The Apple-Qualcomm legal battle finally has a verdict – a settlement between the two with Apple paying an amount in billions to Qualcomm. While it seems that Qualcomm here is the winner, the real scenario is much more complicated than that.
The dispute between Apple and Qualcomm revolved around modem chips that Qualcomm produces and mobile companies purchase to connect their devices with cellular networks. Qualcomm charges a handsome royalty fee from companies that use its modem chip, a practice that Apple looks down upon. Apple felt that Qualcomm was abusing its power and charging exorbitant royalties and Qualcomm felt that it should receive a part of the revenue Apple receives from selling iPhones that use its patents. As a result, both companies sued each other.
The Qualcomm-Apple settlement, that included an amount in billions, has spiked Qualcomm’s share price. Its share price rose than 20% the very day the company announced its settlement, and it continued to rise after that. Analysts from Morgan Stanley said that Qualcomm’s share price could further go as much as 15% higher. Terms of the settlement haven’t been revealed but it is speculated that Apple bought the license to its patent directly from Qualcomm at a price estimated to be between $8 and $9 dollars.
Experts had not anticipated the Apple-Qualcomm legal battle to take such a turn. They were not anticipating Apple to give in. However, the upcoming 5G network is assumed to be the reason behind this. Qualcomm is one of the few companies that create 5G modems. The legal battle could slow down Apple’s plan to roll out 5G iPhones. Considering Apple’s quest for innovation, the settlement is totally understandable. The Qualcomm-settlement puts Apple back on track in launching a 5G iPhone by 2020.
Apple isn’t the only company that objected to the way Qualcomm abuses its status. South Korea’s anti-trust agency which protects companies like Samsung and LG, sued Qualcomm for similar reasons in 2009. In 2015 too, Qualcomm had settled another anti-trust dispute in China. As a part of the deal, Qualcomm was required to lower the royalty fees it charged from handset makers like Xiaomi and Huawei.
For Qualcomm however, royalties form the major part of its revenue stream. Qualcomm’s chip division reported more than $17 billion in revenue and only $3 billion in operating income in 2018. Patents are protected under intellectual property rights and patent holders are required to reasonably price their licensing requirements. Apple’s main objection was that Qualcomm does not adhere to this. It also objected to the way Qualcomm decides on its sales price. Qualcomm, allegedly, decides its sales prices on the basis of the price of a device instead of its modem chip. Regardless of this, Apple had little choice. Intel announced the same day the Apple-Qualcomm legal battle was settled that it would be exiting the 5G modem market. This will make Qualcomm a leader in the 5G modem market. Other players include Samsung, Huawei, and MediaTek.