Qualcomm financials under the gun if Apple postpones iPhone modem royalties

Posted:
in iPhone edited January 23
Apple chip supplier Qualcomm could take a major financial hit if the former decides to withhold royalties until its $1 billion lawsuit is finished, an analyst noted on Monday.




Assuming Apple is paying a standard royalty rate on the iPhone modem, Qualcomm's earnings per share for this year could fall 32.5 percent, J.P. Morgan's Rod Hall said in a memo obtained by AppleInsider. Apple would benefit in the short term, potentially improving its gross margins by 2 percentage points.

A Qualcomm loss could have further ramifications as well. Should it lose, the company's entire licensing model is in jeopardy, and the ruling may set off a chain reaction of lawsuits and re-negotiations with other companies using Qualcomm patents and chips in products.

Apple launched its lawsuit on Friday, leveling several complaints but foremost accusing Qualcomm of withholding rebates in retaliation for Apple cooperating with South Korean antitrust regulators. The Korean Fair Trade Commission recently leveled an $853 million fine against Qualcomm for its licensing practices, including forcing clients to accept licensing deals alongside chip orders.

Indeed Apple and the U.S. Federal Trade Commission have both accused Qualcomm of making lower royalty payments for Apple contingent on using Qualcomm as an exclusive chip supplier between 2011 and 2016.

Apple has further suggested that Qualcomm is charging "extortion-level" rates for standards-essential patents. In a public statement, Apple claimed that it's been paying Qualcomm "at least five times more in payments than all the other cellular patent licensors we have agreements with combined."

In a counter-offensive, Qualcomm called Apple's allegations "baseless," and moreover accused the iPhone maker of fostering "regulatory attacks" by "misrepresenting facts and withholding information" in its dealings with trade commissions.

The iPhone 7 is Apple's first model to use wireless modems from two suppliers, Qualcomm and Intel. The latter's chip, though, can only handle GSM-based networks, which could make it difficult or impossible to ditch Qualcomm entirely in the near future.

Comments

  • Reply 1 of 8
    I don't think Apple would benefit in the 'short term' in terms of margin.  They would probably continue to accrue the royalties even if they are withholding the related payment.  Once settled, they'd recognize any difference between the accrual and actual royalties.   Qualcomm might have to create a revenue reserve to the extent they believe they may not realize the full royalties prior to settlement.  
    edited January 23
  • Reply 2 of 8
    sog35sog35 Posts: 12,198member
    Qualcomm's 'business model' is pure extortion
  • Reply 3 of 8
    muadibemuadibe Posts: 114member
    Curious whether this will have any impact on their bid to buy NXP.
  • Reply 4 of 8
    muadibe said:
    Curious whether this will have any impact on their bid to buy NXP.
    It very likely will. The government regulators will put the proposed transaction under far greater scrutiny. 

    This also changes the Android landscape considerably. Small cellphone manufacturers could always buy Snapdragon CPUs and be assured that they are getting among the highest performance Android machines. 

    Qualcomm's SOC development is about to be crippled. 

    The large manufacturers like Samsung, Huawei and LG will produce their own high performance SOCs. The smaller firms won't be able to and forced to purchase lower performance CPUs from Mediatek or QCOM. 

    It will allow the large OEMs to move off of Android. Samsung has Tizen and LG has WebOS. And if they are willing to put Alexa on these platforms, Android will go into obsolescence. 
    patchythepirate
  • Reply 5 of 8
    Should've sold my QCOM last week. Ouch. 
    edited January 23 badmonk
  • Reply 6 of 8
    Should've sold my QCOM last week. Ouch. 
    Well you had to quit glue sniffing last week, it was just the wrong week to do that. 😝
    fastasleep
  • Reply 7 of 8
    badmonkbadmonk Posts: 557member
    Looks like Apple has QCOM by the short hairs on this one.
  • Reply 8 of 8
    gatorguygatorguy Posts: 15,817member
    muadibe said:
    Curious whether this will have any impact on their bid to buy NXP.
    It very likely will. The government regulators will put the proposed transaction under far greater scrutiny. 

    This also changes the Android landscape considerably. Small cellphone manufacturers could always buy Snapdragon CPUs and be assured that they are getting among the highest performance Android machines. 

    Qualcomm's SOC development is about to be crippled. 

    The large manufacturers like Samsung, Huawei and LG will produce their own high performance SOCs. The smaller firms won't be able to and forced to purchase lower performance CPUs from Mediatek or QCOM. 

    It will allow the large OEMs to move off of Android. Samsung has Tizen and LG has WebOS. And if they are willing to put Alexa on these platforms, Android will go into obsolescence. 
    I see you've really been trying to push the "Google/Android is doomed" story in a few different threads this past week. Google's services aren't being replaced by all the Android OEM's anytime soon, Google won't be blocked from Android ever, and Qualcomm will still be the primary supplier of smartphone modems for the foreseeable future. None of the doom and gloom things you are predicting are imminent IMO. Perhaps someday so you can still hold out hope. :)
    edited January 24
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