Qualcomm CEO Says NSA Fallout Impacting China Business

Qualcomm CEO Says NSA Fallout Impacting China Business

Mobile Device Chipmaker Is ‘Definitely Seeing Increased Pressure,’ Paul Jacobs Says

SPENCER E. ANTE

Nov. 22, 2013 5:09 p.m. ET

Mobile device chipmaker Qualcomm Inc. QCOM +1.74% expects to continue growing in China, but Chief Executive 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 CSCO -0.05% 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.

Executives cited several reasons for the drops, including a slowing Chinese economy, a pause related to the current Communist Party Central Committee meeting and a stronger push for Chinese companies to use homegrown products.

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.

A U.S. congressional investigation last year concluded that Huawei and ZTE Corp.ZTCOY +6.72% pose security risks to the U.S. because their telecom equipment could be used for spying on Americans. Huawei and ZTE have repeatedly denied the allegations.

Despite the rising pressure, Mr. Jacobs said he thinks Qualcomm “can gain significant share of the China market.” Qualcomm expects to see a lot of growth from China as the country begins to move to so-called LTE technology, the faster successor to third-generation wireless technology.

“Hopefully in short, medium and long term that things will move forward with the way that they have and with the market really driving things,” he said.