Analyst sees Apple paying as much as $9 per iPhone for Qualcomm's 5G modem chips

Analyst sees Apple paying as much as $9 per iPhone for Qualcomm's 5G modem chips
A couple of days ago, Apple and Qualcomm reached a settlement that covered all legal action between the two companies. As part of that deal, Apple agreed to pay an undisclosed sum to Qualcomm and entered into a six-year licensing agreement with the chip maker (with an additional two-year option). Qualcomm also agreed to a multiple-year deal to sell modem chips to Apple. Considering that Apple was upset that Qualcomm based the royalties it received on the entire price of an iPhone instead of asking for a percentage of its $20 chip, there were quite a few people curious about the deal made between both tech giants.

According to Seeking Alpha, Swiss banking firm UBS sent out a note to clients today with its take on the deal between Apple and Qualcomm. Analyst Timothy Arcuri said in the note that he estimates that Apple will pay Qualcomm $8 to $9 per iPhone sold in royalties. Keep in mind that this is an analyst's estimate and is not based on any information from Apple or Qualcomm. In fact, both firms are being tight-lipped about the settlement; when we reached out to both companies, Qualcomm told us to refer to its press release, which said nothing about the value of the deal.

We can only assume that Apple was in a bind. Many Android manufacturers are going to be releasing 5G phones this year, and Apple was counting on Intel to deliver its 5G modem chip in time for Apple to launch a 5G iPhone by 2020. But UBS' Arcuri said earlier this month that Apple might have to wait until 2021 to release a 5G iPhone because Intel was far behind in developing its 5G modem chip. Apple knew that pre-settlement it couldn't count on Qualcomm, and it apparently was unable to score the chips from Samsung or MediaTek. Intel recently said that it would be shipping its component later this year, but the fact that it immediately shut down its 5G modem chip operations in the aftermath of the Apple-Qualcomm settlement makes us wonder about that.

Apple was apparently very desperate and Qualcomm pounced on this

Even Huawei got into the act by offering to sell Apple the 5G modem chips it designed for its own phones. That probably was just an empty gesture since any technology stamped with the Huawei name is considered a threat to U.S. national security. But Apple was desperate. There wasn't enough time for it to design its own chips and it didn't want to give 5G Android handsets another year without competition.

On Monday, jury selection was completed in a San Diego courtroom for the Apple v. Qualcomm case. Apple charged Qualcomm with failing to continue paying it the $1 billion incentive payment Apple had asked for and was receiving. Qualcomm stopped paying Apple after the iPhone manufacturer spoke out against the chip maker in a hearing held by the South Korea Fair Trade Commission. In addition, Qualcomm had been hearing rumors that Apple was using Intel modem chips on some versions of the iPhone 7. Once Apple stopped receiving its money from Qualcomm, it directed its contract manufacturers like Foxconn, Wistron, Pegatron and Compal to stop making royalty payments to Qualcomm.

When opening statements began on Tuesday, Apple wanted to point out how wrong it was for Qualcomm to base its royalty payments on the entire retail price of a phone. By doing so, Apple argued that the company was getting royalty payments based on technology that Qualcomm did not design. So Apple's attorney, Ruffin Cordell from Fish & Richardson, noted that the iPhone can function without Qualcomm's modem chips with the use of a Wi-Fi connection. But minutes after Mr. Cordell addressed the court, the settlement was announced. And Apple apparently needed Qualcomm's 5G modem chips so badly that it reportedly agreed on paying Qualcomm an even higher price than the $7.50 per unit it complained about previously.




Posts: 2817; Member since: Oct 03, 2012

Hypocritical Fruit Company!

7. IT-Engineer

Posts: 566; Member since: Feb 26, 2015

Well there are 2 reasons they went back to Qualcomm and wanted to settle. 1. They knew it'sa lost cause 2. Intel could not deliver 5G.

13. darkkjedii

Posts: 31332; Member since: Feb 05, 2011

Yes sirrr. I'm so glad Apple caved, and crawled back to Qualcomm. this is the first step, in getting a worthwhile iPhone back. Now just some real actually true multitasking, and we're good to go.

19. iloveapps

Posts: 867; Member since: Mar 21, 2019

Good thing and your done with intel sucks modem chips. But for your multitasking, it’s almost 0% chance in iphones since it will cannibalizes iPads.

23. cmdacos

Posts: 4270; Member since: Nov 01, 2016

What is this word soup?

24. Vancetastic

Posts: 1614; Member since: May 17, 2017

Drugs are bad, mkay?

2. Dr.Phil

Posts: 2454; Member since: Feb 14, 2011

Two things I would caution: 1. Apple is still designing their own modem chipset. 2. There is still an FTC lawsuit against Qualcomm. So this may seem like the end of a battle but the war is still out there. It could be that Apple just gave up or it could also be that Apple is just saying ok for now until they have their own chipset ready to replace Qualcomm. Or it could also be that Qualcomm offered other patents that Apple needs for future iPhones.

3. Alan01

Posts: 628; Member since: Mar 21, 2012

I've mentioned the FTC case a number of times. That will determine Qualcomm's sales practices in the future. But a couple of things to note. Apple and Qualcomm's chipset supply deal covers "multiple-years" which I would guess ties into the 6-year (w/ 2 year option) licensing pact. So I don't think Apple will be placing a priority on designing its own modem chip for now. Also, depending on how Judge Koh rules, pre-existing contracts might continue to be binding. It's a sign of Apple's desperation that it couldn't wait for FTC ruling. But who the heck knows when Koh will have her decision. Alan

6. oldskool50 unregistered

I agree with you on this 100%.

8. Dr.Phil

Posts: 2454; Member since: Feb 14, 2011

No I think you interpreted it wrongly. Apple is indeed putting an emphasis on building its own modem. It’s the fact that it takes a lot of engineering know how to produce it is why it’s going to take 5+ years in order to build it. Take a look at the report from Bloomberg, Alan. They emphasize that Apple is still very much hard at work on producing its own modems, it just takes a lot of time and energy to do it. That’s why Intel kept pushing back it’s goal of 5G because even they couldn’t get it done in a short amount of time.

9. Dr.Phil

Posts: 2454; Member since: Feb 14, 2011 Here’s the report. If you read it you will see they are very much dedicated to building their own modems with multiple teams working on it.

5. oldskool50 unregistered

So Appl is now gonna be paying MORE money than before. So this could mean a couple things. Because Apple is now selling less hardware and they signed a new deal, the price of the hardware is more expensive, because of possibly a smaller order, or QC gave Apple a break and say, the money you own us, which was close to $10B, give us $7B now, and we will just charges you $2 extra for every phone sold to make up the difference. Or QC could be sticking it to Apple, because Apple tried to play the victim, when they were actually the aggressor. Either way Apple lost and all the crybabies like I saw in the other articles claiming Apple had all the leverage? well if Apple had so much leverage, why would they agree to ppay MORE money for the same hardware. When they were actually on a contract where they were paying less money? That doesn't sound like Apple came it on top. It looks like Apple was caught in between a rock and a hard place and when they could get a modem from anyone else, especially after Samsung said no, Appel had zero choice but to cave. Especially now while Chinese is taking sales from Apple left an right. And after Apple's Q1 showing that sales were as much as 20% less than last year, Apple can't look to far behind the curve anymore. And while Alan tried to claim Apple could get modems from Huawei. How? Huawei doesn't have that kind of fabrication capability to make the amount of hardware Apple would need. Apple made yet another bad move and now its gonna cost them more. Any fan claimign Apple cmae out on top? The fact is, Apple settling with QC save them money, because QC had them by the gonads with their claim Apple gave QC modems details to Intel. Apple saves themselves the $10B they woe QC, plus all the ligation fees, court fees and more. trust me Apple was gonna lose and there is nothign Koh could have done to change that. Especially when the FTC did find Apple did infringe on QC patents, and yet the FTC refused to ban Apple products. But if this had been the other way around, QC would have been banned. US company or not. Apple keeps getting free passes. It's time for that to end.

15. Alan01

Posts: 628; Member since: Mar 21, 2012

Actually, I never said that Apple would be able to buy modem chips from Huawei. Huawei did offer the chips to Apple and I pointed out that the government would never allow that to happen. By the way, Huawei uses TSMC to manufacture its chips, so there certainly could have been enough capacity. But the U.S. would never have gone for it, and it was an empty gesture. Alan

21. mootu

Posts: 1530; Member since: Mar 16, 2017

It was never even an empty gesture. It was just an internet rumour started by an "anonymous" tipster. Huawei has stated all along that it's policy of keeping it's tech "in house" has not changed and that they never had any dialouge with Apple. It would be like Apple offering the use of it's A13 to Samsung, it's just not going to happen.

10. cmdacos

Posts: 4270; Member since: Nov 01, 2016

A small price to pay to steal QCs IP to make their own chips.

11. jjface

Posts: 251; Member since: Jun 07, 2017

Oh well looks like the next iphone will have to be $2000

12. darkkjedii

Posts: 31332; Member since: Feb 05, 2011

Skipping the 2019 crappy modem iPhone, and getting a Qualcomm 2020. Note 10 only this year.

18. TadTrickle

Posts: 81; Member since: Apr 08, 2019

Will the price of the note change your mind, or you're getting it even if it's $1500

26. darkkjedii

Posts: 31332; Member since: Feb 05, 2011

Sorry for the late response, I’m vacationing in San Diego CA. If I feel it’s worth the price, and it does more than I need and want, has the battery life, and looks, I’ll get it. With the Note 10, I’m moving to a phone every two years, so the money matters a little less, as long as I feel it’s a two year device.

16. Mrmark

Posts: 401; Member since: Jan 26, 2013

And Intel's 5G chips will only provide 4G speeds once they do deliver ./\__"÷"__/`

17. TadTrickle

Posts: 81; Member since: Apr 08, 2019

So that means apple will raise prices by $100 minimum

25. superguy

Posts: 465; Member since: Jul 15, 2011

Every generation seems to have a price hike, so building the additional licensing cost into that certainly makes sense. It's not like Apple is going to "pay" for this. They'll just pass the costs onto the consumer.

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