Qualcomm shows how important Apple's business is to the chip maker

Qualcomm shows how important Apple's business is to the chip maker
Last month, just as Apple and Qualcomm were into the opening statements of their billion-dollar trial in San Diego, surprising news was released. Behind the scenes, Apple and Qualcomm had been negotiating a settlement and both companies finally shook hands on a deal. Apple paid the chip maker an undisclosed amount of money (now believed to be $4.5-$4.7 billion based on Qualcomm's latest earnings report); in return, Apple received a 6-year licensing agreement (with a two-year option) and a multi-year chip supply deal.

It was no secret that Apple was getting desperate for a company to supply it with 5G modem chips for the iPhone. Apple wasn't totally convinced that Intel, whose 4G LTE modem chips are exclusively used on the 2018 iPhones, could deliver the 5G component in time. In fact, during the FTC v. Qualcomm non-jury trial in January, Apple supply chain executive Tony Blevins testified that the firm had spoken with Samsung and MediaTek about sourcing their 5G modem chips. And even though Intel said early last month that it would ship its chips starting in the second half of this year, Apple still felt compelled to shake hands with Qualcomm. Hours after the agreement was announced, Intel said that it was leaving the mobile 5G modem chip business.

According to one analyst, Apple will pay Qualcomm as much as $9 for each iPhone it sells with a 5G Qualcomm modem chip. The terms of the settlement obviously benefit Qualcomm greatly, and the company has decided to reward its executives including CEO Steve Mollenkopf. According to CNBC, the executive received a bonus consisting of 40,794 shares of Qualcomm stock. The shares are currently valued at over $3.5 million. Not that Mollenkopf was underpaid; last year he took home $20 million according to data from FactSet.

Qualcomm's shares have risen 50% in the three weeks following the announcement of the settlement

Other Qualcomm executives received bonuses too, thanks to the settlement with Apple. Company president Cristiano Amon scored $2.14 million in Qualcomm stock and Chief Technical Officer James Thompson was given $1.65 million in company shares. Other beneficiaries included General Counsel Donald Rosenberg and interim CFO David Wise. The pair received $1.22 million and $254,000, respectively. Wise pointed out that other Qualcomm employees will receive higher bonuses too, thanks to the settlement. Investors also have benefited from the deal with Apple (assuming that they weren't short the stock). The day before it was announced, Qualcomm's shares closed at $57.18. Yesterday, the stock closed at $85.84, which means that it has soared 50% over the last three weeks.

The bonuses and the stock surge are both an indication of how important Apple's business is for Qualcomm. Apple only used Qualcomm's modem chips on the iPhone from 2011-2015. As a result, Apple demanded and received a $1 billion incentive payment from the chip maker annually. But Apple CEO Tim Cook was upset that Qualcomm was receiving five times more in royalties than it was paying all of its other suppliers combined. Qualcomm's royalty payments were based on the retail price of the iPhone, and that didn't make Cook very happy either.

Apple ended up testifying against Qualcomm at a hearing held by the South Korea Fair Trade Commission. That angered Qualcomm, as did a statement from Apple that it would have to add a second modem chip supplier due to "Qualcomm’s exclusionary conduct." At the same time, Qualcomm learned that Apple was planning on using Intel modem chips on the iPhone 7 and it stopped sending Apple those $1 billion checks. In return, Apple told its contract manufacturers like Foxconn and Pegatron to stop paying royalties to Qualcomm (which those companies do on Apple's behalf). Apple sued Qualcomm in January 2017 leading to a number of suits filed by both companies against each other. All of those suits have been withdrawn by Apple and Qualcomm as part of the settlement.

Now that Apple and Qualcomm are on speaking terms, a 5G iPhone seems a sure bet for 2020.



1. LawnBoy

Posts: 154; Member since: Feb 23, 2019

Dude, you have no idea what you are talking about. Apple bowed to Qualcomm. Without Qualcomm, Apple would never see 5G anytime soon. Intel shut its modem program down and the only companies that have 5G is Samsung, Qualcomm and Huawei. Since Huawei can't be trusted and is banned, that would leave Apple years behind Sammy and QComm. Apple, like its customers, was f'd 10 ways from Sunday without a deal.

34. shm224

Posts: 276; Member since: Mar 19, 2015

couldn't agree more. IMO though I think Apple caved not because of the 5G, but because of the legal discovery and witness questionings that would have revealed Apple's scummy practices. Not only would it have Apple's lawyers in legal trouble, but also Tim Apple's reputation. Then Apple would also have to worry about class-action lawsuits from investors who were led to believe that Qualcomm was in the wrongs.

3. ijuanp03

Posts: 529; Member since: Dec 30, 2014

It should be "Apple shows how important Qualcomm's business is to the phone maker" unless you're iPhone Arena of course.

4. shieryar

Posts: 24; Member since: Jun 03, 2012

Well said

13. IT-Engineer

Posts: 526; Member since: Feb 26, 2015

As soon as I read the article I knew it was Alan who wrote it. lol

5. Alan01

Posts: 584; Member since: Mar 21, 2012

No one is saying that Apple wasn't desperate. The point is that the deal was considered so important for Qualcomm that it richly rewarded it's execs. And by the way, I do not even own an iPhone. I have a Pixel 2 XL which I'm very happy with. 99% of my smartphones have been Android. Regards, Alan

6. dumpster666

Posts: 60; Member since: Mar 07, 2019

what does that have to do with the fact that you're an apple shill?

7. Leo_MC

Posts: 6935; Member since: Dec 02, 2011

I have said that numerous times: Apple had nothing to be desperate about, because it had (and still has) 1.5y until a 5G phone starts to matter and in 1.5y Apple can built a brand new Qualcomm with the money it has and the brand that it created.

14. IT-Engineer

Posts: 526; Member since: Feb 26, 2015

If Intel, the company that has more experience in chips before apple became a company,. couldn't do it. You really believe apple could? Wow, how old r u kid?

20. Leo_MC

Posts: 6935; Member since: Dec 02, 2011

Apple had 0 history as a phonemaker and became a force in a few years. The same Apple is now on top of the watch market, is one of the top players on music market, has the best arm chips for mobile devices. It also failed a lot of projects, but the history shows that it's safer to bet on Apple's success than on its failures. PS: the market reacted by the same logic I use: it's Qualcomm that saw a boost in share price, not Apple, which means every smart investor knows that Apple would have been ok without qc modems.

28. ijuanp03

Posts: 529; Member since: Dec 30, 2014

" every smart investor knows that Apple would have been ok without qc modems".. and here is Apple, going to use QC modems because there is no other chip maker that can keep up with Apple's standards. Ironic isn't it?

30. Leo_MC

Posts: 6935; Member since: Dec 02, 2011

Do you have a problem, using a iPhone with a Intel chip (unless you're on USA and you have been trying to connect to Sprint or some Verizon - both CDMA2000 - antennas)? My carrier offers me 450 Mbps (I live in one of the EU countries that a Google's research found out that it provides the best load time for webpages), I have an average of 100 (indoors) - 200 Mbps (outdoors) and my Intel modems are capable to provide me with 600 Mbps (no carrier offers that in EU and I'm yet to travel to Korea to test higher speed networks); xs has a gigabit modem, which makes it future proof at least 3y from now.

23. rocwurst

Posts: 37; Member since: Jan 05, 2013

Intel has been a failure compared to Apple in smartphone CPU design. The history of Apple obliterating Intel, Qualcomm, Samsung, Nvidia etc in the smartphone SoC (System on a Chip) space is an object warning for Qualcomm when it comes to their current modem silicon monopoly. Over a decade ago Apple purchased fabless chip designers PA Semi and later Intrinsity and hired away key engineers from many of the top chip development houses in the world including Intel, IBM and ARM. Here’s what Steve Cheney has to say on the subject: “The truth is the best people in chip design no longer want to work at Intel or Qualcomm. They want to work at Apple. I have plenty of friends in the Valley who affirm this. Sure Apple products are cooler. But Apple has also surpassed Intel in performance. This is insane. A device company – which makes CPUs for internal use – surpassing Intel, the world’s largest chip maker which practically invented the CPU and has thousands of customers.” Apple's A-Series CPU line is a monster that has obliterated all comers in performance in the smartphone and tablet spaces going on for half a decade now. Apple did it again with their GPUs, dropping PowerVR a few years ago now and then releasing much higher performance in-house designed GPUs built into their iPhones and iPads. Make no mistake, Qualcomm's dominance in modems into the future is no sure thing.

32. oldskool50

Posts: 962; Member since: Mar 29, 2019

If Apple makes CPU and Modems in the future, who are they gonna sell them too? Intel has dedicated life to making desktop CPU's. Yes I am not surprised they aren't good at making another chip. But when you make the same one for years and you get good at it, then that is what you should stick with. and Apples chips are not more powerful that X86. It's just not. STOP IT!!!!

38. rocwurst

Posts: 37; Member since: Jan 05, 2013

oldskool, Apple makes their A-Series SoC CPUs and GPUs only for use by themselves in the quarter of a billion iPhones, iPads and other devices that the make each year. Why would they sell their Crown Jewels to anyone else? And yes, Apple's ARM-based chips are more powerful than x86 in terms of performance per watt which is what matters in mobile and tablet use cases. This is why Intel has failed utterly in the mobile space - despite decades of trying, they haven''t been able to make a chip with comparable performance to even Qualcomm's SnapDragons or Samsung's Xynos SoC's let alone Apple's A-series Soc.

35. shm224

Posts: 276; Member since: Mar 19, 2015

> Intel has been a failure compared to Apple in smartphone CPU design that's perhaps because the company's forte was never in mobile device computing. Aside from Intel's half-hearted attempt at mobile computing (thx to Otellini), Apple and Intel never went head to head make that kind of comparison. > The history of Apple obliterating Intel, Qualcomm, Not sure what your point is, Qualcomm had designed their own fully integrated AP, GPU, modem for years before Apple. how many years did it take Apple to bring out their own AP after the PA-Semi and Intrinsity acquisitions, still dependent on ImgTech for GPU and Qualcomm for modem?

40. rocwurst

Posts: 37; Member since: Jan 05, 2013

Incorrect. Intel spent a decade trying to develop a competitive smartphone, phablet and tablet CPU strategy with Atom, Menlow, Moorestown, Medfield, etc then fellback on modems and still failed utterly. In contrast Apple has just gone from strength to strength over the last decade from the A4 in 2010 through to today's monster Octa-core A12x Bionic with each generation obliterating the best Qualcomm and Samsung could manage with their SnapDragon and Xynos CPUs in performance year after year, not to mention beating both to 64bit by several years. And no, Apple is not still dependent on ImageTech's GPUs. You evidently haven't been paying attention. The last PowerVR GPU in an iPhone was back in the iPhone 7. It's been all internally developed silicon since then. As a result Imagination lost over 70 percent of its value and put itself up for sale back in 2017.

31. oldskool50

Posts: 962; Member since: Mar 29, 2019

Apple was not important to Qualcomm's business. Apple signed a contract. They were paying less money than they are going to now. Apple was ruining Qualcomm's business by how they went about it. They signed a contract. How can you sign and then say it was illegal? Apple has lawyers. Would their lawyers allow them to sign an illegal deal? THEY AGREED TO THE DEAL. Qualcomm just wanted Apple to pay, because Qualcomm provided what Apple paid for. When Apple stopped paying, Qualcomm stopped shipping. Which is what they are suppose to do. Apple was totally in the wrong, but somehow; Qualcomm really needed Apple? Yes, they really needed Apple to pay because Qualcomm was losing money because not only was Apple not paying, they instructed others not to pay too. Qualcomm was losing money. That is Apple's only value to Qualcomm. This whole issue was started, because Apple signed a deal and refused to pay. You're trying to make it something it isn't. STOP!!!!

33. Leo_MC

Posts: 6935; Member since: Dec 02, 2011

You have no idea how much money Apple is going to pay; maybe it's 7$, maybe 9 but maybe it's going to pay 3$ - nobody (except Apple and Qualcomm) knows for sure at this moment. Even if the price of the patents is 9$/phone, when you add 20$/chip, it's still cheaper than 7.5$+35$ (which is 5% out of used to be the asp of the iPhone - what QC used to charge Apple until 2018); when you add 15$/chip - if and when Apple is going to use another line(s) for building chips - maybe TSMC, maybe Toshiba, maybe SK hynix (all of which already working with Apple and which have... wait for it... common shareholders) or maybe its own production lines the totals are going to be pretty different. In a globalized economy nobody needs anybody and everybody needs everybody.

36. shm224

Posts: 276; Member since: Mar 19, 2015

Well, we know from Qualcomm's early warning on 2016 earnings that Apple's share of Qualcomm's licensing fee amounted to about $500M per quarter, so I wouldn't say it was insignificant, though it's somewhat laughable to say Qualcomm on the lifeline. I really wish that QCOM had dragged Apple into the full court trial so the whole world could see Apple's scummy legal and supply-chain practices that would have raised legal and ethical alarms. That's the only fitting response to all the global regulatory attacks orchestrated by Apple and the only way to prevent Apple from manufacturing evidence and tricking its suppliers into regulatory troubles. Watching Apple lawyers getting disbarred and Tim Apple pissing in his pants would have been fun, but oh well.

39. Leo_MC

Posts: 6935; Member since: Dec 02, 2011

BTW, 7.5$ were for 2-4G patents; the new deals covers 2-4G+5G ;).

41. rocwurst

Posts: 37; Member since: Jan 05, 2013

Incorrect, Qualcomm was being accused of abusive business practices by the Federal authorities of multiple nations around the world. Qualcomm was also double-dipping (charging license fees to component makers for individual components and then charging license fees to smartphone manufacturers like Apple again for the very same components but as a percentage of the entire phone's value). After Apple was asked by Korean regulators to testify against Qualcomm, Qualcomm refused to pay any more contract reimbursements and the litigation began.

8. darkkjedii

Posts: 30902; Member since: Feb 05, 2011

Apple knows who makes those good modems

10. japkoslav

Posts: 1465; Member since: Feb 19, 2017

Well that did not really work out last time, did it?

27. ijuanp03

Posts: 529; Member since: Dec 30, 2014

but then Apple tapped Qualcomm for its 5g phones. The irony.

37. shm224

Posts: 276; Member since: Mar 19, 2015

and fanbois are still in denial. LOL

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