• Apple and Qualcomm dispute escalates.
  • New Supreme Court ruling favors Apple.
  • Qualcomm’s business practices are under threat across the globe.
  • If Apple succeeds in court, investors can expect enhanced profits at the expense of Qualcomm’s losses.

Why is Apple suing Qualcomm?

Apple seeks to stop Qualcomm’s “illegal business model” of charging for both the patent licences to use Qualcomm’s cellular technology chips in its iPhones along with selling the chips themselves. This term has been phrased as ‘No licence, no chips’. This practice has been very lucrative for the chipmaker. Over the last year, the company recorded $15.4b in revenue for selling the chips, which resulted in $1.8b in profits. The margins on this business may seem quite reasonable. However, Qualcomm makes much larger profits from the licensing of those chips. Over the last year, the figure has been $7.66b in revenue and $6.5b in profit.


This is showing a clear trend towards lowering price per chip unit but locking in significantly more profits through expensive licensing arrangements.

Apple argues that not only does the price reflect unreasonable rates on patents related to industry standards, but that the practice ‘amounts to a scheme of extortion’ in which Qualcomm can entrench its monopolistic position.

In addition to these concerns, Apple regards the practice as being a hindrance to innovation. As consumers are fully aware, iPhone prices have been increasing year-on-year for the newly released models. Much of this is down to the cost of new technology added to the device to improve various aspects such as screen quality, camera strength, and longer battery life. Under the current arrangement, Apple is forced to pay Qualcomm a percentage of profits on each device regardless of whether the advancements of the device are Qualcomm technology or not.

The dilemma Apple faces is apparent; the company is having to pay more to Qualcomm every time it tries to create a better product through innovation. This cost has to be passed onto the ultimate consumer of the device. For example, if a consumer buys an iPhone with 256GB of memory instead of 128GB, Apple currently has to pay a higher fee to Qualcomm. This is then passed onto the consumer.

Apple notes that in certain circumstances, they are paying up to 9 times more for Qualcomm’s technology on its most expensive models than a cheaper competitor’s model. What is argued is that the licensing agreement might have been relevant when the iPhone was merely a phone with a few extra features, however, as more technology is added to the device to improve its capabilities, the ‘phone’ element gradually loses its significance.

Qualcomm’s case

According to its court filing, Qualcomm argues that it “essentially acts as a research and development engine for the entire mobile industry.” The company states that it has invested billions of dollars in making the wireless network and phones more efficient. It believes that it should be paid beyond the cost of selling its chips through strict licensing payments.

Qualcomm has also returned fire by stating that Apple is dealing unfairly by telling its suppliers such as Foxconn to halt payments to the chipmaker, resulting in the company downgrading forecasts for future revenue guidance by $1b per quarter. We have learnt that Qualcomm is also suing Apple’s contract manufacturers simultaneously.

Currently, the company has more than 300 licences along with a patent portfolio exceeding 100,000. It argues that “any effort to revise patent exhaustion law to limit the freedom of contract among sophisticated parties may needlessly disrupt those relationships,” industry practices and the ability of innovators like Qualcomm to recover a reasonable return on their investments.

The arguments retorted by Qualcomm to Apple seem weak and almost a desperate attempt to fend off Apple.

Other opposition to Qualcomm’s practices

Earlier this year, the Federal Trade Commission brought a lawsuit (Federal Trade Commission v Qualcomm Inc., 17-cv-0020, U.S. District Court, Northern District of California) against Qualcomm accusing the chipmaker of illegally maintaining a monopoly for semiconductors in addition to charging elevated royalties. The effect of this challenges the ability of companies to have a fair chance of competing in the market.

In addition, South Korea fined Qualcomm in late 2016 over $850m for its monopolistic practices. The company is also currently a target by regulators in the European Union and Taiwan.

In April 2017, BlackBerry (NASDAQ:BBRY) was awarded $940m in an arbitration case against Qualcomm after it successfully argued that it was paying excessive royalties for the use of Qualcomm’s patents between 2010 and 2015. Unfortunately, we do not have a post-arbitration deal that includes a new price for the use of Qualcomm’s chips as BlackBerry stopped producing handsets in 2016.


The case for Apple in its fight against Qualcomm seems to have been picking up steam with its opponent having to fight several legal battles around the globe due to its monopolistic practices when selling and licensing semiconductor chips. The legal discourse on the matter to try and aid innovation and competition in the market seems to be strongly in Apple’s favour. Any future judgements in favour of Apple will benefit the company’s bottom line in years to come and may allow the company to maintain margins while bringing down the average selling prices of its handset devices or increasing profit margins.

On the other hand, the reasons to own Qualcomm are disappearing over the near future. The company is plagued by too much litigation involving significant amounts of capital while at the same time suffering declining revenues. Future guidance for the company will most likely have to be downgraded to take into account lower profit from the sale and licensing of its chips. The long-term future of the company’s success may also be dampened by customers looking for business elsewhere.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s