There is a lot of needless investor panic about the Chinese iPhone 'ban'

Posted:
in AAPL Investors edited December 2018
News broke on Monday about a ban on iPhone imports and sales in China -- and as you'd expect, a chorus of analysts freaked out about it immediately. Here's why they're wrong, and that the ruling isn't anything more than a negotiating tool by Qualcomm.

iPhone 8 (left) and iPhone X (right)
iPhone 8 (left) and iPhone X (right)

How it started

On early Monday, Qualcomm trumpeted that on November 30, it won a preliminary order in the Fuzhou Intermediate People's Court, banning the import and sale of iPhones with older versions of iOS installed out-of-the-box. The victory was had over software patents that Apple was found by the court to have violated in iOS 11, with the order banning the iPhone 6S through the iPhone X from sale in the country.

"Apple continues to benefit from our intellectual property while refusing to compensate us," general counsel of Qualcomm Don Rosenberg, said in a statement about the matter.

Apple's point of view differed somewhat.

"Qualcomm's effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world," Apple said in a statement. "All iPhone models remain available for our customers in China. We will pursue all our legal options through the courts."

Cue panic, with the vast majority of freak-outs completely ignoring the fact that Apple isn't shipping phones with iOS 11, and that the iPhone XR, iPhone XS, and iPhone XS Max weren't banned in any way.

Evolution of the tale

Jim Cramer from CNBC interrupted the day's TV programming on the network at about 1:00 P.M. eastern time, with comments from Apple. In short, Cramer said on the air what AppleInsider said at the time of publication, that the ban was limited to iOS 11, and wouldn't have any material impact to speak of on Apple.

For a short time, Apple stock was in the green in a challenging market. However, a fresh round on analyst input on the matter emerged overnight, seemingly unaware that the "ban" wasn't really one at all, and just an arrow in Qualcomm's quiver to use against Apple in the ongoing legal skirmishes around the world.

AppleInsider has confirmed with sources inside Apple not authorized to speak on behalf of the company that the legal department believes that iOS 12 is the solution to any conceivable patent violation, wasn't present at the ruling at all as it was performed ex parte, has requested the Fuzhou court to reconsider the decision, and has filed a formal appeal to clear the decks of the threat which will allow it to "wipe the precedent from the annals of history."

Qualcomm does not interpret it the same way that Apple does. But, the company complained about iOS 11 with the court, and not iOS 12 in much the same way that it complained about the iPhone 6S through iPhone X. So far, Qualcomm has not responded to AppleInsider's questions for clarifications on the matter.

Chinese courts will ultimately decide the true way. But, regardless of how Qualcomm wants to interpret the ban, the iPhone XR, iPhone XS, and iPhone XS Max aren't listed as banned products.

Analyst reactions

Beyond just the normal "Apple is doomed" prognostications across the internet as a result of the ban, investors and analysts had things to say about it as well. In a note seen by AppleInsider Samik Chatterjee from J.P. Morgan seems to be unaware of the conditions of the ban.
While the injunction in China could drive as much as a ~$0.50 cent headwind to our EPS forecast if continued for a full year, we believe the most likely outcome of the ruling and pending litigations are to drive a faster than earlier expected settlement between Apple and Qualcomm relative to ongoing litigation centered around compensation for Qualcomm's IP portfolio.
There are more like this, but this is the most egregious, because there most likely won't be any notable "headwind" from the ban. Apple seemingly doesn't need to stop selling the iPhones in question, given that they don't ship with iOS 11 anymore, regardless what Qualcomm wants to believe.

Even before Chatterjee had his say, Aaron Rakers from Wells Fargo was a bit more tempered on Monday, with a better handle on the situation.
While we think that Apple could continue to face headline risk in its battle with Qualcomm, it appears that Apple will be largely unaffected by this ruling and we think it is important to consider... It appears on Apple website that all iPhones sold through the Apple Store come with iOS 12 pre-loaded. While uncertainty remains around the news this morning, we think that Apple will be largely unaffected by the ruling.
Rakers also pointed out that the Fuzhou court was the same courtroom that banned some Micron chips in 2018 -- which was ultimately overturned.

Cramer himself chimed in after his live discussion about the panic.

"[Apple stock] turned on a dime, rallying $4 bucks from its lows while the show was on. Now, I've scoured the wires -- nothing else happened during that period," Cramer said. "I think it's a sign, a sign that jittery, insecure, under-confident traders will take their cue from anything."

Qualcomm stunt

If you're just coming by AppleInsider to read about this, this matter isn't even close to Apple and Qualcomm's first legal skirmish lately.

In a nutshell, Apple first filed a $1 billion lawsuit against Qualcomm in January 2017, arguing that the latter was withholding money as retaliation for cooperation with antitrust investigations. The battle quickly escalated, resulting in suits and countersuits around the world. In September, Qualcomm accused Apple of delivering trade secrets to Intel to improve the performance of modems.

An August settlement over similar matters saw Qualcomm pay $93 million in fines to Taiwan and promise to invest $700 million in the country over five years. Other countries, including the United States, are putting pressure on Qualcomm to end the "double-dipping" as well.

Qualcomm went to Fuzhou for this iPhone sales ban for the same reason that patent trolls go to the US District Court for the Eastern District of Texas -- a friendly venue. Qualcomm is following Samsung's playbook from the iPhone design patent trial, and attempting any legal maneuver that will stick anywhere in the world to use as leverage in the iPhone modem legal skirmish.

It isn't clear how much of Apple's sales is from older models in China. However, assuming that it is a 50/50 split of the "banned" models versus the current-year flagships, Apple could be impacted going forward by about $15 billion a year. Qualcomm claims that Apple owes it around $8 billion in licensing fees above and beyond the fees it charges for the modem chips in the first place -- which is the crux of the larger legal battle between the pair.

Qualcomm was shady in going to this particular court, doing it without Apple present at the hearing, and arguing for the ban how it did. It should be ashamed of itself. But, we aren't fans of Apple's tactics either. Apple should fulfill its contractual obligations, while it challenges the legality of them in court, and seek recompense later should it prevail.

Apple's tactics aren't hurting consumers, and any ban induced by Qualcomm is -- and that's inexcusable.
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Comments

  • Reply 1 of 35
    There is a lot of needless investor panic. FTFY.
    dysamoriaSpamSandwichwatto_cobra
  • Reply 2 of 35
    dysamoriadysamoria Posts: 1,884member
    Yeah. It’s Wall Street. We shouldn’t expect rational thinking. The whole thing is predicated on opinion and gambling.
    dedgecko
  • Reply 3 of 35
    NY1822NY1822 Posts: 561member
    great article...
    Can anyone shed some light on If Apple had to pre-announce an earnings revision, when would be the latest they could wait prior to earnings? Or when are we safe to assume they will hit their guidance?
    edited December 2018
  • Reply 4 of 35
    I think people on both sides are making assumptions about the scope of the preliminary injunction that was issued by the Chinese court. We don't know for sure what it says, unless someone has the text of an order. If so, I'd sure appreciate a pointer to it. Best I can tell, neither Qualcomm nor Apple has come out and said - this, specifically, is what the order says. They've both characterized what it means, but that leaves the question open even if we assume they're being honest in their interpretation.

    I can think of a number of possibilities. And the import of the decision could differ based on which one is the case. I think the possible effect on iPhone sales ranges from fairly modest to essentially none, depending on what the court actually ordered and on what it might further decide based on issues Apple will likely now bring up. I have what I consider most likely to be the case, based on some nuance in what Apple representatives have reportedly said. But most of us are just speculating or assuming.
  • Reply 5 of 35
    AppleInsider said:...

    Qualcomm was shady in going to this particular court, and arguing for the ban how it did. It should be ashamed of itself. But, we aren't fans of Apple's tactics either. Apple should fulfill its contractual obligations, while it challenges the legality of them in court, and seek recompense later should it prevail.

    Apple's tactics aren't hurting consumers, and any ban induced by Qualcomm is -- and that's inexcusable.
    What contractual obligations (of Apple's) are you referring to?
    watto_cobra
  • Reply 6 of 35
    NY1822NY1822 Posts: 561member
    Has Apple ever pre-announced a downward revision to its earnings? At least since the Iphone was released?
  • Reply 7 of 35
    Mike WuertheleMike Wuerthele Posts: 3,871administrator
    carnegie said:
    AppleInsider said:...

    Qualcomm was shady in going to this particular court, and arguing for the ban how it did. It should be ashamed of itself. But, we aren't fans of Apple's tactics either. Apple should fulfill its contractual obligations, while it challenges the legality of them in court, and seek recompense later should it prevail.

    Apple's tactics aren't hurting consumers, and any ban induced by Qualcomm is -- and that's inexcusable.
    What contractual obligations (of Apple's) are you referring to?
    Apple (and manufacturers) had a deal in place for the "double-dipping" -- paying for both the chips and the license to use them. While this legal action is underway, Apple isn't paying the licensing fees as it should.
    gatorguydedgecko
  • Reply 8 of 35
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    elijahgwilliamlondon
  • Reply 9 of 35
    Mike WuertheleMike Wuerthele Posts: 3,871administrator
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Well, I have no Apple stock, so, wrong from the first point.
    muthuk_vanalingamneil andersonwatto_cobra
  • Reply 10 of 35
    NY1822NY1822 Posts: 561member

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Wow...that's an interesting take...Apples downfall due to Windows.
    edited December 2018 williamlondondedgeckowatto_cobrajony0
  • Reply 11 of 35
    carnegie said:
    AppleInsider said:...

    Qualcomm was shady in going to this particular court, and arguing for the ban how it did. It should be ashamed of itself. But, we aren't fans of Apple's tactics either. Apple should fulfill its contractual obligations, while it challenges the legality of them in court, and seek recompense later should it prevail.

    Apple's tactics aren't hurting consumers, and any ban induced by Qualcomm is -- and that's inexcusable.
    What contractual obligations (of Apple's) are you referring to?
    Apple (and manufacturers) had a deal in place for the "double-dipping" -- paying for both the chips and the license to use them. While this legal action is underway, Apple isn't paying the licensing fees as it should.
    Perhaps that is true, but what are you basing that on?

    I've read a number of the court fillings (in both the FTC / Qualcomm case and the U.S. Apple / Qualcomm case) and I don't recall either party (i.e. Qualcomm or Apple) asserting that licensing agreements between Apple and Qualcomm were still in effect. To the contrary, based on what they've said it seemed that relevant agreements had expired. Indeed, that seemed to be part of why Apple took the actions it took when it did. Some of their agreements expired in late 2016. And both parties indicated that they hadn't been able agree on licensing terms. I could be remembering something wrong or could have missed something; there have been quite a few court filings. I'd be happy to be corrected on this point.

    Apple had been paying its contract manufacturers to cover the licensing fees they were paying Qualcomm. But Apple didn't have contractual obligations of its own when it came to such licensing fees. And some of the agreements it did have with Qualcomm (which covered a lot of areas) have expired. I don't think that Qualcomm is even arguing that Apple is currently breaching contractual obligations it has made. If Qualcomm felt that Apple was, e.g., in breach of licensing terms which Apple had agreed to, then Qualcomm would be arguing to that effect.

    That's a big aspect of the U.S. case. Apple contends that Qualcomm was never willing to offer appropriate licensing terms and Qualcomm contends that Apple was never willing to accept appropriate licensing terms. That being the case, when it comes to SEPs, they need to let a court help sort things out. But in the meantime, there's nothing wrong with Apple using Qualcomm's SEPs to implement the relevant standards. It, in its view, is a willing licensee so it is allowed to use those SEPs even without an agreement in place and without currently paying licensing fees.
    radarthekat
  • Reply 12 of 35
    gatorguygatorguy Posts: 19,697member
    The most thorough record of Apple/Qualcomm legal tribulations that I've seen:
    https://www.digitaltrends.com/business/apple-vs-qualcomm-news/
  • Reply 13 of 35
    NY1822 said:

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Wow...that's an interesting take...Apples downfall due to Windows.

    Never thought I would say it. Everything I have is Apple. Same with my family. Computers, iPads, Phones, Apple TV.  I need a new computer. I can’t find anything that makes sense in the lineup. iMac is old. Mini is bad at graphics and storage. Laptops are ok, but very expensive. I’m basically switching to windows this generation. Just seems better. 
  • Reply 14 of 35
    radarthekatradarthekat Posts: 2,898moderator
    carnegie said:
    AppleInsider said:...

    Qualcomm was shady in going to this particular court, and arguing for the ban how it did. It should be ashamed of itself. But, we aren't fans of Apple's tactics either. Apple should fulfill its contractual obligations, while it challenges the legality of them in court, and seek recompense later should it prevail.

    Apple's tactics aren't hurting consumers, and any ban induced by Qualcomm is -- and that's inexcusable.
    What contractual obligations (of Apple's) are you referring to?
    Apple (and manufacturers) had a deal in place for the "double-dipping" -- paying for both the chips and the license to use them. While this legal action is underway, Apple isn't paying the licensing fees as it should.
    I can’t say I agree.  If you’re bound by a contract that’s unfavorable to you and you can make a case based upon plenty of precedent that the contract is illegal, should you continue to make payments under that contract?  I’d wait and let the courts decide my obligations.  
  • Reply 15 of 35
    radarthekatradarthekat Posts: 2,898moderator
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Remind me, where can I buy a Windows phone?  Hey, but thanks for playing.
    williamlondondedgeckowatto_cobraneil andersonjony0
  • Reply 16 of 35
    NY1822 said:

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Wow...that's an interesting take...Apples downfall due to Windows.

    Never thought I would say it. Everything I have is Apple. Same with my family. Computers, iPads, Phones, Apple TV.  I need a new computer. I can’t find anything that makes sense in the lineup. iMac is old. Mini is bad at graphics and storage. Laptops are ok, but very expensive. I’m basically switching to windows this generation. Just seems better. 
    If everything you have right now is Apple, then you should know that by switching to Windows, it would just be a matter of time you go back to Apple. Do not underestimate the stickiness of Apple ecosystem and the cost of replacing that 'convenience' with another system. I was in your situation before, did that once regretfully and I returned to Apple. 
    watto_cobraneil andersonjony0
  • Reply 17 of 35
    If I were a Wall St. type I'd be more panicked about the french protests picking up steam and spreading across the globe.
    dysamoria
  • Reply 18 of 35
    kevin kee said:
    NY1822 said:

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Wow...that's an interesting take...Apples downfall due to Windows.

    Never thought I would say it. Everything I have is Apple. Same with my family. Computers, iPads, Phones, Apple TV.  I need a new computer. I can’t find anything that makes sense in the lineup. iMac is old. Mini is bad at graphics and storage. Laptops are ok, but very expensive. I’m basically switching to windows this generation. Just seems better. 
    If everything you have right now is Apple, then you should know that by switching to Windows, it would just be a matter of time you go back to Apple. Do not underestimate the stickiness of Apple ecosystem and the cost of replacing that 'convenience' with another system. I was in your situation before, did that once regretfully and I returned to Apple. 
    You could be right. Different now I think. In past years Apple was ahead. Seemed to peak in Vista times. No longer the case. The rest have caught up as Apple hasn’t really done anything but upgrade existing parts and try a few features that didn’t really work (e.g., Touch Bar). 
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Remind me, where can I buy a Windows phone?  Hey, but thanks for playing.

    Have you tried the HUAWEI Mate 20 Pro?  Blew me away. Not a phone that is years behind, but maybe even ahead. Who needs a Microsoft phone?  What does that even mean?

  • Reply 19 of 35
    kevin kee said:
    NY1822 said:

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Wow...that's an interesting take...Apples downfall due to Windows.

    Never thought I would say it. Everything I have is Apple. Same with my family. Computers, iPads, Phones, Apple TV.  I need a new computer. I can’t find anything that makes sense in the lineup. iMac is old. Mini is bad at graphics and storage. Laptops are ok, but very expensive. I’m basically switching to windows this generation. Just seems better. 
    If everything you have right now is Apple, then you should know that by switching to Windows, it would just be a matter of time you go back to Apple. Do not underestimate the stickiness of Apple ecosystem and the cost of replacing that 'convenience' with another system. I was in your situation before, did that once regretfully and I returned to Apple. 
    You could be right. Different now I think. In past years Apple was ahead. Seemed to peak in Vista times. No longer the case. The rest have caught up as Apple hasn’t really done anything but upgrade existing parts and try a few features that didn’t really work (e.g., Touch Bar). 
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Remind me, where can I buy a Windows phone?  Hey, but thanks for playing.

    Have you tried the HUAWEI Mate 20 Pro?  Blew me away. Not a phone that is years behind, but maybe even ahead. Who needs a Microsoft phone?  What does that even mean?

    You missed my point. In terms of total ecosystem and whole 'just works' between each Apple devices (Macs and iPhones, iPads and Airpods) and services (MacOs and iTunes, phone and mac), NONE of the competitors and certainly not Windows can even come close. Apple is not just standing still either. Just because they don't say what they are working on, it doesn't mean they are doing nothing.

    And Touch Bar really works wonder, I am not sure what is your problem.
    edited December 2018 watto_cobraneil andersonjony0
  • Reply 20 of 35
    Everyday it becomes clearer that the folks writing these articles are taking a bath holding Apple stock.  They are doing anything they can to convince themselves and others it’s all fine and dandy. 

    I would not advise touching Apple stock other than to quick flip a short to cash out on people trying to bottom fish the rips.  If this thing goes below $150 look out for some real old fashioned panic selling goodness. 

    Even as along time Apple user, I can say they are going down. The premiums are no longer worth it vs. windows. 
    Remind me, where can I buy a Windows phone?  Hey, but thanks for playing.
    Where else but Amazon

    https://www.amazon.com/Microsoft-Single-SIM-Unlocked-Smartphone-Quad-Core/dp/B00TX5MOIO/ref=asc_df_B00TX5MOIO/?tag=hyprod-20&linkCode=df0&hvadid=312188957659&hvpos=1o5&hvnetw=g&hvrand=2667923298407547030&hvpone=&hvptwo=&hvqmt=&hvdev=m&hvdvcmdl=&hvlocint=&hvlocphy=9011821&hvtargid=pla-563122683090&psc=1&tag=&ref=&adgrpid=65853708681&hvpone=&hvptwo=&hvadid=312188957659&hvpos=1o5&hvnetw=g&hvrand=2667923298407547030&hvqmt=&hvdev=m&hvdvcmdl=&hvlocint=&hvlocphy=9011821&hvtargid=pla-563122683090
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