Next Tuesday, the biggest technology history hockey battle will take place in an audience hall in San Diego. Once again, Apple and Qualcomm manage to fight, but this time, billions and billions of dollars are at stake. According to the Wall Street Journal, there is not much personal relationship between the CEOs of the two companies. Due to the animosity between Tim Cook of Apple and Steve Mollenkopf of Qualcomm, there does not seem to be any common ground for settlement negotiations. As an unnamed Apple executive notes, "It's personal, I do not see anyone who can bridge that gap."
With that in mind, you have to wonder why Mollenkopf told an audience of CNBC last November that Apple and Qualcomm were "about to fix" their problems. Cook does not see why Qualcomm should be allowed to accept a 5% reduction in the selling price of an iPhone. And this brings us to the major problem between the two giants of technology, at least in this pursuit. Apple claims that Qualcomm is asking too much to license its chips. Qualcomm says she owes him a lot because she stopped paying royalties to the chip maker.
No one could predict this upsurge between the two companies while Qualcomm was the only iPhone modem chip provider from 2011-2015. In 2016 and 2017, Intel and Qualcomm shared this activity. In January 2017, Apple filed its first lawsuit against Qualcomm, and in 2018, Intel was the only provider of modem chips for Apple handsets. Since Intel will not have its 5G modem chips ready to ship before the end of this year at the earliest, an iPhone 5G is not expected until next year. Apple would design its own 5G chip for use as early as 2021.
Prior to the launch of the original iPhone in 2007, Steve Jobs, then CEO of Apple, had a relationship with the CEO of Qualcomm at the time, Paul Jacobs. Originally, Qualcomm claimed a fee equal to 5% of the retail price of each handset sold by Apple. At the time, Cook was the company's chief operating officer and felt that Apple should not pay the chip maker more than $ 1.50 per phone. But Jobs felt that Qualcomm should be paid for its innovations and crafted a compromise. Apple paid $ 7.50 royalties to Qualcomm for each iPhone sold. In 2011, Qualcomm agreed to pay Apple $ 1 billion as an incentive payment for the use of its modem chips. Eventually, Apple was to receive this payment each year, but should pay back Qualcomm if it started using another modem chip provider. In 2011, Cook had replaced Jobs as CEO and was upset by the fact that Apple was paying Qualcomm more in royalties than all other iPhone license holders combined.
Five years later, Qualcomm executives were unhappy to have made a presentation against the company in connection with a case involving South Korea's Fair Trade Commission. Apple had then stated that it would need to add a second modem chip provider because of the "Qualcomm exclusion behavior". And the executives of Qualcomm quickly discovered that Apple was using Intel's modem chips on the iPhone 7. As a result, the chip maker stopped paying Apple the annual incentive payment of $ 39 billion. Apple retaliated by cutting royalty payments to Qualcomm and the two companies eventually went to court.
The Apple iPhone 7 was the first to use an Intel modem chip
Qualcomm has more headache than Apple
Admittedly, Qualcomm does not want to lower its royalty rates to reach an agreement with Apple. Under contracts with other phone manufacturers, Qualcomm would then have to reduce royalties collected from other companies.
But Apple might not be the biggest puzzle of Qualcomm. Earlier this year, the FTC resumed Qualcomm's licensing practices in a non-jury trial, which was heard by Justice Lucy Koh. A decision can be announced at any time. If Judge Koh, famous for presiding the first case Apple c. Samsung, decided to disregard Qualcomm, the company may be forced to completely review its way of selling chips to phone manufacturers.