Qualcomm gains $4.5B to $4.7B from Apple settlement

Posted:
in iPhone edited May 1
The settlement deal between Apple and Qualcomm, previously a secret, will net the chipmaker between $4.5 billion and 4.7 billion, according to regulatory filings issued on Wednesday.

iPhone XS Phil Schiller


The sum was published in Qualcomm's quarterly earnings. Some earlier analyst estimates put Apple's payments as high as $6 billion plus ongoing royalties.

Until now the companies only identified terms as including "a payment from Apple to Qualcomm," "a multiyear chipset supply agreement," and a six-year licensing agreement with a two-year option to extend.

The deal should allow Qualcomm's 5G modems to appear in 2020 iPhones. Apple was reportedly frustrated with Intel's slow progress on 5G, and in fact Intel announced its departure from 5G modems the same day the settlement was revealed.

While 5G may have been an impetus behind burying lawsuits, on the first and only day of the Apple v. Qualcomm trial, the latter exposed Apple documents showing the iPhone maker had been planning to force royalty payments down for years, using tactics that would "hurt Qualcomm financially" and "put Qualcomm's licensing model at risk." It even deliberately licensed less expensive patents to make Qualcomm's demands seem excessive.

Pursuing the case further may have risked backfiring on Apple, despite widespread criticism of Qualcomm's business practices. The chipmaker has been accused of pressuring chip buyers into signing patent licenses at the same time, and/or at exorbitant rates. Government agencies, such as Europe and South Korea's, have already leveled penalties.

Comments

  • Reply 1 of 13
    Seems about right.  The analysta claimed between $5-$6 billion.  QC owed Apple a billion, so a payment of ~$4.5 billion seems on par with the analyst's estimate.  Good thing it's over.  Now they can get back to the business of doing business.  
    chasm
  • Reply 2 of 13
    charles1charles1 Posts: 42member
    Does anyone know what Apple would have owed Qualcom by now, under the old license for cellular chips? I doubt Apple would have settled unless it was heavily in their favor. So I figure Apple would have owed something like $12 Billion and settled for about 4.5B.
  • Reply 3 of 13
    deegee1948deegee1948 Posts: 20member
    “Mr. Businessman” by Ray Stevens (1968) on Apple Music. Sounds awfully familiar with all these goings on.
  • Reply 4 of 13
    mjtomlinmjtomlin Posts: 1,854member
    charles1 said:
    Does anyone know what Apple would have owed Qualcom by now, under the old license for cellular chips? I doubt Apple would have settled unless it was heavily in their favor. So I figure Apple would have owed something like $12 Billion and settled for about 4.5B.

    Probably exactly what they paid. The point of taking them to court was to get future licensing fees down to more reasonable levels. I doubt the settlement favored either company... I would hazard to guess that Apple is still paying a percentage of total cost, but with some kind of cap.
    lostkiwi
  • Reply 5 of 13
    carnegiecarnegie Posts: 725member
    charles1 said:
    Does anyone know what Apple would have owed Qualcom by now, under the old license for cellular chips? I doubt Apple would have settled unless it was heavily in their favor. So I figure Apple would have owed something like $12 Billion and settled for about 4.5B.
    Based on, among other things, what Qualcomm told Judge Curiel last year, it would have been in the ballpark of $8 billion for the 9 quarters that this payment would be for.
    radarthekatchasm
  • Reply 6 of 13
    chasmchasm Posts: 1,515member
    This is really starting to look like a big win for Apple, and a small win for Qualcomm. It sounds very much like Apple renegotiated their money owed down quite substantially (as noted above, it should be at least $8B, not counting any interest), got the billion or so Qualcomm owed them back, AND won a substantial reduction in the royalties on forthcoming iPhones (was $15/iPhone according to sworn testimony from Greg Joswiak, now it’s going to be $9/iPhone going forward).

    I still think Qualcomm is going to lose big with the FTC/ITC and be forced to abandon their monopoly-abuse business model at some point in the not-too-distant future.
    leavingthebigglostkiwifred stein
  • Reply 7 of 13
    EsquireCatsEsquireCats Posts: 560member
    chasm said:
    This is really starting to look like a big win for Apple, and a small win for Qualcomm. It sounds very much like Apple renegotiated their money owed down quite substantially (as noted above, it should be at least $8B, not counting any interest), got the billion or so Qualcomm owed them back, AND won a substantial reduction in the royalties on forthcoming iPhones (was $15/iPhone according to sworn testimony from Greg Joswiak, now it’s going to be $9/iPhone going forward).

    I still think Qualcomm is going to lose big with the FTC/ITC and be forced to abandon their monopoly-abuse business model at some point in the not-too-distant future.

    I'm pretty sure the $9 per unit figure isn't accurate, as that stemmed from the idea that the payment was for devices manufactured during the dispute period. What is clear now is that this figure includes the rights to utilise the patent portfolio.
    So based on the 4.7B figure and current sales it's no where near $9, and that is when excluding iPads, Apple Watches and any other cellular devices that come under Qualcomm's patent portfolio. Additionally this also assumes that Apple don't make any further gains in sales, where the licensing payment would be further amortised. My back of the envelope is $3.50 per device.
  • Reply 8 of 13
    bellsbells Posts: 126member
    mjtomlin said:
    charles1 said:
    Does anyone know what Apple would have owed Qualcom by now, under the old license for cellular chips? I doubt Apple would have settled unless it was heavily in their favor. So I figure Apple would have owed something like $12 Billion and settled for about 4.5B.

    Probably exactly what they paid. The point of taking them to court was to get future licensing fees down to more reasonable levels. I doubt the settlement favored either company... I would hazard to guess that Apple is still paying a percentage of total cost, but with some kind of cap.
    Usually when companies settled they both get something. Apple, however, seemed to get everything it wanted and Qualcomm less so. Court filings show Apple owed about 8 billion in back payments and was paying about 13 to 15 a phone. If Apple paid 4.5 billion in back payments and is paying about 9 dollars a phone that is a definite win for Apple. Plus Apple has a long term deal and only has to deal with Qualcomm not the manufacturers. Another win. 

    Qualcomm renewed its relationship with Apple, has an infusion of money, and is done with expensive lawsuits that were largely not going its way. 

    Qualcomm didn’t gain any leverage against Apple with its lawsuits. Apple worked around the China injunction, got the German injunction overturned, held off a US injunction, won its billion dollar claim, and was likely going to win this lawsuit in regards to Qualcomm charging discriminatory pricing for standard essential patents.

    Both companies benefit from resolution but if the rumors are right Apple got everything it asked for which seems right considering Qualcomm’s behavior in terms of standard essential patents. Qualcomm can now focus on 5g competition and other lawsuits.






    fred stein
  • Reply 9 of 13
    chasmchasm Posts: 1,515member
    I'm pretty sure the $9 per unit figure isn't accurate, as that stemmed from the idea that the payment was for devices manufactured during the dispute period. What is clear now is that this figure includes the rights to utilise the patent portfolio.
    So based on the 4.7B figure and current sales it's no where near $9, and that is when excluding iPads, Apple Watches and any other cellular devices that come under Qualcomm's patent portfolio. Additionally this also assumes that Apple don't make any further gains in sales, where the licensing payment would be further amortised. My back of the envelope is $3.50 per device.
    You seem to be saying that there is no payback of owed royalties, and the $4.5B is the license fee for the term of the agreement. I’m saying that the $4.5B is the back payment, and additional money going forward will be paid for chips/technology actually used, to the tune of (around) $9/iPhone.

    I may be mistaken in this, of course. But it sounds like we’re working off two different sets of figures on that envelope, unless I’ve misinterpreted what you wrote.
    edited May 1 muthuk_vanalingam
  • Reply 10 of 13
    gatorguygatorguy Posts: 20,577member
    Pip'd
    edited May 2
  • Reply 11 of 13
    carnegiecarnegie Posts: 725member
    chasm said:
    This is really starting to look like a big win for Apple, and a small win for Qualcomm. It sounds very much like Apple renegotiated their money owed down quite substantially (as noted above, it should be at least $8B, not counting any interest), got the billion or so Qualcomm owed them back, AND won a substantial reduction in the royalties on forthcoming iPhones (was $15/iPhone according to sworn testimony from Greg Joswiak, now it’s going to be $9/iPhone going forward).

    I still think Qualcomm is going to lose big with the FTC/ITC and be forced to abandon their monopoly-abuse business model at some point in the not-too-distant future.

    I'm pretty sure the $9 per unit figure isn't accurate, as that stemmed from the idea that the payment was for devices manufactured during the dispute period. What is clear now is that this figure includes the rights to utilise the patent portfolio.
    So based on the 4.7B figure and current sales it's no where near $9, and that is when excluding iPads, Apple Watches and any other cellular devices that come under Qualcomm's patent portfolio. Additionally this also assumes that Apple don't make any further gains in sales, where the licensing payment would be further amortised. My back of the envelope is $3.50 per device.
    I'm curious what numbers get you to $3.50 per device.

    A one time payment of $4.5-4.7 billion would represent a significant discount for Apple. But I can't get the numbers to work out close to $3.50 per device, they point to something quite a bit higher.
  • Reply 12 of 13
    carnegiecarnegie Posts: 725member

    chasm said:
    This is really starting to look like a big win for Apple, and a small win for Qualcomm. It sounds very much like Apple renegotiated their money owed down quite substantially (as noted above, it should be at least $8B, not counting any interest), got the billion or so Qualcomm owed them back, AND won a substantial reduction in the royalties on forthcoming iPhones (was $15/iPhone according to sworn testimony from Greg Joswiak, now it’s going to be $9/iPhone going forward).

    I still think Qualcomm is going to lose big with the FTC/ITC and be forced to abandon their monopoly-abuse business model at some point in the not-too-distant future.
    I think Qualcomm has already, effectively, been forced to abandon much of its business model.

    This is one thing that I think a lot of people, who assert that Apple capitulated, are missing when it comes to the Qualcomm - Apple settlement. By the time the FTC trial wrapped up, the only plausible argument that Qualcomm had left with amounted to this: Yeah, but we aren't in position to do those kinds of things anymore. So you don't need to impose remedies to prevent conduct that wouldn't recur anyway. Effectively, Qualcomm argued that it no longer had the monopoly power to impose the kinds of terms it had previously imposed.

    So the narrative that Apple had to capitulate and agree to much the same terms it had objected to because it needed Qualcomm to supply it with 5G modems doesn't make sense. If that were the case - if Qualcomm used that kind of leverage to get heavily Qualcomm favoring terms - then Qualcomm would likely have been sinking itself when it came to the sanctions which Judge Koh (or someone else) might impose. And Qualcomm would have understood that.
    edited May 3
  • Reply 13 of 13
    fred steinfred stein Posts: 49member
    Thanks to all the other commenters, I'm now convinced that Apple got a much better deal than the starting point. As Luca Maestri said, the settlement is already accounted for in next quarters GM guidance which is good.
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