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Remember this for the next prolonged, hyperbolic and ugly gap between giant corporations: there is never a question of principle. It's always a question of money.
Apple Inc. filed a lawsuit against Qualcomm Inc. two years ago for claiming that it was a faked business model. Qualcomm manufactures chips that are essential for connecting wireless devices, including smartphones, to the Internet, but a significant part of Qualcomm's profits come from the transfer of its proprietary technology to device manufacturers.
Apple is complaining very strongly that Qualcomm has used its power to overburden Apple into royalties. There were wars of words and other words on Qualcomm as greedy cheats, or Apple as gluttonous liars. The two companies have moved in and out of various government and court offices – including a jury trial that has been closely monitored and started this week.
In a perfectly predictable result, Qualcomm and Apple reached a settlement in their legal fight on Tuesday. The litany of litigation between the companies will end and Apple will make a payment of an undisclosed amount to Qualcomm. The two parties also entered into a six-year license agreement, with possible extensions, as well as a multi-year agreement allowing Qualcomm to provide chips to Apple.
For Qualcomm's investors, it was a relief. Apple – or rather the companies that make Apple products – had stopped paying Qualcomm during the litigation, and the news of the settlement has skyrocketed the number of shares Qualcomm. They rose 23% at the end of the session to reach $ 70.45. The market value of Qualcomm remains lower than it was before the Apple trial in early 2017. Apple's shares were relatively stable.
The question is what happens now to Qualcomm and its controversial business model.
Apple has not used Qualcomm chips in its latest iPhones. Given the nature of the regulation, it seems that Apple will start using them in at least some products. If that happens, it's a sign that Apple needs Qualcomm, which remains a leader in wireless technology, including the next-generation wireless standard called 5G.
Risks remain for Qualcomm. The Federal Trade Commission, motivated by Apple's claims, has accused Qualcomm of violating antitrust laws in connection with its patent licensing tactics. And as long as Qualcomm continues to earn money by selling chips and obtaining patents, it will continue to draw the wrath of other customers and government authorities. With the help of the US government, Qualcomm managed to rule out a hostile takeover attempt by Broadcom Inc. last year, and Broadcom promised to vaguely change Qualcomm's controversial business model. The shareholders of Qualcomm were so upset by the way the company handled the takeover attempt that they held a protest vote against the members of its board of directors.
It is likely that Apple will get what it has always wanted – a price cut – and will no longer be a problem for Qualcomm's business model. This controversy, however, has not ended simply because Apple has withdrawn from the crash. It is not clear whether Qualcomm's business model can survive intact.
To contact the author of this story: Shira Ovide at [email protected]
To contact the editor responsible for this story: Daniel Niemi at [email protected]
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist specializing in technology. She was previously a reporter on the Wall Street Journal.
© 2019 Bloomberg L.P.
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