China's anti-monopoly investigation of Qualcomm is starting to disrupt its licensing business and making it harder for the U.S. company to collect royalties from the country.
The government probe is creating "significant challenges" for Qualcomm, the company reported on Wednesday in an earnings presentation.
China's National Development and Reform Commission (NDRC) began examining Qualcomm's business in November, following complaints that the company had been overcharging local clients.
Qualcomm makes mobile processors found in many smartphones, but the company also has a large business licensing its patents. On Wednesday, however, Qualcomm said that certain Chinese clients were not complying with their contracts and underreporting their device sales. Another client is in a licensing dispute with the U.S. company.
In addition, some local manufacturers are delaying business with Qualcomm, while the Chinese government continues its anti-monopoly probe, the company added.
Earlier this month, the NDRC said it is investigating the way Qualcomm licenses its technology, including charging fees on expired patents, bundling its patent licensing with chip sales, and refusing to license patents to certain chip manufacturers.
It's unclear when the NDRC will complete its investigation, but it could result in a major fine for Qualcomm.
Qualcomm projects 3G and 4G device shipments will reach 1.3 billion globally this year. But it expects manufacturers will only report between 1.04 to 1.13 billion of those shipments to the company, due to underreporting and disputes with licensees.
On Thursday at a Qualcomm event in Beijing, the company said that it had over 120 Chinese vendors using its 3G CDMA patents, and another 70 vendors for its 4G LTE patents.