As flydog and Matrix say, this is a guess by an analyst. So it's almost certainly not correct.
But even if it was, it sounds to me like Apple is simply paying back the money it and its suppliers withheld in licensing/royalties and chips (source: https://appleinsider.com/articles/18/10/26/apple-7b-behind-in-royalty-payments-to-qualcomm). That was always going to happen anyway -- even if the FTC rules that Qualcomm's business model is monopoly abuse (as it should), it would never have made that decision retroactive.
The alleged new royalty of $9 per iPhone is a bit troubling, as that is up from $7.50 or thereabouts before, but to be fair it is not unknown or unusual for a supplier to raise prices on brand-new technology. Again I'm doubtful of these pundit-imagined numbers, but even if its half-right, that's what Apple was going to have to pay in any settlement ahead of any definitive ruling on Qualcomm's double-dipping, the first decision of which is likely to happen this summer. So things could change going forward, but I remain very unconvinced that Apple "caved" or "got a bad deal" given these realities.
A lot of people have referred to the $7.50 figure. But that is not what Apple was effectively paying when it started withholding payments meant to cover Qualcomm royalties and when it filed its lawsuit against Qualcomm.
We don't have enough information to precisely pin down what Apple was effectively paying (or would have been paying). But, based on what we do know, we can say with confidence that it was more than $10, and it was likely closer to $14. It might even have been a little higher.
Now, it would seem, Apple has a direct licensing deal, which is something it has indicated it long wanted. And it's at a reasonable rate, dramatically below what Qualcomm says it wants and below what Apple would have been paying if it hadn't withheld payments. And, most likely, Apple hasn't had to agree to the improper terms which Qualcomm had previously imposed. I doubt Qualcomm would even try to impose some of those terms now, considering the regulatory heat it's been under.
Didn't Jeff Williams, Apple COO, testify under oath to the $7.50 per iPhone effective royalties in the FTC case in front of Judge Koh?
Yes, that’s what it was previously.
But that’s not what it was when Apple filed suit. That, and what it might have been in the future, are what matter when comparing to what it will be (whatever that is) under this deal.
As far as I been reading it Apple never did pay royalties at the higher rate you're surmising. When QC withheld the first rebate that brought down the effective rate to $7.50 is when Apple filed suit and began withholding any further payments. QC was asking for for a higher rate at that point according to reports and due to "breach of contract", but no indications that Apple ever paid it.
If we acceptedthat $9/handset was now accurate Apple would be paying a HIGHER effective royalty than under the old contract.
In my earlier post (which you quoted), I was careful to make clear that what I was referring to was what Apple would have effectively been paying in royalties if it had continued to pay them - I used a parenthetical to make that clear.
The reality is that that cost - whatever it was, but based on a number of things I think it was in the range of $10-15 per device - was what Apple would have been paying had it not filed suit and withheld payments. Qualcomm had stopped making the rebate payments. That's what precipitated Apple's actions and the suit. But even if Qualcomm hadn't withheld three quarters worth of royalty payments, the BCPA expired at the end of 2016. And the parties hadn't been able to reach a new agreement. So the contract manufacturers would have been paying royalties in accordance with the terms of their existing agreements with Qualcomm. Those agreements hadn't expired.
I can't know this for sure, but if Qualcomm had been wiling to give Apple the equivalent of a $7.50 per-device rate in early 2017 - and not insisted on imposing some of the onerous terms which it had previously imposed in order for Apple to get that effective rate, and been willing to give Apple a long-term direct licensing deal - I suspect Apple would have been happy to take that deal. It always wanted a direct licensing deal. And it had, apparently, found $7.50 acceptable. But it didn't want to have to agree to the terms it had to agree to to get that rate. But, from Qualcomm's perspective, it would seem the $7.50 rate was no longer on offer, particularly if it didn't come with some of the other terms which Apple was no longer willing to accept. Qualcomm had, after all, stopped paying the rebates which (perhaps) got the rate that low even before the existing agreement expired.
We should keep in mind that, for all inclusive 5G licensing Qualcomm says its rate is 5% with a $400 per-device base cap. That cap had previously been $500, but some time last year Qualcomm reduced it to $400 - at least for the 3.25% (out of the 5%) which was for cellular SEPs only.
So we would both agree that if the $9.00/unit royalty were accurate then Qualcomm is making more revenue from Apple post settlement than they were under the old contract, effectively $7.50 per unit after obligatory rebates. Correct?
Of course we DON'T know $9 is accurate, nor what that actually buys Apple. Still a fun guessing game tho. I suspect it will eventually come out in some other lawsuit, even if we don't get to see it for ourselves.
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.
There’s only a monopoly on quality, that neither Intel nor Apple could reach in the mid-term future
As flydog and Matrix say, this is a guess by an analyst. So it's almost certainly not correct.
But even if it was, it sounds to me like Apple is simply paying back the money it and its suppliers withheld in licensing/royalties and chips (source: https://appleinsider.com/articles/18/10/26/apple-7b-behind-in-royalty-payments-to-qualcomm). That was always going to happen anyway -- even if the FTC rules that Qualcomm's business model is monopoly abuse (as it should), it would never have made that decision retroactive.
The alleged new royalty of $9 per iPhone is a bit troubling, as that is up from $7.50 or thereabouts before, but to be fair it is not unknown or unusual for a supplier to raise prices on brand-new technology. Again I'm doubtful of these pundit-imagined numbers, but even if its half-right, that's what Apple was going to have to pay in any settlement ahead of any definitive ruling on Qualcomm's double-dipping, the first decision of which is likely to happen this summer. So things could change going forward, but I remain very unconvinced that Apple "caved" or "got a bad deal" given these realities.
A lot of people have referred to the $7.50 figure. But that is not what Apple was effectively paying when it started withholding payments meant to cover Qualcomm royalties and when it filed its lawsuit against Qualcomm.
We don't have enough information to precisely pin down what Apple was effectively paying (or would have been paying). But, based on what we do know, we can say with confidence that it was more than $10, and it was likely closer to $14. It might even have been a little higher.
Now, it would seem, Apple has a direct licensing deal, which is something it has indicated it long wanted. And it's at a reasonable rate, dramatically below what Qualcomm says it wants and below what Apple would have been paying if it hadn't withheld payments. And, most likely, Apple hasn't had to agree to the improper terms which Qualcomm had previously imposed. I doubt Qualcomm would even try to impose some of those terms now, considering the regulatory heat it's been under.
Didn't Jeff Williams, Apple COO, testify under oath to the $7.50 per iPhone effective royalties in the FTC case in front of Judge Koh?
Yes, that’s what it was previously.
But that’s not what it was when Apple filed suit. That, and what it might have been in the future, are what matter when comparing to what it will be (whatever that is) under this deal.
As far as I been reading it Apple never did pay royalties at the higher rate you're surmising. When QC withheld the first rebate that brought down the effective rate to $7.50 is when Apple filed suit and began withholding any further payments. QC was asking for for a higher rate at that point according to reports and due to "breach of contract", but no indications that Apple ever paid it.
If we acceptedthat $9/handset was now accurate Apple would be paying a HIGHER effective royalty than under the old contract.
In my earlier post (which you quoted), I was careful to make clear that what I was referring to was what Apple would have effectively been paying in royalties if it had continued to pay them - I used a parenthetical to make that clear.
The reality is that that cost - whatever it was, but based on a number of things I think it was in the range of $10-15 per device - was what Apple would have been paying had it not filed suit and withheld payments. Qualcomm had stopped making the rebate payments. That's what precipitated Apple's actions and the suit. But even if Qualcomm hadn't withheld three quarters worth of royalty payments, the BCPA expired at the end of 2016. And the parties hadn't been able to reach a new agreement. So the contract manufacturers would have been paying royalties in accordance with the terms of their existing agreements with Qualcomm. Those agreements hadn't expired.
I can't know this for sure, but if Qualcomm had been wiling to give Apple the equivalent of a $7.50 per-device rate in early 2017 - and not insisted on imposing some of the onerous terms which it had previously imposed in order for Apple to get that effective rate, and been willing to give Apple a long-term direct licensing deal - I suspect Apple would have been happy to take that deal. It always wanted a direct licensing deal. And it had, apparently, found $7.50 acceptable. But it didn't want to have to agree to the terms it had to agree to to get that rate. But, from Qualcomm's perspective, it would seem the $7.50 rate was no longer on offer, particularly if it didn't come with some of the other terms which Apple was no longer willing to accept. Qualcomm had, after all, stopped paying the rebates which (perhaps) got the rate that low even before the existing agreement expired.
We should keep in mind that, for all inclusive 5G licensing Qualcomm says its rate is 5% with a $400 per-device base cap. That cap had previously been $500, but some time last year Qualcomm reduced it to $400 - at least for the 3.25% (out of the 5%) which was for cellular SEPs only.
So we would both agree that if the $9.00/unit royalty were accurate then Qualcomm is making more revenue from Apple post settlement than they were under the old contract, effectively $7.50 per unit after obligatory rebates. Correct?
Of course we DON'T know $9 is accurate, nor what that actually buys Apple. Still a fun guessing game tho. I suspect it will eventually come out in some other lawsuit, even if we don't get to see it for ourselves.
These per-unit figures make clear that the whole courtcase was a ludicrous idea in the first place. Neither Apple itself, nor Intel would ever offer viable alternatives from a cost, let alone quality perspective. And the extra fees were passed-on to customers tenfold over the years, without anyone noticing.
Why? Cook was withholding payment with the full knowledge that it would have to pay something eventually. Based on the deal Apple didn't like, Apple owed over 7 billion on back payments and there was an estimate Apple was paying $13 a phone. If USB's estimate is correct, which I doubt, Apple got a pretty good deal. It knocked one to two billion off the back payment, and four dollars off the price per phone. I suspect there is no exclusivity requirements, and the bogus penalties provision for talking to regulators was also likely removed.
As flydog and Matrix say, this is a guess by an analyst. So it's almost certainly not correct.
But even if it was, it sounds to me like Apple is simply paying back the money it and its suppliers withheld in licensing/royalties and chips (source: https://appleinsider.com/articles/18/10/26/apple-7b-behind-in-royalty-payments-to-qualcomm). That was always going to happen anyway -- even if the FTC rules that Qualcomm's business model is monopoly abuse (as it should), it would never have made that decision retroactive.
The alleged new royalty of $9 per iPhone is a bit troubling, as that is up from $7.50 or thereabouts before, but to be fair it is not unknown or unusual for a supplier to raise prices on brand-new technology. Again I'm doubtful of these pundit-imagined numbers, but even if its half-right, that's what Apple was going to have to pay in any settlement ahead of any definitive ruling on Qualcomm's double-dipping, the first decision of which is likely to happen this summer. So things could change going forward, but I remain very unconvinced that Apple "caved" or "got a bad deal" given these realities.
A lot of people have referred to the $7.50 figure. But that is not what Apple was effectively paying when it started withholding payments meant to cover Qualcomm royalties and when it filed its lawsuit against Qualcomm.
We don't have enough information to precisely pin down what Apple was effectively paying (or would have been paying). But, based on what we do know, we can say with confidence that it was more than $10, and it was likely closer to $14. It might even have been a little higher.
Now, it would seem, Apple has a direct licensing deal, which is something it has indicated it long wanted. And it's at a reasonable rate, dramatically below what Qualcomm says it wants and below what Apple would have been paying if it hadn't withheld payments. And, most likely, Apple hasn't had to agree to the improper terms which Qualcomm had previously imposed. I doubt Qualcomm would even try to impose some of those terms now, considering the regulatory heat it's been under.
Didn't Jeff Williams, Apple COO, testify under oath to the $7.50 per iPhone effective royalties in the FTC case in front of Judge Koh?
Yes, that’s what it was previously.
But that’s not what it was when Apple filed suit. That, and what it might have been in the future, are what matter when comparing to what it will be (whatever that is) under this deal.
As far as I been reading it Apple never did pay royalties at the higher rate you're surmising. When QC withheld the first rebate that brought down the effective rate to $7.50 is when Apple filed suit and began withholding any further payments. QC was asking for for a higher rate at that point according to reports and due to "breach of contract", but no indications that Apple ever paid it.
If we acceptedthat $9/handset was now accurate Apple would be paying a HIGHER effective royalty than under the old contract.
In my earlier post (which you quoted), I was careful to make clear that what I was referring to was what Apple would have effectively been paying in royalties if it had continued to pay them - I used a parenthetical to make that clear.
The reality is that that cost - whatever it was, but based on a number of things I think it was in the range of $10-15 per device - was what Apple would have been paying had it not filed suit and withheld payments. Qualcomm had stopped making the rebate payments. That's what precipitated Apple's actions and the suit. But even if Qualcomm hadn't withheld three quarters worth of royalty payments, the BCPA expired at the end of 2016. And the parties hadn't been able to reach a new agreement. So the contract manufacturers would have been paying royalties in accordance with the terms of their existing agreements with Qualcomm. Those agreements hadn't expired.
I can't know this for sure, but if Qualcomm had been wiling to give Apple the equivalent of a $7.50 per-device rate in early 2017 - and not insisted on imposing some of the onerous terms which it had previously imposed in order for Apple to get that effective rate, and been willing to give Apple a long-term direct licensing deal - I suspect Apple would have been happy to take that deal. It always wanted a direct licensing deal. And it had, apparently, found $7.50 acceptable. But it didn't want to have to agree to the terms it had to agree to to get that rate. But, from Qualcomm's perspective, it would seem the $7.50 rate was no longer on offer, particularly if it didn't come with some of the other terms which Apple was no longer willing to accept. Qualcomm had, after all, stopped paying the rebates which (perhaps) got the rate that low even before the existing agreement expired.
We should keep in mind that, for all inclusive 5G licensing Qualcomm says its rate is 5% with a $400 per-device base cap. That cap had previously been $500, but some time last year Qualcomm reduced it to $400 - at least for the 3.25% (out of the 5%) which was for cellular SEPs only.
So we would both agree that if the $9.00/unit royalty were accurate then Qualcomm is making more revenue from Apple post settlement than they were under the old contract, effectively $7.50 per unit after obligatory rebates. Correct?
Of course we DON'T know $9 is accurate, nor what that actually buys Apple. Still a fun guessing game tho. I suspect it will eventually come out in some other lawsuit, even if we don't get to see it for ourselves.
I think $7.50 (or something close to that) would have been what Apple was effectively paying as of early 2016, yes. I'm not sure that's correct, but the numbers we know points to that ballpark and Jeff Williams' comments could be interpreted to mean that.
But that's not what's relevant for comparison, if we're trying to assess the success of Apple's actions. That isn't what Apple was paying (or would have been required to pay, if it hadn't withheld payments) when it filed suit. And just as important perhaps, in order to get that lower rate Apple had to effectively agree to a number of onerous conditions, and didn't have an actual direct licensing agreement of its own. As I indicated, I suspect if Apple had been able to get an effective royalty cost of $7.50 per device, without the onerous conditions and with a direct licensing deal, it would have been wiling to make a deal with Qualcomm. But that wasn't the situation.
I think it took actions by Apple (and others) to bring an acceptable deal (from Apple's perspective) into play. Among other things, Apple withholding sizable royalty payments for a period of time put a lot of financial pressure on Qualcomm and, effectively, forced it to be reasonable. It shouldn't have taken that, but Qualcomm had gotten away with its improper behavior for a long time (not just as it relates to Apple, but as it relates to much of the industry) and so, it seems, had to be dragged to the reality that it would no longer be allowed to.
Why? Cook was withholding payment with the full knowledge that it would have to pay something eventually. Based on the deal Apple didn't like, Apple owed over 7 billion on back payments and there was an estimate Apple was paying $13 a phone. If USB's estimate is correct, which I doubt, Apple got a pretty good deal. It knocked one to two billion off the back payment, and four dollars off the price per phone. I suspect there is no exclusivity requirements, and the bogus penalties provision for talking to regulators was also likely removed.
If accurate, I'd call that a win.
In addition to the exclusivity, there were other effective terms which Apple previously didn't like and which are likely different - i.e. more to Apple's liking - now. But, of course, we don't know all the details of the new deal. We can speculate about what would and wouldn't make sense.
As for that $7 billion, that was a number from last October which wouldn't have included the royalties Qualcomm thought Apple owed for the holiday quarter and the first calendar quarter of this year. So, by the time the deal was announced, the total would likely have been $9-10 billion. But we'd also need to account for the $1 billion or so that Qualcomm would have owed Apple for withheld rebates. So, $8-9 billion? (I suspect, since Qualcomm's position was that it didn't have to pay the rebates because Apple had breached the contract, it wasn't deducting them from the unpaid royalties number which it gave the judge.)
And when it comes to the go-forward licensing costs, we should keep in mind that the $13 (or something in that ballpark) which would have been the per-device cost when Apple filed suit isn't necessarily what Qualcomm would have wanted in a new deal. With 5G coming into play, and with Apple surely wanting an all inclusive Qualcomm license, Qualcomm may have wanted more than that. It currently publicly claims a higher all inclusive 5G rate than that.
As flydog and Matrix say, this is a guess by an analyst. So it's almost certainly not correct.
But even if it was, it sounds to me like Apple is simply paying back the money it and its suppliers withheld in licensing/royalties and chips (source: https://appleinsider.com/articles/18/10/26/apple-7b-behind-in-royalty-payments-to-qualcomm). That was always going to happen anyway -- even if the FTC rules that Qualcomm's business model is monopoly abuse (as it should), it would never have made that decision retroactive.
The alleged new royalty of $9 per iPhone is a bit troubling, as that is up from $7.50 or thereabouts before, but to be fair it is not unknown or unusual for a supplier to raise prices on brand-new technology. Again I'm doubtful of these pundit-imagined numbers, but even if its half-right, that's what Apple was going to have to pay in any settlement ahead of any definitive ruling on Qualcomm's double-dipping, the first decision of which is likely to happen this summer. So things could change going forward, but I remain very unconvinced that Apple "caved" or "got a bad deal" given these realities.
A lot of people have referred to the $7.50 figure. But that is not what Apple was effectively paying when it started withholding payments meant to cover Qualcomm royalties and when it filed its lawsuit against Qualcomm.
We don't have enough information to precisely pin down what Apple was effectively paying (or would have been paying). But, based on what we do know, we can say with confidence that it was more than $10, and it was likely closer to $14. It might even have been a little higher.
Now, it would seem, Apple has a direct licensing deal, which is something it has indicated it long wanted. And it's at a reasonable rate, dramatically below what Qualcomm says it wants and below what Apple would have been paying if it hadn't withheld payments. And, most likely, Apple hasn't had to agree to the improper terms which Qualcomm had previously imposed. I doubt Qualcomm would even try to impose some of those terms now, considering the regulatory heat it's been under.
Well, if this is any more accurate, an attorney for Qualcomm stated ...... "Out of a $1,000 for that phone, what they're not paying us is $13," Qualcomm attorney Evan Chesler said.
I'm assuming that he meant Apple was not paying the $13 because Apple was withholding all royalties payment and not that Apple was paying less than $13.
So your more than $10 and closer to $14 might be on the mark.
If this is accurate, the interesting point is that Qualcomm seems not to be limiting the royalties, that is a percentage of the wholesale price of an iPhone, only up to $500 of the price. Some had previously stated that here, to claim that Qualcomm was not collecting royalties for any Apple innovations that results in higher sale price of an iPhone . Thus claiming that the royalties Apple is paying on a $1000 iPhone, is the same that they pay on a $599 iPhone.
I think the $7.50 in royalties number, that is floating around, was for a $599 iPhone. So $13.00 for a $1000 iPhone would right be in line, if Qualcomm collected royalties on the full wholesale price of an iPhone and not just up to $500 of its wholesale price.
chasm said: A small correction to my previous post: According to Qualcomm's attorney in his opening remarks on the day of the trial, Apple was paying $13 per iPhone for it's parts, which (incidentally) Apple said was "five times" the aggregate amount of all other standards-essential patents combined. With the new deal, Apple is paying about $9 per iPhone. So not quite the "Apple capitulated" angle the media has been playing up ...
Thanks for that. I hadn't caught those statements.
That makes sense and lines up with what my back-of-the-envelope calculations suggested. The $13 would have, I think, been 3.25% with a $400 per-device basis cap.
As for what Qualcomm was getting relative to other licensors... Judge Koh commented on that in one of her pre-trial decisions in the FTC case. Some have looked into it, trying to compile numbers for the licensing revenue of certain relevant (to smartphones) patent holders. Qualcomm, according to the numbers they compiled, had been collecting as much in licensing revenues as all the others combined. And that study wasn't just about cellular SEPs, it was about all licensing revenues. There's a lot of qualifications that would need to be made relating to the data, but it generally points to Qualcomm collecting more than its fair share of royalties.
Comments
Of course we DON'T know $9 is accurate, nor what that actually buys Apple. Still a fun guessing game tho. I suspect it will eventually come out in some other lawsuit, even if we don't get to see it for ourselves.
If accurate, I'd call that a win.
But that's not what's relevant for comparison, if we're trying to assess the success of Apple's actions. That isn't what Apple was paying (or would have been required to pay, if it hadn't withheld payments) when it filed suit. And just as important perhaps, in order to get that lower rate Apple had to effectively agree to a number of onerous conditions, and didn't have an actual direct licensing agreement of its own. As I indicated, I suspect if Apple had been able to get an effective royalty cost of $7.50 per device, without the onerous conditions and with a direct licensing deal, it would have been wiling to make a deal with Qualcomm. But that wasn't the situation.
I think it took actions by Apple (and others) to bring an acceptable deal (from Apple's perspective) into play. Among other things, Apple withholding sizable royalty payments for a period of time put a lot of financial pressure on Qualcomm and, effectively, forced it to be reasonable. It shouldn't have taken that, but Qualcomm had gotten away with its improper behavior for a long time (not just as it relates to Apple, but as it relates to much of the industry) and so, it seems, had to be dragged to the reality that it would no longer be allowed to.
In addition to the exclusivity, there were other effective terms which Apple previously didn't like and which are likely different - i.e. more to Apple's liking - now. But, of course, we don't know all the details of the new deal. We can speculate about what would and wouldn't make sense.
As for that $7 billion, that was a number from last October which wouldn't have included the royalties Qualcomm thought Apple owed for the holiday quarter and the first calendar quarter of this year. So, by the time the deal was announced, the total would likely have been $9-10 billion. But we'd also need to account for the $1 billion or so that Qualcomm would have owed Apple for withheld rebates. So, $8-9 billion? (I suspect, since Qualcomm's position was that it didn't have to pay the rebates because Apple had breached the contract, it wasn't deducting them from the unpaid royalties number which it gave the judge.)
And when it comes to the go-forward licensing costs, we should keep in mind that the $13 (or something in that ballpark) which would have been the per-device cost when Apple filed suit isn't necessarily what Qualcomm would have wanted in a new deal. With 5G coming into play, and with Apple surely wanting an all inclusive Qualcomm license, Qualcomm may have wanted more than that. It currently publicly claims a higher all inclusive 5G rate than that.
That makes sense and lines up with what my back-of-the-envelope calculations suggested. The $13 would have, I think, been 3.25% with a $400 per-device basis cap.
As for what Qualcomm was getting relative to other licensors... Judge Koh commented on that in one of her pre-trial decisions in the FTC case. Some have looked into it, trying to compile numbers for the licensing revenue of certain relevant (to smartphones) patent holders. Qualcomm, according to the numbers they compiled, had been collecting as much in licensing revenues as all the others combined. And that study wasn't just about cellular SEPs, it was about all licensing revenues. There's a lot of qualifications that would need to be made relating to the data, but it generally points to Qualcomm collecting more than its fair share of royalties.