Qualcomm adopts cheaper licensing for 5G tech, hoping to appeal to Apple & others

AppleInsider

Seeking to appease customers like Apple and Huawei -- and government regulators as well -- chipmaker Qualcomm has switched to a more affordable patent licensing model, particularly for makers of high-end and/or 5G-capable phones.

Previously Qualcomm customers had to pick from two licensing bundles for phones: a robust one costing 5 percent of a phone's price, and a smaller one consisting of just standards-essential cellular patents for 3.25 percent. Most customers chose to license both in order to avoid lawsuits, Reuters said on Tuesday.

Under the new scheme, Qualcomm has made it more practical to adopt just the cheaper bundle, which now also includes patents for 5G. All fees will only apply to the first $400 of a phone's net selling price -- in the past, that ceiling was $500.

Alex Rogers, the head of Qualcomm licensing, specifically cited the changes as coming in the context of legal problems with Apple and regulators. Apple and Qualcomm have become embroiled in an international legal war since the former launched a $1 billion lawsuit in January 2017. Regulators have meanwhile scrutinized Qualcomm's past deals -- in January 2018 for example, the European Union leveled a $1.23 billion fine over a five-year chip exclusivity deal with Apple.

Qualcomm is under intense pressure to change as it copes with the financial blowback from lawsuits, lost income, and government fines. Recently the company confirmed mass layoffs, rumored to include about 1,500 people in California.

If Apple and Qualcomm don't reach a settlement, the latter could be completely cut out of the iPhone supply chain. Its share of iPhone cellular chips could shrink to 30 percent this year, and even if it doesn't Apple has been rumored as laying the groundwork for going Intel-only.

GG1

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

muthuk_vanalingam

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

I think you missed to read the line "All fees will only apply to the first $400 of a phone's net selling price -- in the past, that ceiling was $500". With that, earlier cost was $25 per phone, now it is $20 per phone.

Anachr0n

Not quite. Prior: $1,000 phone, but $500 cap so 5% of $500 = $25. 

My concern is the double dipping. Are TSMC and Apple still both paying royalties for the same chip. 

gatorguy

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

Incorrect. The previous cap price was $500, now reduced to $400. The cheaper SEP package is also 3.25% rather than 5%.

radarthekat

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product.  If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for,   The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models?  It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

ClarityToSee

This is a typical corporate profits model where the fees are RELATIVELY plausible at first and once Qualcomm elbows out the competition that’s when the prices start going up like in a typical monopoly market. Like Qualcomm did with 3G and 4G licensing.  Companies and people have to resist the temptation of short term gains resulting in long term pains. Good luck with that!

mattinoz

gatorguy said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

Incorrect. The previous cap price was $500, now reduced to $400. The cheaper SEP package is also 3.25% rather than 5%.

So Apple will be saving at least $5 and up to $12 per device if they are on the 3.25%. That is massive. 

GG1

Thanks to all for clarification.

radarthekat said:

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

Exactly. The business practice continues as before with only adjusted fees. Time will tell if Apple accept it (my guess is they won't accept it).

nunzy

How can Qualcomm charge so much for a standards-essential patent? They do nothing but rip off the entire industry. If not for them, manufacturers could make larger profits while not charging any more for their products.

maestro64

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

you forgot one part, the contract manufacturers who actually make the phone with the QCOM chip also paid a similar licensing fee for the mere privilege op putting the QCOM chip into a phone.

gatorguy

radarthekat said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product. 

I don't think Apple has any issue with that at all, depending of course on who it is doing the licensing. Apple themselves initially based their MFi royalties on the price of the finished product, $10 or 10% of the selling price, whichever was greater. When they eventually changed it it wasn't because they didn't think it was "fair" to base royalties on a selling price. It was because those high royalties were holding back the MFi program uptake. 

maestro64

radarthekat said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product.  If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for,   The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models?  It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

I agree with this assessment, it also strengthens QCOM case that it was all about money and not that their model was illegal which is part of Apple argument. Apple and other have said for a long time that IP owner should not be paid based on the value add a company puts into a product just because they using the IP. The IP holder like QCOM has attempted to argue they companies like Apple could not sell a high end phone without their IP, so it is their IP which bring the value to the phone.

I would think Apple is smart enough to agree to this new deal, as we seen they do not jump on the latest and greatest Tech. They have nothing to loose waiting for someone else's 5G IP it will be years before 5G is readily available to everyone.

gatorguy

nunzy said:

How can Qualcomm charge so much for a standards-essential patent? They do nothing but rip off the entire industry. If not for them, manufacturers could make larger profits while not charging any more for their products.

If not for them there wouldn't have been an iPhone at least as we currently know it. Quid pro quo...

sflocal

Screw you Qualcomm.  I’m buying your chip as a commodity, nothing more.  What I choose to do with it is none of your business.

im really surprised companies get into such a business relationship with QC on such terms.  QC must have really been the only chip provider at the time In order for customers to sign a deal with the devil.

i can’t ever see Apple doing business with them again.  QC burned it’s own bridge.

gatorguy

maestro64 said:

radarthekat said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product.  If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for,   The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models?  It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

I agree with this assessment, it also strengthens QCOM case that it was all about money and not that their model was illegal which is part of Apple argument. Apple and other have said for a long time that IP owner should not be paid based on the value add a company puts into a product just because they using the IP. 

If that's what they were saying it was disingenuous. I don't think the device cost as royalty basis was the principle objection Apple had to Qualcomm's licensing model but could be mistaken. 

gregg thurman

muthuk_vanalingam said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

I think you missed to read the line "All fees will only apply to the first $400 of a phone's net selling price -- in the past, that ceiling was $500". With that, earlier cost was $25 per phone, now it is $20 per phone.

Qualcomm had two licensing tiers. The first was 5% on selling price up to $500. The second (basic features) was 3.25% on product’s selling price up to $500. 

The new plan is 3.25% of the product’s selling price up to $400.   That’s a license cost reduction of nearly 50%, or $2.6 Billion in Apple’s case. Still, under the new price schedule, because the license cost is based on the product’s selling price Apple will pay about twice as much for Qualcomm license as does the average Android device manufacturer. 

foggyhill

maestro64 said:

radarthekat said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product.  If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for,   The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models?  It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

I agree with this assessment, it also strengthens QCOM case that it was all about money and not that their model was illegal which is part of Apple argument. Apple and other have said for a long time that IP owner should not be paid based on the value add a company puts into a product just because they using the IP. The IP holder like QCOM has attempted to argue they companies like Apple could not sell a high end phone without their IP, so it is their IP which bring the value to the phone.

I would think Apple is smart enough to agree to this new deal, as we seen they do not jump on the latest and greatest Tech. They have nothing to loose waiting for someone else's 5G IP it will be years before 5G is readily available to everyone.

They won't agree, Apple is in a position to win this in court. And likely, they'll get help from Samsung and others to.

You also forgot the double dipping btw... Charging from both sides.

davidw

AppleInsider said

Previously Qualcomm customers had to pick from two licensing bundles for phones: a robust one costing 5 percent of a phone's price, and a smaller one consisting of just standards-essential cellular patents for 3.25 percent. Most customers chose to license both in order to avoid lawsuits, Reuters said on Tuesday.

Under the new scheme, Qualcomm has made it more practical to adopt just the cheaper bundle, which now also includes patents for 5G. All fees will only apply to the first $400 of a phone's net selling price -- in the past, that ceiling was $500.

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

Even though many here have already stated that your math is incorrect, I think you are absolutely correct, but only if Apple can get away with licensing the smaller bundle. What everyone is assuming is that Apple was licensing the smaller bundle for the iPhone. It's reasonable to assume that Apple was licensing the "robust" chip bundle for the iPhone and thus was paying 5% of the iPhone retail cost to Qualcomm.

And there might be no saving for Apple with Qualcomm new cheaper licensing plans as that only reduces the cost for companies using the smaller bundle. But it is stated that Qualcomm made the smaller bundle more attractive so companies that once had to license the "robust" bundle might now be able to get away with licensing the much cheaper smaller bundle. So the savings would be massive for Apple, only if Apple can get away with only licensing the new smaller bundle plan.

davidw

gatorguy said:

maestro64 said:

radarthekat said:

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher.  For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product.  If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for,   The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models?  It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse.  If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over.  No doubt that’s part of their strategy here.  

I agree with this assessment, it also strengthens QCOM case that it was all about money and not that their model was illegal which is part of Apple argument. Apple and other have said for a long time that IP owner should not be paid based on the value add a company puts into a product just because they using the IP. 

If that's what they were saying it was disingenuous. I don't think the device cost as royalty basis was the principle objection Apple had to Qualcomm's licensing model but could be mistaken. 

Wasn't it Tim Cook that used the sofa analogy as to why should a sofa company get paid more for the same sofa, just because it's going into a $1M home vs a $200,000 home. It's the same sofa. Isn't that a direct stabbed at Qualcomm royalty licensing practice?

ksec

Sigh....

The patents cost for Apple devices are not based on their MSRP, but the price Foxconn and other party resold back to Apple.