Steve Jobs agreed to Qualcomm's licensing fees in 2007 for original Apple iPhone

Steve Jobs agreed to Qualcomm's licensing fees in 2007 for original Apple iPhone
Steve Jobs, Apple's co-founder and CEO when he introduced the iPhone in January 2007, agreed to pay Qualcomm a $7.50 per phone licensing royalty fee in order to secure the modem chips he needed for Apple's smartphone. That information was disclosed during testimony heard today as the FTC v. Qualcomm non-jury trial continued. Back then, Apple was a new name in the industry and Jobs needed the chips  But what a difference 12 years makes. While on the stand today during the trial, Apple Chief Operating Officer Jeff Williams protested against Qualcomm's demand for this fee.

Even though Apple used Infineon modem chips from 2007-2010, it still had to pay Qualcomm royalties to cover patents used by Infineon (which was purchased by Intel in 2010). From 2011 to 2016, iPhone models contained Qualcomm modem chips only, and for the following year both Qualcomm and Intel supplied the chips to Apple. However, for the 2018 models, enough bad blood had passed between Qualcomm and Apple that the latter decided to source the modem chips from Intel only.

Speaking to Judge Lucy Koh, Williams stated that while $7.50 doesn't sound like much (the average iPhone costs $793), multiplied by the "hundreds of millions" of phones Apple sells each year, that would result in "a billion dollars a year." During its latest fiscal year, Qualcomm reported $5.16 billion in licensing revenue even though Apple was not paying Qualcomm during the 12 month period. The chip maker had its best licensing take in 2015 when it took in $7.9 billion in licensing fees.

The Apple executive was called as a witness by the FTC as the agency presents its case against Qualcomm, arguing that the company was a monopoly. At the core of the trial is Qualcomm's "no license, no chips" policy that requires manufacturers to pay for a license before purchasing chips from the firm. Qualcomm says that it needs to collect the licensing fees in order to fund the research and development needed to keep improving the technology available for the mobile industry.

The trial is expected to last ten days and if the FTC prevails, it could change the way that Qualcomm does business. Consumers could actually benefit from lower smartphone prices should the chip maker be forced to change the way it sells chips to phone manufacturers.

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19 Comments

1. lyndon420

Posts: 6737; Member since: Jul 11, 2012

"Consumers could actually benefit from lower smartphone prices should the chip maker be forced to stop demanding licensing fees before selling chips to phone manufacturers". Yeah...because a phone that's $7.50 cheaper will make such a huge difference in sales. /s Seriously though...apple could do a lot with that extra billion dollars - maybe put it towards development of their map app, or into their quality control department?

6. Subie

Posts: 2354; Member since: Aug 01, 2015

Yup, that last line in the article was comedy gold. IMO the only place those savings will go is toward each oem's bottom line.

2. cncrim

Posts: 1586; Member since: Aug 15, 2011

Apple eventually need to pay up and as far as how much is fair price I dont know, interesting to see the results.

4. bambamboogy02

Posts: 837; Member since: Jun 23, 2012

Apple needs to pay what they agreed to pay. Why is this so difficult. If they were okay paying the same price on a lower priced handset, why are they having issues now on a more expensive handset? Technically the price of the fee is now a lower percentage of the price they sell the device at. Apple makes more per handset now then it ever has. I don't see the issue. So apple was okay paying the fee, if it didn't sum up to be over a billion dollars? So apple is having a hissy fit since it sold a s**t ton of phones and now has to pay a fee per device they agreed to.

7. worldpeace

Posts: 3127; Member since: Apr 15, 2016

They agree, sign, and already use it they should pay what they agree on. Imagine you rent a nice apartment and refuse to pay for years because you think it's overpriced, that doesn't make sense, right?

3. L0n3n1nja

Posts: 1549; Member since: Jul 12, 2016

Funny how this whole mess is about less than 1% of the price of a phone.

8. worldpeace

Posts: 3127; Member since: Apr 15, 2016

It's billion dollar problem since they sell lots of phones each year. But they make hundred of billion from selling phones, so it's still funny they refuse to pay for it.

13. dimas

Posts: 3343; Member since: Jul 22, 2014

And the $7.50 royalty fee is for 2007. Qualcomm is actually being nice by not increasing the price after 12 years.

5. OneLove123

Posts: 969; Member since: Aug 28, 2018

You signed the contract. Guess what, Apple? You have to pay$$$$$.

14. dimas

Posts: 3343; Member since: Jul 22, 2014

"Pay that dirt cheap $7.50 for a high-quality mobile modem? No way, I am apple! Suppliers don't make profit out of me, I undercut them!" And according to estimates, it only cost $443 for the iphone xs max to produce.

9. monkeyb

Posts: 409; Member since: Jan 17, 2018

“Consumers could actually benefit from lower smartphone prices should the chip maker be forced to stop demanding licensing fees before selling chips to phone manufacturers". Why is everyone in the comment section thinking that “Consumers” mean only Apple customers. Android OEMs can start giving out competitive price options if QC changes its model. People who will never but iPhones should understand that this case is not primarily Apple but the FTC vs QC. You want QC to win and want OEMs to charge you more. You guys are nuts.

10. mootu

Posts: 1500; Member since: Mar 16, 2017

You really don't get what people are saying do you? What they are saying is that non of the oem's will pass on the savings to the end customer. For example if a modem costs $7,50 and the court rules that QC can only charge $5 do you think all OEM's will pass on a $2.50 saving in the retail price of their phones? If you think this then you are living in la la land. Apple is notorious for squeezing it's suppliers for lower costs while maintaining quality, do they EVER pass on those savings to customers? Nope all they do is increase prices yearly.

15. ssallen

Posts: 174; Member since: Oct 06, 2017

You are a victim of Apple's social engineering efforts. QC isn't demanding more money. They are demanding the same money Apple agreed to 12 years ago. Apple is the Walmart of the tech world. They tried the same move on Qualcomm and QC didn't relent. Now Apple has created the narrative that Qualcomm is a monopolist and are exploiting everyone. This narrative was created by the Apple marketing department and gets regurgitated solely by their ad dollars and frothing fanboys.

16. shm224

Posts: 283; Member since: Mar 19, 2015

That's because there is already invigorated markets and competititve option in the Android world. Qualcomm's pioneering invention in the underlying tech is what drives the market. We don't have to kill the goose that lays golden eggs for tiny nominal gain for greedy handset makers like Apple. Now, let's turn the table and ask yourself, how are Apple customers going to benefit from reduction in royalties collected by Qualcomm? Apple is able to charge $200-$300 more for merely adding wireless functionality that costs $7.50 to the iPod Touch. Do you seriously think eliminating that would benefit customers with better services or affordable product? I'm inclined to believe that Apple is going to laugh their way to the bank instead.

17. monkeyb

Posts: 409; Member since: Jan 17, 2018

Okay all 3 of you. Just see what you are typing. You start somewhere and immediately go towards Apple. I don't care about Apple. There are 2 components that OEM's license/buy, one is the processor and the other one is the modem. You keep saying $7.50 as if that is a standard rate. $7.50 was the price given to Apple long time back. The other OEM's "might" be paying way more. And if QC is charging OEM's a percentage of their price rather than a flat fee. OEM's are less likely to give us good/better processors in mid range phones. There are so many tech reporters who feel that Consumers can benefit from this. And you say that I am getting it wrong and dreaming. And stop making this about Apple. I don't give a flying f*ck about them. I buy all my phones on Craigslist. So Apple's pricing never applied to me anyways.

18. shm224

Posts: 283; Member since: Mar 19, 2015

a few points: Re: $7.50. Qualcomm's rate is a percentage of a end-user device, the cost often born by the last manufacturer in the manufacturing chain. Apple's cost to use Qualcomm's vast wireless patent portfolio in this case amounts to less than 1% of their retail price. And that enables small, low-cost OEMs to sell affordable devices using Qualomm's latest tech at low price. Android's ASP is much lower than that of Apple and their licensing fee is likewise much lower. Even Samsung whose premium devices compete with Apple neck and neck probably pays less considering their sales volume and duration of their licensing with Qualcomm. re: OEm's giving inferior processor: the prices of SOCs and baseband processors are fixed and not a percentage. Further, let's not forget, Apple is among the very few who don't use integrated modem and still requires separate baseband chips. Pretty much everyone in Android develops their own (eg, Samsung, Huawei) or uses third party SOC (eg, MediaTek) that are quite competitive and capable. Now, unless you are among those who believe Apple's A series are the best and everything else is sh*t b/c it scores higher in Geekbench, this argument doesn't seem to make much sense. re: pro-Apple publications think Apple's ideas are great: let's all jump off a cliff if all pro-Apple reporters jump off. re: I'm so neutral: as Chris Rock once said before, if you have to go around tell everyone that you have a big dck, the chances are you don't. All in all, I would much rather support a licensing model that allows a reasonable low affordable products to be made and sold and puts money in a company that constantly pushes technical innovation that the whole world can benefit. For some, Apple's design/marketing innovation and billions of profit stashed away in oversea tax-heaven may be appealing, but for me, nah.

12. dimas

Posts: 3343; Member since: Jul 22, 2014

Apple patented rounded corners and made samsung et. al to pay if they use the shape but apple don't want to pay royalty fees to qualcomm for the technology that they continuously develop. Monopoly my arse, apple. Paying license or not, mediatek or exynos, you're still going to sell iphones at $1000.

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