All of a sudden, things have turned ugly for the foremost producer of chipsets for Android smartphones. While Qualcomm’s Snapdragon chipsets are their most visible products, the company makes chips and modems enabling network connectivity, too, and it’s that part of their business under attack. Who’s leading the charge? Apple.
Qualcomm has supplied modems to Apple for the iPhone for years, although this year, it was revealed that some iPhones had Intel modems — a revelation that ignited a controversy about unequal connectivity speeds.
But, before Apple got involved, Qualcomm’s recent troubles were kicked off by the South Korean Fair Trade Commission. After a lengthy investigation, Qualcomm was hit with an $850 million antitrust fine. Then, on January 17, the United States Federal Trade Commission accused the company of anti-competitive practices. The FTC had three complaints — that Qualcomm was charging huge licensing fees in addition to selling their chips, that they refused to license standards-essential patents to competing chip makers (there’s a general agreement that technologies required to meet, say, 4G standards should be made available to all), and that Qualcomm gave Apple a discount on royalties in exchange for an exclusive deal from 2011 to 2016 (ending with the production of the iPhone 7). Following the announcement of the FTC investigation, Qualcomm issued a statement saying in part, “The portrayal of facts offered by the FTC as the basis for the agency’s case is significantly flawed. In particular, Qualcomm has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms. The FTC’s allegation to the contrary — the central thesis of the complaint — is wrong.”
On January 20, Apple got involved directly. In a California court, they filed a $1 billion suit against Qualcomm with some pretty staggering accusations — including the accusation that Qualcomm has refused to pay $1 billion owed to Apple because Apple cooperated with the South Korean investigation. That complaint comes along with similar accusations of anti-competitive practices listed in the South Korea and United States investigations. In another statement issued by Qualcomm, Don Rosenberg of the company’s legal department didn’t mince words, leading off with, “While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless.”
Apple came back for more this week, filing a separate suit in Beijing for about $145 million; this one reportedly over the issue of Qualcomm not making standards-essential patents available to competitors, another of the FTC complaints. Rosenberg stayed hot, saying, “These filings by Apple’s Chinese subsidiary are just part of Apple’s efforts to find ways to pay less for Qualcomm’s technology.”
Qualcomm CEO Steve Mollenkopf had a chat with investors this week, in which he spoke broadly about Apple’s lawsuits. Not only will Qualcomm fight those, they could file countersuits against Apple. But, let’s not forget, it’s all business — Qualcomm won’t stop supplying modems to Apple while all this is going on.
So, is Qualcomm the tyrant of the smartphone industry supply chain? Maybe, maybe not. Bloomberg makes a good argument that the suits are in response to declining iPhone sales and revenue — with Apple still heavily reliant on hardware sales, paying Qualcomm less would mean more money in their accounts per iPhone sold. It’s suggested that the aim is to reach a settlement with Qualcomm that would lead to lower royalty payments. Or, who knows? This could take about five years like the Samsung-Apple patents fight.
One thing’s for sure — with 5G rollout poised to shake up the mobile industry, Qualcomm’s dominant market position is by no means secure. An unfavorable settlement could open things up for potential mobile modem competitors — namely, Intel, Samsung, and Huawei.