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: 197; 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: 295; 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: 612; 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: 566; Member since: Feb 26, 2015

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

5. Alan01

Posts: 623; 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: 92; Member since: Mar 07, 2019

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

31. oldskool50 unregistered

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!!!!

36. shm224

Posts: 295; 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.

41. rocwurst

Posts: 38; 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: 31291; Member since: Feb 05, 2011

Apple knows who makes those good modems

10. japkoslav

Posts: 1517; Member since: Feb 19, 2017

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

27. ijuanp03

Posts: 612; Member since: Dec 30, 2014

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

37. shm224

Posts: 295; Member since: Mar 19, 2015

and fanbois are still in denial. LOL

* Some comments have been hidden, because they don't meet the discussions rules.

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