Apple payment to Qualcomm estimated at $6 billion, with $9 per iPhone sold in royalties

Posted:
in AAPL Investors
The settlement between Apple and Qualcomm to end lawsuits over patent licensing and infringement is costing Apple nearly $9 per iPhone on top of a single $6 billion payment, according to UBS.




On Tuesday, Apple and Qualcomm prematurely ended the patent licensing trial by announcing a settlement, one where Apple would pay an undisclosed amount to Qualcomm as well as arranging a patent licensing agreement. In a research note from UBS seen by AppleInsider, the deal was extremely beneficial to Qualcomm.

UBS suspects that Apple was having trouble securing non-Qualcomm 5G modems for the 2020 iPhone refresh. Taken along with 18-month development times for iOS devices, this apparently put Apple in a "tough position," and prompted the settlement.

While Qualcomm has stayed quiet about how much it will be earning, aside from anticipating a $2 per share incremental EPD for the next quarter, UBS suggests the amount Apple will be paying per device is in the range of $8 to $9 per device. This is a "solid outcome" to Qualcomm, higher than the $5 assumed by the firm previously.

The earnings per unit do not include a "bullet payment" for royalties in arrears from Apple, which UBS pegs at between $5 billion and $6 billion.

The return of Qualcomm to Apple's modem supply chain for 2020, as well as Intel's bowing out of the 5G smartphone modem market, has helped increase UBS' valuation of Qualcomm. The firm maintains a "neutral" rating on Qualcomm's stock, but has raised its 12-month price target from $55 to $80, just above the $79 Qualcomm stock value at the time of publication.
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Comments

  • Reply 1 of 48
    MacProMacPro Posts: 18,359member
    So much for this being kept secret eh?  So far both stocks are up so that is a good thing.  I for one am glad cooler heads prevailed. We own both.
    edited April 18 anantksundaramracerhomie3
  • Reply 2 of 48
    red oakred oak Posts: 675member
    It's all moot in 3 years when Apple brings to market its own chips.   This deal is just a bridge to get there.   And then Qualcomm will be shown the proverbial door.  And, the FTC anti-monoply trail is still upcoming - that could turn this all on its head on its own 

    But you'd never know this looking at the QCOM stock surge over the last couple of days 
    edited April 18 jbdragonrepressthisstompyracerhomie3StrangeDays
  • Reply 3 of 48
    By the sound of it if Apple is paying Royalties over and above any that are included in the modem chip costs.  Apparently Qualcomm is still double dipping and it appears there's nothing whatever Apple can do about it if they want iPhone modems.  
    repressthisflyingdpnetmage
  • Reply 4 of 48
    FatmanFatman Posts: 309member
    I cannot reveal my source, but I am absolutely certain these numbers are not correct.
    cornchiptjwolfjbdragonlkrupprepressthisrandominternetpersonericthehalfbeenarwhalStrangeDayschasm
  • Reply 5 of 48
    LatkoLatko Posts: 398member
    red oak said:
    It's all moot in 3 years when Apple brings to market its own chips.   This deal is just a bridge to get there.   And then Qualcomm will be shown the proverbial door.  And, the FTC anti-monoply trail is still upcoming - that could turn this all on its head on its own 

    But you'd never know this looking at the QCOM stock surge over the last couple of days 
    You’d be an donut (or dying by piles of unused cash) to even start thinking about that, with these bargain prices for a quality product (if not best of industry...) Not speaking about the operational impossibility of that endeavor
    edited April 18 muthuk_vanalingam
  • Reply 6 of 48
    cornchipcornchip Posts: 1,365member
    I'm guessing Apple doesn't have to hand over all it's IP tho?
  • Reply 7 of 48
    carnegiecarnegie Posts: 726member
    MacPro said:
    So much for this being kept secret eh?  So far both stocks are up so that is a good thing.  I for one am glad cooler heads prevailed. We own both.
    This is an estimate from UBS. Whether we'll get something definitive is yet to be seen. But, for now, I wouldn't expect Apple or Qualcomm to directly divulge more specific terms of the settlement. They likely agreed not to. Over time they'll be more financial reporting which might give us some idea of the numbers agreed upon.

    That said, if UBS is estimating $8-9 per device for total licensing costs going forward, I could believe that. That's a little higher than I would guess, but in the ballpark. I'd be surprised if it isn't something between $5-10.

    Beyond the per-device cost, the other terms of the agreement are important. Did Apple have to agree to chip supply exclusivity to get to that cost? I doubt it. Is Qualcomm now being clear on what IP is covered? I would hope so. Are the accounting requirements more to Apple's liking? What IP is Apple being required to cross license, and is it accounted for in whatever the per-device cost is? And what does the agreement look like with regard to chip pricing?
  • Reply 8 of 48
    flydogflydog Posts: 328member
    MacPro said:
    So much for this being kept secret eh?  So far both stocks are up so that is a good thing.  I for one am glad cooler heads prevailed. We own both.
    No secrets have been revealed. If you actually read the article you’ll see that the number is an estimate by an analyst. 
    williamlondonnetmageGeorgeBMac
  • Reply 9 of 48
    flydogflydog Posts: 328member

    Fatman said:
    I cannot reveal my source, but I am absolutely certain these numbers are not correct.
    I cannot reveal my source, but I am absolutely certain that you have no source. 
    anantksundaramBxBornseanismorriscornchipwlym
  • Reply 10 of 48
    matrix077matrix077 Posts: 729member
    flydog said:
    MacPro said:
    So much for this being kept secret eh?  So far both stocks are up so that is a good thing.  I for one am glad cooler heads prevailed. We own both.
    No secrets have been revealed. If you actually read the article you’ll see that the number is an estimate by an analyst
    Which a correct term would be a “guess”.

    i don’t think I would want to waste my time reading it. 
    lkruppgeorgie01chasm
  • Reply 11 of 48
    genovellegenovelle Posts: 973member
    cornchip said:
    I'm guessing Apple doesn't have to hand over all it's IP tho?
    I forgot about that part
  • Reply 12 of 48
    KuyangkohKuyangkoh Posts: 346member
    Fatman said:
    I cannot reveal my source, but I am absolutely certain these numbers are not correct.
    UBS news is nothing more than guess works, suggesting does not mean it really was that numbers....so lets move on. Who cares what they settled on.  We CONSUMERS win.
    jcs2305
  • Reply 13 of 48
    realisticrealistic Posts: 1,143member
    I don't believe UBS knows anything factual, follow the money. It's all about spreading rumors to spur trading revenue as usual.
    georgie01
  • Reply 14 of 48
    NotsofastNotsofast Posts: 409member
    MacPro said:
    So much for this being kept secret eh?  So far both stocks are up so that is a good thing.  I for one am glad cooler heads prevailed. We own both.
    Go back and read the article.  It's just another guess/speculation by an analyst.  USB "suggests."  It makes for interesting reading, but the authors of these articles consistently fail to make clear that most of what appears in these blogs is totally unsupported speculation by analysts, often who have an incentive to drive stock prices.  
    tht
  • Reply 15 of 48
    Fatman said:
    I cannot reveal my source, but I am absolutely certain these numbers are not correct.
    Does your source also know where Jimmy Hoffa is buried?
    JWSC
  • Reply 16 of 48
    Tim Cook must have cried 6 billion tears.
  • Reply 17 of 48
    More “Apple is doomed” bullshit from another analyst.

    Apple wasn’t backed into a corner. They had the upper hand in this case along with the precedent of the fact Qualcomm has lost EVERY antitrust case brought against them for how they license their modems and cellular related IP.

    Apple could have waited until the court case was finished (which they would have won) and then turned around to buy Qualcomm modems (which they’d happily sell to Apple).

    Apple wasn’t in any sort of “bind” over 5G modems - they had the option of Qualcomm all along.
  • Reply 18 of 48
    davidwdavidw Posts: 975member
    Tim Cook must have cried 6 billion tears.
    Why? The $6B payment was for the chips and royalties that Apple already got from Qualcomm and used in their iPhones, but didn't pay for because they and their contractors were withholding payment until the end of the outcome of the lawsuit. Apple knew they had to eventually pay for these chips and all past royalties. And I assume that the payment somehow incorporate the $1B that Qualcomm withheld in rebates to Apple and at the very least, Apple came out even with the payment.

    On another subject. I'm wondering if the lawsuit against Qualcomm concerning anti trust violations can use this agreement as some sort of proof that Qualcomm, by forcing phone makers into exclusive contracts, ended up with a near monopoly in the modem chip market. Thus no other chip makers were able to get a foothold in the market. Therefore, Apple only had one viable source for the chip they need and was forced to settle with Qualcomm, for more than they would like to had pay.
    edited April 18
  • Reply 19 of 48
    tmaytmay Posts: 3,845member
    davidw said:
    Tim Cook must have cried 6 billion tears.
    Why? The $6B payment was for the chips and royalties that Apple already got from Qualcomm and used in their iPhones, but didn't pay for because they and their contractors were withholding payment until the end of the outcome of the lawsuit. Apple knew they had to eventually pay for these chips and all past royalties. And I assume that the payment somehow incorporate the $1B that Qualcomm withheld in rebates to Apple and at the very least, Apple came out even with the payment.

    On another subject. I'm wondering if the lawsuit against Qualcomm concerning anti trust violations can use this agreement as some sort of proof that Qualcomm, by forcing phone makers into exclusive contracts, ended up with a near monopoly in the modem chip market. Thus no other chip makers were able to get a foothold in the market. Therefore, Apple only had one viable source for the chip they need and was forced to settle with Qualcomm, for more than they would like to had pay.
    Essentially, this deal proved that monopoly.
  • Reply 20 of 48
    carnegiecarnegie Posts: 726member
    davidw said:
    Tim Cook must have cried 6 billion tears.
    Why? The $6B payment was for the chips and royalties that Apple already got from Qualcomm and used in their iPhones, but didn't pay for because they and their contractors were withholding payment until the end of the outcome of the lawsuit. Apple knew they had to eventually pay for these chips and all past royalties. And I assume that the payment somehow incorporate the $1B that Qualcomm withheld in rebates to Apple and at the very least, Apple came out even with the payment.

    On another subject. I'm wondering if the lawsuit against Qualcomm concerning anti trust violations can use this agreement as some sort of proof that Qualcomm, by forcing phone makers into exclusive contracts, ended up with a near monopoly in the modem chip market. Thus no other chip makers were able to get a foothold in the market. Therefore, Apple only had one viable source for the chip they need and was forced to settle with Qualcomm, for more than they would like to had pay.
    The $5-6 billion (or whatever it actually was) payment wouldn't have been for Qualcomm chips. It was only the royalty payments which had been withheld for about 27 months. Those royalty payments were actually withheld for a little longer than that, but the payments that were withheld in late 2016 were to offset the $1 billion which Apple claimed it was owed by Qualcomm.

    As for you second paragraph: No. The trial in that case has already concluded. New evidence won't be admitted. Indeed, new evidence was cut off some time before the trial started. Judge Koh had actually ruled on some evidence which came out after discovery was finished, and which one of the parties wanted to have admitted, deciding that it wouldn't be allowed.
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