3G and 4G essential Chinese patents to its existing customers.

Additionally, the company will get 3.5% from a company that licenses only its 4G technology and 5% from licenses over 3G and 4G. Qualcomm will also use a different base to calculate its proceeds, the company will apply those percentages to 65% of the net selling price of the device instead of a 100%.

However, analysts had expected the fine to be bigger than $975, or 8% of the companys sales in China during fiscal 2013. According to Chinese law, a company could be penalized by a maximum of 10%, but Qualcomm got a lower number due to its full-cooperation during the 14-month investigation.

Following the agreement Qualcomm updated its performance guidance for financial 2015. The company expects revenue to land between $26.3 billion and $28 billion, slightly increasing the lower end of its previous projection of $26.0 billion to $28.0 billion.

Excluding the impact of the fine and other certain costs, the company expects per-share earnings of $4.85 to $5.05 versus $4.75 to $5.05. This compares with an average projection of $4.96 per share by analysts polled by Thomson Reuters.

“We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention to… our customers and partners in China,“ said Chief Executive Steve Mollenkopf.

Qualcomm gained 1.15% on Monday and closed at $67.11, marking a one-year decrease of 9.81%. The company is valued at $109.45 billion. The stock edged up 2.82% to $69.00 on Tuesday during after hours trading.

According to the Financial Times, the 32 analysts offering 12-month price targets for Qualcomm have a median target of $75.00, with a high estimate of $90.00 and a low estimate of $50.00. The median estimate represents a 11.76% increase from the last closing price.