By Noel Randewich
Leading mobile chipmaker Qualcomm said on Wednesday it could face a civil action from U.S. authorities over alleged bribery of officials associated with state-owned companies in China.
With smartphone sales tapering off in the United States, China is a major market for Qualcomm, but doing business there has included disagreements over royalties and an antitrust investigation.
In its fiscal second-quarter report, Qualcomm said it has received a notice from the Securities and Exchange Commission's Los Angeles office advising it of a preliminary determination to recommend an enforcement action against the company for violating the Foreign Corrupt Practices Act (FCPA).
Qualcomm said the civil action could seek remedies including "disgorgement of profits, the retention of an independent compliance monitor to review the company's FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest."
Qualcomm said it first learned of and disclosed the SEC investigation in 2012.
In its own investigation, Qualcomm said it found instances in which "special hiring consideration, gifts or other benefits were provided to several individuals associated with Chinese state-owned companies or agencies."
The chipmaker believes the total value of the benefits was less than $250,000.
Qualcomm said it received a from the SEC's Los Angeles office on March 13 advising it of the preliminary determination. On April 4, the San Diego company submitted an explanation of why it believes it has not violated the FCPA.
Earlier this month, Hewlett-Packard said it would pay $108 million to settle potential violations of the FCPA in Russia, Poland and other countries. They include allegations that an HP executive paid bribes worth over $500,000 in exchange for help winning contracts to supply computer equipment to Polish police headquarters.
China's anti-monopoly regulator is also investigating Qualcomm, which it suspects of overcharging and abusing its market position. Those allegations could lead to fines of more than $1 billion.
On a quarterly conference call with analysts on Wednesday, Qualcomm executives repeatedly denied the company had broken the law but declined to provide more details on the SEC allegations.
Scrutiny of Qualcomm's practices in China come at a key moment in its transformation from a smartphone manufacturing hub to a major consumer market in its own right.
China Mobile, the world's largest cellphone carrier, is set to roll out a new network this year using 4G technology that Qualcomm dominates.
"China is an important part of their story. It's where all their unit growth is coming from," said FBR analyst Chris Rolland. "I think the [bribery investigation] will have limited financial impact by the time it's all said and done, but it certainly isn't good."
