Does Apple enjoy a licensing loophole with iPhone?

Parallels Desktop 5 for Mac “While death and taxes are notable certainties, there’s another in the wireless world: make a 3G cellphone and you pay patent royalties to Qualcomm,” Don Clark blogs for The Wall Street Journal. “But Apple may be evading some of the consequences.”

“Analysts at Sanford C. Bernstein this week highlighted what they characterize as a kind of licensing loophole affecting the hit iPhone, which they say puts a limit on the amount of money that flows into Qualcomm’s bank account,” Clark reports. “They estimate the savings provides a lift to Apple’s operating profit that should top $280 million for fiscal 2009 and $400 million for fiscal 2010.”

Clark reports, “Conversely, if Qualcomm could somehow manage to change the situation, the additional money that could flow to the chip maker would be ‘a stunning 9% boost’ to estimates for Qualcomm’s 2010 operating profits, say analysts Toni Sacconaghi and Stacy Rasgon, authors of the Bernstein report. Neither Qualcomm nor Apple will comment on their thesis. Explaining how the analysts arrived at it requires a short dive into Qualcomm’s business model.”

“Sacconaghi and Rasgon say the royalties paid to Qualcomm are based on the price Apple pays Foxconn for each iPhone–about $244, they estimate–not the wholesale price that Apple charges carriers like AT&T for iPhones, which they say averages about $590,” Clark reports.

Full article here.


  1. So, Apple pays royalties to Qualcomm for their 3G radio tech, thru their OEM, Foxconn who actually buys the parts. Sounds smart. Isn’t this how they also pay those Nokia royalties? Their OEM pays, since they are buying the parts?

  2. Loophole? Not hardly, this is nothing more than an anomaly in “usual” practices, brought on by the fact that Apple doesn’t manufacture the iPhone directly.

    If it was planned by Apple, then I say good for them for being smart enough to capitalize on it. The reality is that, among many other factors, this was considered when deciding to manufacture themselves, or contract it out.

  3. Ummm, I though Qualcomm was the licensor of CDMA for Verizon and Sprint technology. Apple uses GSM on AT&T;. Why would Apple, or via their OEM chipmakers, pay Qualcomm directly or indirectly? They don’t have anything to do with CDMA.

  4. Sounds reasonable to me. Qualcomm is getting their royalty based on the value of their part, which is assembled into a product by Foxconn. They have no right to more based on Apple’s own “value add”, which is reflected in their price to AT&T;.

  5. Yes, the article basically implies that ONLY Apple is doing this, and all other manufacturers make sure that they pay Qualcomm the maximum amount of money possible.

    Or the hit-whore is just making sensationalist articles about “random-fact” and Apple that if you just glance at the headline, makes it seem that Apple is doing something wrong, while after you actually read the article and apply some critical thinking, you realize that Apple is doing EXACTLY what all other manufacturers do to hold down their cost of production.

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