Feud Between Apple and Qualcomm Continues as Apple Stops Paying iPhone Royalties Completely [Updated]
About two weeks ago, Qualcomm reported that Apple suppliers were underpaying royalties in the second fiscal quarter of 2017, as a way for Apple to regain the unpaid royalties owed to the company by Qualcomm. At the time, Qualcomm wasn't sure whether or not Apple would continue to pay royalties at all, and today the manufacturer -- which provides LTE modems for iPhones -- has said that Apple will not pay its iPhone suppliers for royalties related to sales in Q1 2017.
Furthermore, Qualcomm stated that Apple has "indicated it will continue this behavior until its dispute with Qualcomm is resolved." The royalty cut-off hurts Qualcomm because the manufacturer's licensing deals are directly with iPhone suppliers.
The total loss of royalty revenue is estimated by Qualcomm to be about $500 million, which is expected to hit the company hard in terms of share prices and investors watching the dispute between the two companies. In its report adjusting the financial guidance for the third quarter of 2017, Qualcomm's previous estimate of $5.3 billion - $6.1 billion in revenue has been marked down to $4.8 billion - $5.6 billion, amid the ongoing suing and counter-suing actions taking place between Qualcomm and Apple.
In a statement, Qualcomm general counsel Don Rosenberg said that the company will continue to "vigorously" defend its business model as the legal dispute continues.
Qualcomm Incorporated today announced that it has been informed by Apple Inc. that Apple is withholding payments to its contract manufacturers for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the quarter ended March 31, 2017. Apple has indicated it will continue this behavior until its dispute with Qualcomm is resolved.
"Apple is improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees," said Don Rosenberg, executive vice president and general counsel of Qualcomm. "These license agreements remain valid and enforceable. While Apple has acknowledged that payment is owed for the use of Qualcomm's valuable intellectual property, it nevertheless continues to interfere with our contracts. Apple has now unilaterally declared the contract terms unacceptable; the same terms that have applied to iPhones and cellular-enabled iPads for a decade. Apple's continued interference with Qualcomm's agreements to which Apple is not a party is wrongful and the latest step in Apple's global attack on Qualcomm. We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry."
The legal dispute between the two companies follows a complaint filed by the Federal Trade Commission, stating that Qualcomm used anticompetitive tactics to remain on top of the LTE modem supply chain for smartphones. Another contributing factor to the bad blood between the companies centers around Apple's decision to start using modem chips from Intel in some of the iPhone 7 devices launched last year, instead of tapping Qualcomm exclusively like it usually does.
Apple claimed that Qualcomm was charging unfair royalties "for technologies they have nothing to do with," since the manufacturer provides only one part of the whole of the iPhone. "Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined," the Cupertino company stated in its lawsuit.
Update: In a statement to Axios, Apple confirmed that it will not make further royalty payments to Qualcomm until a court steps in to figure out how much is owed.
"We've been trying to reach a licensing agreement with Qualcomm for more than five years but they have refused to negotiate fair terms," Apple told Axios in a statement. "Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court. As we've said before, Qualcomm's demands are unreasonable and they have been charging higher rates based on our innovation, not their own."
Top Rated Comments
Jay-Z? You mean Tidal, which isn't specific to Apple at all. They just want money and ownership of the content, but their business model is holding them back because, frankly, no one feels bad that these Tidal owners only have $100M in the bank instead of $102M.
FBI - Apple refused to kowtow to government overreach and provide backdoors in everyone's security just because the FBI were inept in an investigation, and refused to be drafted as an arm of law enforcement.
EU, god only know what's going on there. They are attacking Apple for a deal with one of their member states that no one complained about for 20 years.
In other words, running a huge company is complicated, but with Apple, for some reason, these very routine disputed become public spectacles because these other companies always insist on making a scene about it.
BTW, I would doubt Qualcomm would stop selling the actual chips to Apple. That additional revenue loss, on top of the loss of royalties mentioned, would destroy their business.
The primary reason this was implemented this way, was so that higher profit phone makers could subsidize the super low profit phone makers. In other words, someone making $300 off a $650 phone can certainly afford more royalties than someone making $5 off a $50 phone.
This tiered method is what allowed the majority of the world to be able to buy a cheap cell phone, and thus caused the building of the worldwide cellular infrastructure that relative cellular newcomers like Apple have made billions in profit off of... without contributing any time or effort or money like others did.
As for Apple, they have even less reason to complain than others, since they claimed they're only resellers for iPhones made by Foxconn, and thus only paid a percentage (or had Foxconn do it) on the Foxconn cost per boxed unit (~$240) instead of the retail price like some other phone makers do.
You might have misunderstood what Apple said.
Qualcomm is not charging Apple five times more than they charge anyone else. In fact, as I've pointed out, Apple pays a lot less than they should because they claim that their "device price" is what they pay Foxconn for a boxed iPhone. (~$240) So Apple likely pays Qualcomm up to 3% of that, or $7 a device.
What Apple is saying is that Qualcomm's royalty rate is five times more than the rates from other companies that Apple has made a deal with. (Of course, with some companies, Apple can cross license a few minor items, but Qualcomm does not make phones and does not care about Apple UI patents.)
This is undoubtedly partly due to the fact that Qualcomm practically invented CDMA, which is used by everyone for 3G (yes, you too, GSM users):
Look at that chart. Let's see, 340/45 = over seven times as many 3G patents as the next highest member. Heck, charging ONLY five times what anyone else charges, now seems like a bargain. (Yes, there are also 4G patents, but give me a break, I'm making a point here :D) I.e. Apple's statement is clever PR that sounds really bad until you know more.