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Apple: In with Qualcomm, Out with Intel

by Chris Taylor | Apr 19, 2019

On April 16, 2019, Apple and Qualcomm settled their combative legal battle after opening arguments the day before in a US Federal court.  Given the complexity of the legal entanglements between the two companies, the decisive and swift nature of the suit surprised many observers.

The suit by Apple against Qualcomm included 63 charges, central to these, charges of anticompetitive behavior and unfair royalties to be paid to Qualcomm.  In response, Qualcomm filed patent infringement claims in more than 75 separate cases and jurisdictions, and alleged that Apple had stolen software and IP and had given this to Intel.  By the end of 2018, the legal teams on both sides must have grown to the size small armies, and it began to appear to observers that the legal battle would go on for many years.  The settlement, in one clean sweep, apparently settled the original suit and all the associated suits, claims and counterclaims.

The settlement benefits all, regardless of the exact monetary terms, which have not been disclosed.  The legal fight had big downsides for both companies as well as risks for the industry:

Qualcomm:

  • Total revenue losses by Qualcomm attributable to the suit were in the billions of dollars.During the legal battle, Apple bought radio modems for the newer iPhone models from Intel and not Qualcomm, hurting Qualcomm’s sales.  Apple and its ODMs also halted royalty payments to Qualcomm.
  • The suit challenged the validity of Qualcomm’s entire business model, which is based on innovating and charging for use of Qualcomm IP in mobile devices.

Apple:

  • Using Intel put Apple’s newer iPhones behind Android-based phones using Qualcomm chips in terms of radio performance, specifically in measures such as peak data rate, dropped calls and dropped video frames.  Few consumers seem to have noticed, but this could change with 5G.  Relying on Intel meant Apple would ship 5G smartphones at best a year behind competitors, and Apple faced the risk of Intel’s schedule slipping further.
  • After Apple filed the original lawsuit in January 2017, courts in Germany and China found Apple guilty of patent infringement in Qualcomm’s favor, in the process banning sales of some older iPhone models, costing Apple real money.
  • Strong evidence in the form of internal documents that Apple stole IP from Qualcomm did not auger well for Apple or its executives.

The Wireless Industry:

  • Apple’s lawsuit challenged the validity of charging for use of standards essential patent portfolios (SEPPs), a common practice in the wireless industry for decades.  The economic argument is that without a means to generate royalties to pay for R&D, few companies would bother to innovate, and companies would not contribute to developing mutually beneficial standards such as 4G and 5G.

 

The settlement left Qualcomm the apparent winner just based on the stock market response, but also provided Apple with a faster and lower-risk path to 5G.  Intel was the biggest loser, essentially having been forced out of radio chipsets for smartphones through loss of Apple as an assured, future customer.

The fallout from Intel’s withdrawal from 5G smartphone modems raises some questions:

Will other radio chipset suppliers get forced out with the transition to 5G?  A host of other suppliers have either developed 5G radio chipsets or have 5G on their roadmaps, including Samsung LSI, HiSilicon (Huawei), MediaTek, UniSoc, and small cellular IoT chipset specialists such as Altair, Sequans and GCS Semiconductor.  Intel had been viewed as well-positioned in 5G chipsets, although clearly behind Qualcomm.

How much market share in basebands and radio chipsets can Qualcomm expect to gain from Intel, and at what point will Qualcomm’s increasing market share prove self-defeating?  In the ongoing court cases with the US Federal Trade Commission, EU and others, government lawyers like to use high market share as evidence of anticompetitive behavior.

Will Chinese handset OEMs Oppo, Vivo, Xiaomi, OnePlus and others continue to buy chipsets from Qualcomm if competitor Apple once again buys from Qualcomm?

What does the likelihood of Apple buying 5G chips from Qualcomm mean for RF front-end specialists Skyworks, Qorvo, Broadcom and Murata?  Qualcomm will attempt to persuade Apple to purchase the entire radio from Qualcomm, including power amps, filters, switches, envelop tracking amplifier and antenna tuners.  If successful, this could mean significant loss of business for Qualcomm’s RF FE competitors.

Will Apple eventually design its own 5G chipsets?

Strategy Analytics subscribers can read more about the settlement, infringement findings against Apple, and the original case.  See also Sravan Kundojjala’s blog on the settlement.
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