“Shares of Qualcomm are down $4.16, or almost 8%, at $50.50, after a report by The Wall Street Journal’s Dana Mattioli and Tripp Mickle [on Tuesday] claimed Apple is working on designs for iPhones and iPads for next year that would completely dispense with Qualcomm’s ‘baseband’ modem chips, citing multiple unnamed sources,” Tiernan Ray reports for Barron’s. “The report claimed Apple is looking to use more Intel modem chips, which it already uses in some units of the iPhone, and perhaps to use chips from Qualcomm’s Taiwanese competitor, MediaTek.”
Naturally, one would expect Apple to use the threat of taking the remainder of Qualcomm’s iPhone modem business during negotiations. The fact that such a possibility leaked to the WSJ at an early date only serves to increase that leverage. — Chris Caso, Raymond James analyst
Ray reports, “Caso, however, thinks completely designing out Qualcomm brings a big risk for Apple: it has no backup in case Qualcomm successfully obtains an injunction against non-Qualcomm units of the iPhone.”
MacDailyNews Take: If that’s the risk, it’s a very slight one.
Ray reports, “He thinks the likely outcome is simply that Qualcomm’s share of iPhone goes lower: ‘Net, for 2018, our base assumption is that Qualcomm’s share of iPhone modems will drop to 30%,from the present 50%, thus dropping Qualcomm’s iPhone revenue to the $0.9-1.1 billion range.'”
Read more in the full article here.
MacDailyNews Take: No risk, however slight it may be, no reward.
Qualcomm’s FRAND abuse must stop.
Qualcomm’s licensing scam — charging a percentage of the total cost of all components in the phone, even non-Qualcomm components — is unreasonable, illogical, and irrational.
SEE ALSO:
Apple designing next-gen iPhones, iPads that would dump Qualcomm components – October 31, 2017
Qualcomm faces long odds in attempt to get ban of iPhone sales and manufacturing in China – October 17, 2017
Qualcomm files lawsuits seeking China iPhone ban, escalating Apple legal fight – October 13, 2017
Qualcomm fined record $773 million in Taiwan antitrust probe – October 11, 2017
Apple faces down Qualcomm, Ericsson over EU patent fees – October 2, 2017
Qualcomm loses two key rulings in its patent royalty fight with Apple – September 21, 2017
Apple’s A11 Bionic obliterates top chips from Qualcomm, Samsung and Huawei – September 18, 2017
U.S. judge rules Apple lawsuits against Qualcomm can proceed – September 8, 2017
Qualcomm CEO expects out of court settlement with Apple – July 18, 2017
Apple-Qualcomm legal dispute likely to be ‘long and ugly’ – July 7, 2017
Qualcomm wants court to block Apple from U.S. iPhone imports and sales – July 6, 2017
Judge rules U.S. FTC antitrust lawsuit against Qualcomm to proceed – June 27, 2017
Apple uses Supreme Court decision to escalate war against Qualcomm – June 20, 2017
Apple’s amended San Diego complaint against Qualcomm leaves no doubt: many billions at stake – June 20, 2017
Apple rejects Qualcomm’s allegation of throttling iPhones, says ‘study’ is ‘methodologically unsound’ – June 20, 2017
Apple just poached one of Qualcomm’s top guys – May 31, 2017
Is it true that the FRAND lawsuit revolves around software patents (a stupid concept tobegin with, software should not be patentable, used ti be it wasn’t).
If so, all this revolves around the outcome of the lawsuit, in which case it’s a question on how much QC will be paid… even if their silicon is absent form the iPhone.
QCom is “nuts” to insist on a percentage of the whole pizza when it only provides one of the toppings, no doubt about that. But to say software should not be patentable is even more “nuts”.
Software is not an invention, An invention is a “thing”. In essence it boils down to an algorithm and all algorithms are just mathematical equations. Mathematical equations are not patentable. Either is anything from the natural world for that matter.
This is why software used to be protected by copyright. It’s like trying to patent Moby Dick not (Moby’s Dick that’s patentable).
I can see where you might say that software should be copyrighted and not patented, but copyrights last for the life of the author plus 70 years! Wouldn’t that be even more of a nightmare than software patents!
You can write another story about a whale, just not Moby Dick…
It becomes look and feel, trade dress, etc, where it belongs, because no one owns math.
Applecynic,
Correct. This is about the software patents that enable a device (any device, even one with no Qualcomm components at all) to connect to a cellular network. Any cellphone that works must either license or infringe those patents.
That isn’t a “virtual monopoly by stealth.” It is an actual monopoly, because that is what patents are. Because these particular patents were submitted for inclusion in the standards, Qualcomm cannot charge unfair, unreasonable, or discriminatory royalties. Because they were included in the standard, Apple must pay fair, reasonable, and non-discriminatory royalties. It has no legal alternative.
Determining how much Apple will pay is the whole reason behind these lawsuits and maneuvering.
I was actually hoping you would chime in, as an attorney. Yes, a patent is a legal monopoly for 20 years in exchange for disclosure on how to make the invention. After that it enters the public domain, though lawyers find way to extend with various schenanigans.
A total hypothetical, completely contrived scenario, but…
What happens if Apple removes QC silicon, but QC won the FRAND trial. To make up for lost income, what’s FRAND then, what if QC claims (audaciously) that they were “only” charging what they were due to consideration of the silicon business?
I love it when a-holes fight each other.
The fees for use of the software patents and for use of the hardware are independent, except to the extent that Apple can argue that the software royalties have already been paid by the hardware manufacturer and therefore should not be demanded again. Qualcomm clearly cannot charge Intel royalties for using its patents in hardware and then raise the fees for Apple to use the patents in phones with Intel rather than Qualcomm components.
No, but it can raise the rate Apple’s been paying, or audaciously try to, no? It’s been charging royalty for the Intel bearing phones, hasn’t it?
I realize we’re not going to try this here, that’s what the courts are for.
Right, and once the courts have spoken by setting a fair, reasonable, and non-discriminatory rate of compensation for use of the patents, Qualcomm cannot raise that rate without violating the court’s order.
On one hand of course, I understandneed for the courts to get involved, on the other those “hard-core” capitalist believers, courts are not market forces. The punch line is Fair and Reasonable (Non-Discriminatory is cleaner) which of course is vague, and vague is what pays the lawyers.
Excellent point. Qualcomm wants to be charging for their patents based on final value of the product. The product that Intel sells to Apple costs much less than the product that Apple sells. Buying chips from Intel gets Apple around that problem. Plus, it highlights the unfairness of Qualcomm’s billing methods.
Apple is a company that isn’t afraid to take bold decisions and executes them is such a way that the risk is minimal.
When you think of some of the big risks that Apple have taken, telling Qualcomm where to stuff their baseband modems is one of Apple’s lesser gambles.
Qualcomm had better hope that Apple develops it’s own baseband modem because an Apple in-house device won’t be sold to third parties. On the other hand, if Apple buys modems from Intel or Mediatek, then it will greatly strengthen a rival to Qualcomm and as Apple will be liaising very closely with any new supplier to optimise chips for Apple’s specific needs and possibly sharing technology, there is a very real possibility that one of Qualcomm’s rivals could overtake them in technical sophistication and end up offering better modems to the other cellphone manufacturers. Losing the sales which would have been made to Apple is bad news, but simultaneously creating a situation where a rival flourishes is madness
Qualcomm had the option to play nicely with Apple, but chose to get nasty. They are about to discover what happens to companies who incur Apple’s wrath and it could get very nasty.
Certainly the big risk is with Qualcomm, if things go seriously wrong and its the more likely scenario as no country/body wants to let them continue this virtual monopoly by stealth then their company could at the most extreme result of that end up being dissected and sold off to the highest bidder bit by bit. Best case they find themselves in a completely different competitive scenario where they are not in truth well versed.
What many forget is that Apple stated 4 years ago a desire to improve modem designs for its own use.
At the very least I’ll wager that Apple has been working with Intel to develop modems that can be embedded in Apple’s A Series SoCs. This eliminates the cost and real estate demands of Qualcomm chip sets, eliminates extraordinary license/royalty fees, improves performance while reducing power requirements.
The benefits of dropping Qualcomm as a modem supplier are immense, and Apple recognized this long ago.
Today’s squabble is about Apple being in a position TODAY to drop Qualcomm completely within the next 2 years.
To repeat, using custom silicon for the modem electronics does not eliminate the need to pay royalties to Qualcomm for the software patents, because a modem (even one integrated with the SoC) that does not use the cellular network standards incorporating those patents could not communicate with any existing network. Apple can certainly drop Qualcomm completely as a hardware supplier, but it will have to keep paying Qualcomm for its software patents until they expire.
Most of us realise that Qualcomm will still earn royalty patents, even if the chips are sourced elsewhere but still employing Qualcommm’s patented technology – which forms part of the standards.
However in the longer run, being a company earning royalties is much less of a business than being a developer and supplier of actual chips. Furthermore, when others are strongly motivated to develop their own chips and also devise new technologies, it’s highly likely that new standards will emerge and Qualcomm will not benefit from those advances.
Apple can abruptly drop Qualcomm as a supplier and Qualcomm will still earn vast sums of royalties for many years to come, but abandoning Qualcomm is the start of a process which will progressively sideline Qualcomm, undermining it’s future relevance and profitability.
After Motorola, IBM, Intel, and Qualcomm, Apple will be dropping Qualcomm.
Apple will eventually design their own base bands. Clearly this is a key technology and they will want to control it. Imagine if they were able to drive their modems and wireless chips to the same level of excellence at their SoC chips.
What I find hilarious ids that Apple complains that Qualcomm is charging too much yet apple phones are so highly prices. It could be argued that if Apple wants to tell Qualcomm how much to charge, we should be able to tell Apple how much they can charge. I am fairly sure Apple would not be amiable to that. Let Apple put the cheap crap in their phones. I will be curious to see if the sheeple keep buying them.
The difference is that cellphone purchasers can buy something else if Apple’s prices are too high. There is a free market in cellular devices. Cellphone makers have no choice about using the Qualcomm patents. That is a completely captive market.
Why should Apple pay 4x more than LG for the same chip that goes into an $800 iPhone versus a $200 LG phone?
George,
I do not agree with their position, but here is how Qualcomm would answer your question:
An actual iPhone 8 worth is worth $800 because that is what buyers are willing to pay for it. They are willing to pay that because the phone works—it will connect to cellular voice and data networks. It can do so only because it complies with the accepted standards for cellular devices, which incorporate intellectual property (software patents) that Qualcomm owns.
The market value of a hypothetical iPhone 8 that did not use the patents would be $0.00. That is all a buyer would be willing to pay, because the device would not work. So, Qualcomm argues, using the patents adds $800 to the value of the device, and they should reasonably expect to receive a percentage of that. The use of the patents only adds $200 to the value of the LG phone, so a reasonable royalty would be 4X smaller.
That’s a completely bogus argument. People are not paying 4x the price for a 4x better connection to the cellphone network. They are paying the extra for the build quality and superior features of the device using it.
It would be like arguing that those using an AA battery to power a $100 device should pay more for that battery than those using an identical AA battery to power a $1 torch. Both devices would be rendered useless without that battery and they both use that battery is exactly the same way, but the reason why the $100 device costs so much more is nothing to do with that battery.
As I said, I do not agree with Qualcomm. You make perfect sense.
Outside of FRAND, there are no fair and reasonable restrictions.
An inventor is free to be quite unreasonable. This does not mean they will get the deal.
it’s quite common to base royalties of an invention as a percentage of sale price. Often it’s combined by an up front fee and a going forward royalty. With FRAND, who knows…
Here’s the thing though, an inventor can say “I contribute x% of the value to your product. If you charge a high price, then I contribute x% of value to that high priced product.” The courts must decide whether X% is fair and reasonable. Will they do it just for this case? Will this case be a strong precedent impacting other future cases? Is this a mess in progress? Will the court itself back out for that reason?
If I may add, I disagree with QC also, but FRAND is botched. Its botched as only a committee can botch things. If a restriction of royalty, in exchange for assured royalty through the standard, is established, then the negotiation of royalty itself should have been done, up front, and through the standard. Then and there! It’s the only way to assure Fair Reasonable and Non-Disriminatory. It’s where either the Standard or the Patent holder can equitably back out.
So you would want the courts to decide that the “cell phone value” is $200 and everything else about the unit is exempt? It would be reasonable, except the courts would be price fixing the base cell phone. Bundling has it’s downsides.