NSA Fallout Spreads: Qualcomm Probed By Chinese Regulator In "Confidential" Investigation

The recent collapse in the forward guidance from Cisco and various other tech and telecom companies has been widely attributed to the world's - and mostly China's - anger at the NSA in the aftermath of the Snowden revelations, resulting in a dramatic collapse in both future visibility and orderbooks. This was admitted in a recent WSJ interview with the CEO of Qualcomm, Paul Jacobs, acknowledged U.S. restrictions on Chinese companies and revelations about surveillance by the National Security Agency are impacting its business in the fast-growing country.

"We are definitely seeing increased pressure," said Mr. Jacobs in an interview with The Wall Street Journal. "All U.S. tech companies are seeing pressure."

 

Mr. Jacobs stopped short of saying the pressure hurt its sales, but he did say it affected the way the company operated in China.

 

"[You] have to be very cautious," he said. "We are always very careful with whatever steps we take. How we sell. How we interact."

 

Qualcomm tries to be a good partner with some local Chinese manufacturers and build some of its computer chipsets in mainland China, he said. The company doesn't build cutting edge technology there, but it does build some older trailing technologies in China.

 

Mr. Jacobs said it is "very delicate balancing act that goes on. There's no question there is an impact." In the fiscal year ended Sept. 29, Qualcomm generated $1 billion in revenue from China.

 

Mr. Jacobs' remarks come as some big U.S. computer and software companies are reporting a sudden chill in China sales. On Nov. 14, Cisco Systems Inc. reported orders from China fell 18% and said its world-wide revenue would decline 8% to 10% in the current quarter, in part because of continued weakness in China.

 

Cisco executives were the most explicit so far in suggesting that Chinese customers, particularly those with government ties, may be cutting purchases of U.S. tech gear in response to fallout from the NSA revelations and the U.S. government's de facto ban on telecom gear from China's Huawei Technologies Co.

Blockback against US companies took a turn for the worse moments ago, when Qualcomm said China's price regulator, National Development and Reform Commission (NDRC), has started an investigation of the mobile chipmaker under the Chinese Anti-Monopoly Law. According to Reuters, NDRC has advised that the substance of the investigation was confidential, the company said in a statement.

Qualcomm said it was not aware of any violation. Well, maybe not any violation of its own, but it certainly is aware of the NSA exposed violations, which are now impacting US corporations across the globe.

The NDRC is China's top economic planning body and regulates prices. It has launched nearly 20 pricing-related probes into domestic and foreign firms in the last three years, according to official media reports and research published by law firms.

Qualcomm said it was not aware of any violation. Well, maybe not any violation of its own, but it certainly is aware of the NSA exposed violations, which are now impacting US corporations across the globe. For now, at least, the response has focused on telecom and internet companies, although should domestic pressure increase to punish more US corporations, it is likely that any company doing business in China (coughbloombergcough) will see increasingly more difficulty with staying in compliance, and in generating the kinds of sales and profits they have been used to. Hardly the thing America's revenue-constrained companies need at this moment, especially with consensus expecting an unprecedented surge in profitability over the next two years to offset the collapse in actual top-line growth.