Apple CEO Tim Cook: We Feel Good About Resolution With Qualcomm

[BootsWalking]

How did it cost them billions of dollars? Apple was always going to have to pay royalties, both for the previous years (in arrears) and going forward.

Not according to Apple it wasn't. They withheld those payments to Qualcomm under the premise that they were illegal.

As it is, it will be paying considerably less than Qualcomm wants (for an all inclusive 5G license) and less than it would have had to pay (through its contract manufacturers under existing agreements) had it not started to withhold payments and filed suit.

And you're basing this on what? Wall Street disagrees with you:

"Apple could have paid Qualcomm between $5 and $6 billion to settle the two companies’ bitter legal battle, according to a new estimate.. Apple probably also agreed to pay between $8 and $9 in patent royalties per iPhone, estimated UBS, based on Qualcomm’s guidance that it expects earnings per share to increase by $2 as a result of the settlement. The UBS estimate suggests that Apple paid a high price to end a bitter legal battle that spanned multiple continents and threatened Apple’s ability to release a 5G iPhone and put pressure on Qualcomm’s licensing business model that contributes over half of the company’s profit."

Source: https://www.cnbc.com/2019/04/18/apple-paid-5-billion-to-6-billion-to-settle-with-qualcomm-ubs.html

Also, what makes you think Apple ended up saying yes to the kinds of things it had “stood up and said NO” to? Do you think Apple agreed to all of the onerous terms which Qualcomm had previously imposed?

Yes I do, and it's because Apple had no choice but to do so. To wit:
https://www.semiaccurate.com/2019/04/16/qualcomm-just-beat-apple-into-sumbission/

 

[Baymowe335]

Pretty much this. Tim Cook was idealistic and vocal but when it came down to it, Tim Cook caved.

If Apple was against the so-called Qualcomm monopoly and everything it stood for, a $900B company wouldn’t need back down.

You’re speculating and guessing.

Stop acting like you know.l and spreading nonsense. Plenty of evidence to the contrary, but again, no one knows.

 

[apolloa]

There was considerably more at issue than the royalty rate for Qualcomm’s IP.

Who knows what the jury would have determined with regard to the various claims the parties made. But Apple had, in pre-trial motions, mostly been winning. The trial was setting up more as it desired and less as Qualcomm desired. Though, Qualcomm had successfully managed to avoid having the validity, exhaustion, and infringement of some particular patents considered by agreeing to never sue Apple or the contract manufacturers for infringement of those patents.

That said, one of the aspects of this case (i.e. the consolidated case which Judge Curiel was presiding over) involved Qualcomm seeking to have its licensing agreements with the contract manufacturers enforced. What Apple agreed to pay is, if Qualcomm’s estimate for the settlement’s effect on EPS is correct, considerably less than it would have had to pay, for less IP, under those existing contracts.

But we’ll never know... I have said before though, all the total BS spin Apple puts on these things, like how bad Qualcomm is etc etc.. is bogus rubbish as it is literally their MO to get cheaper supplier pricing.
Still shouldn’t moan as at least we go back to decent modems in iPhones now.. the idiots should never have jumped ship to Intel as it is.

 

[jeremiah256]

We're glad to put the litigation behind us and all the litigation around the world has been dismissed and settled. We're very happy to have a multi-year supply agreement and we're happy that we have a direct license arrangement with Qualcomm that was important for both companies. We feel good about the resolution.

Same for us Apple consumers, Tim. Same for us.

 

[Carnegie]

Not according to Apple it wasn't. They withheld those payments to Qualcomm under the premise that they were illegal.



And you're basing this on what? Wall Street disagrees with you:

"Apple could have paid Qualcomm between $5 and $6 billion to settle the two companies’ bitter legal battle, according to a new estimate.. Apple probably also agreed to pay between $8 and $9 in patent royalties per iPhone, estimated UBS, based on Qualcomm’s guidance that it expects earnings per share to increase by $2 as a result of the settlement. The UBS estimate suggests that Apple paid a high price to end a bitter legal battle that spanned multiple continents and threatened Apple’s ability to release a 5G iPhone and put pressure on Qualcomm’s licensing business model that contributes over half of the company’s profit."

Source: https://www.cnbc.com/2019/04/18/apple-paid-5-billion-to-6-billion-to-settle-with-qualcomm-ubs.html



Yes I do, and it's because Apple had no choice but to do so. To wit:
https://www.semiaccurate.com/2019/04/16/qualcomm-just-beat-apple-into-sumbission/

(1) Apple never claimed that it was illegal for Qualcomm to collect royalties for its IP. It never suggested that it wouldn't owe royalties. Apple argued a lot of things, to include that the terms which Qualcomm demanded weren't FRAND and that the agreements Qualcomm had with its contract manufacturers shouldn't be enforced for various reasons. But it never tried to argue that it shouldn't have to pay royalties at all.

(2) The numbers you're quoting from UBS don't disagree with what I said. Rather, they support it. If Apple agreed to pay $5-6 billion for back royalties, that would be considerably less than it would have owed under the contract manufacturers' existing agreements and less than Qualcomm said that Apple owed. And $8-9 per device going forward would be less per device than Apple would have owed under those contract manufacturers' existing agreements. It would also be a lot less than Qualcomm asks for. If Apple could have gotten a long term direct licensing deal in the beginning of 2017 for $8-9 per device, and a long term chip supply agreement, and not had to agree to the onerous terms which Qualcomm had previously insisted on (some of which it surely has not agreed to), then I think it would have gladly accepted that.

I'm pretty familiar with the numbers involved. I've been reading court filings from all the parties and, e.g., Qualcomm's financial statements. $8-9 per device is in the ballpark of what I'd estimate that Apple has agreed to pay. The actual (effective) number could be a little higher or a little lower, but it's very likely in that ballpark.

(3) So you do think that Apple agreed to all of the onerous terms which it had previously objected to? Chip exclusivity? IP cross licensing without compensation? No clarity on what IP it was actually licensing? Effectively paying a higher royalty rate if it bought chips from competitors?

The reality, as much as some might want to deny it, is that Qualcomm's business model has been substantially disrupted. That's not only because of the aggressive stance Apple (finally) took against it. It's also largely due to the actions of various regulatory bodies and other industry participants coming out against Qualcomm's tactics. But it is in significant part due to Apple standing up to Qualcomm and putting tremendous pressure on its business. It was Qualcomm telling the court that it needed this case to be resolved. It was Qualcomm arguing to the court to not allow Apple to needlessly delay its resolution. It was Qualcomm comparing its situation, with Apple withholding royalty payments, to a house being on fire.
[doublepost=1556668697][/doublepost]

But we’ll never know... I have said before though, all the total BS spin Apple puts on these things, like how bad Qualcomm is etc etc.. is bogus rubbish as it is literally their MO to get cheaper supplier pricing.
Still shouldn’t moan as at least we go back to decent modems in iPhones now.. the idiots should never have jumped ship to Intel as it is.

We don't know what the exact terms of the agreement are. But, if we're paying enough attention to the details, we can ballpark the numbers. And we can be pretty confident that certain terms weren't agreed to. Even from Qualcomm's perspective, it most likely wouldn't have wanted some of the same terms it previously imposed. It's come under so much regulatory heat that it would likely consider it too risky to try to impose such terms now. It had to change the way it did business.

That said, this wasn't just Apple complaining about Qualcomm's tactics. Many industry participants came out in opposition to them. And regulatory bodies around the world have found them to be both illegal and in violation of Qualcomm's contractual commitments.

 

[Fender2112]

Considering they caved I don’t know why Apple would feel good....

Be cause it's better than a beating.

 

[BootsWalking]

(1) Apple never claimed that it was illegal for Qualcomm to collect royalties for its IP. It never suggested that it wouldn't owe royalties. Apple argued a lot of things, to include that the terms which Qualcomm demanded weren't FRAND and that the agreements Qualcomm had with its contract manufacturers shouldn't be enforced for various reasons. But it never tried to argue that it shouldn't have to pay royalties at all.

(2) The numbers you're quoting from UBS don't disagree with what I said. Rather, they support it. If Apple agreed to pay $5-6 billion for back royalties, that would be considerably less than it would have owed under the contract manufacturers' existing agreements and less than Qualcomm said that Apple owed. And $8-9 per device going forward would be less per device than Apple would have owed under those contract manufacturers' existing agreements. It would also be a lot less than Qualcomm asks for. If Apple could have gotten a long term direct licensing deal in the beginning of 2017 for $8-9 per device, and a long term chip supply agreement, and not had to agree to the onerous terms which Qualcomm had previously insisted on (some of which it surely has not agreed to), then I think it would have gladly accepted that.

I'm pretty familiar with the numbers involved. I've been reading court filings from all the parties and, e.g., Qualcomm's financial statements. $8-9 per device is in the ballpark of what I'd estimate that Apple has agreed to pay. The actual (effective) number could be a little higher or a little lower, but it's very likely in that ballpark.

(3) So you do think that Apple agreed to all of the onerous terms which it had previously objected to? Chip exclusivity? IP cross licensing without compensation? No clarity on what IP it was actually licensing? Effectively paying a higher royalty rate if it bought chips from competitors?

The reality, as much as some might want to deny it, is that Qualcomm's business model has been substantially disrupted. That's not only because of the aggressive stance Apple (finally) took against it. It's also largely due to the actions of various regulatory bodies and other industry participants coming out against Qualcomm's tactics. But it is in significant part due to Apple standing up to Qualcomm and putting tremendous pressure on its business. It was Qualcomm telling the court that it needed this case to be resolved. It was Qualcomm arguing to the court to not allow Apple to needlessly delay its resolution. It was Qualcomm comparing its situation, with Apple withholding royalty payments, to a house being on fire.

You make some interesting points. To accurately gauge your assessment that Apple wound up paying less to Qualcomm as the result of the settlement, can you share your numbers on how many units Apple's settlement covers and what the ASP of those units were, since Qualcomm's original agreement is based on those metrics?

And yes Apple did claim those royalties were illegal. Of course not the notion of royalties themselves but on the amount. Considering that Apple withheld all royalties during the dispute period it stands to reason Apple considered a material portion of them to be illegal pet FRAN.

Considering where Qualcomm sits today I don't see any evidence that their business model has been substantially disrupted, either on a current royalty basis or on a future projected basis. Can you provide more basis your that assertion?

 

[NoThanks2U]

Probably the figured out together, how to "scheme"

 

[farewelwilliams]

On what do you base the idea that Apple was going to lose the trial? (I assume you're referring to the one which Judge Curiel was hearing.)

Had you been paying attention to the rulings in that case? On the whole, it was setting up to Apple's advantage.

The settlement deal is more of a win for Qualcomm than Apple. If Apple had a strong case, they could have crushed Qualcomm which could have improved Apple's relationship with Intel. I would say their relationship with Intel is a bit tarnished now.

 

[Carnegie]

You make some interesting points. To accurately gauge your assessment that Apple wound up paying less to Qualcomm as the result of the settlement, can you share your numbers on how many units Apple's settlement covers and what the ASP of those units were, since Qualcomm's original agreement is based on those metrics?

You're asking for iPhone unit numbers and ASPs from the past or for the future? The former is easy to find in Apple's financial statements, the latter is... of course... not available. Either way, we don't need to know them to know (at least in ballpark terms) what Apple would have owed per device under the contract manufacturers' existing agreements.

What I've been able to figure out is based on what has been said in court filings (and, to some extent, in Qualcomm's financial statements). It relates to, among other things, how much in rebates was withheld and how much Qualcomm claimed to not have been paid in late 2016. You have to go through a number of things and piece it together, and if you do that you can get a ballpark range for what the royalty costs were. I'll point you to some of the filings if you'd like to do the research and calculations for yourself.

But that's not even necessary, because we have other sources which have confirmed what I've calculated for my own purposes. We know from testimony in the FTC case that, without the rebates, Apple would have (at some earlier time) effectively been paying $13 per device. And that's what matters because Qualcomm had stopped paying the rebates when Apple started withholding royalties and filed suit. Further, the deal which had provided for those rebates (which effectively lowered the rate) expired. Further still, in order to get those rebates Apple had to agree to onerous terms which it was no longer willing to agree to (and which it almost certainly now has not agreed to). The point is, the rate Apple would have been paying was at least $13 per device.

That effective rate, or something higher, is confirmed by what Qualcomm told Judge Curiel. It said that Apple owed (under the existing contracts with contracts manufacturers) $7 billion in unpaid royalties. That would have been for 8 quarters worth of royalties, during which time Apple would have sold about 500 million cellular devices - mostly iPhones.

That rate is further confirmed by Qualcomm's own published rate - 3.25% with a base cap of $400. But that's only for SEPs, it doesn't cover other IP. Qualcomm currently says that its rate for an all inclusive 5G license is 5% with a $400 basis cap.

The point is, we have plenty of information to have confidence that $8-9 per device is less than Apple would have been paying had it not withheld payments, and a lot less than what Qualcomm currently says that it wants.

And yes Apple did claim those royalties were illegal. Of course not the notion of royalties themselves but on the amount. Considering that Apple withheld all royalties during the dispute period it stands to reason Apple considered a material portion of them to be illegal pet FRAN.

I said... "How did it cost them billions of dollars? Apple was always going to have to pay royalties, both for the previous years (in arrears) and going forward."

To which you responded... "Not according to Apple it wasn't. They withheld those payments to Qualcomm under the premise that they were illegal."

The point is, again, Apple was always going to have to pay royalties. That was always the case, even according to Apple. Nothing it said indicated otherwise. The dispute was, among other things, over how much it should have to pay. That's part of why it began withholding payments. If the parties can't agree on what should be paid, the would-be licensee (of SEPs) is allowed to not make payments until they can agree or some other party decides.

And, as it is, Apple isn't going to be paying billions more than it would have paid had it not started to withhold payments and filed suit. It's going to be paying less. So the aggressive stance it took hasn't cost it billions. It will end up paying billions in royalties, but that was always going to be the case.

Considering where Qualcomm sits today I don't see any evidence that their business model has been substantially disrupted, either on a current royalty basis or on a future projected basis. Can you provide more basis your that assertion?

Have you followed the regulatory actions against it? The decisions which have been made and Qualcomm has been ordered to do or not do? And have you followed the court cases? Have you read, e.g., Judge Koh's summary judgment with regard to licensing chip competitors? It's been ordered not to do a number of things which it previously did - the very things which Apple and Intel and Samsung and others have complained about. For instance: refuse to license chip competitors, not provide licensees with clarity on what IP was actually being licensed, demand cross licensing of IP without compensation, require that chip buyers agree to Qualcomm's unilateral licensing terms or refuse to sell them chips, effectively charge lower licensing rates if customers buy chips from them rather than from competitors. That's not an exhaustive list. But do you think Qualcomm is still doing, and will continue to do, those things? That it will defy court orders and regulatory body decisions?
[doublepost=1556672439][/doublepost]

The settlement deal is more of a win for Qualcomm than Apple. If Apple had a strong case, they could have crushed Qualcomm which could have improved Apple's relationship with Intel. I would say their relationship with Intel is a bit tarnished now.

There were risks for Apple as well. So a settlement was desirable from its perspective as well as from Qualcomm's, and that was always the most likely outcome. The question was when would a settlement happen.

But Apple had most of the leverage. It was causing considerable financial pain for Qualcomm. And Qualcomm hadn't been shy about saying as much. Further, Apple had won most all of the important legal battles. Decision after decision went Apple's way. Qualcomm won a few inconsequential decisions, some of which were later effectively erased. But on the legal front, things have been looking pretty bad of Qualcomm.

That said, why wouldn't Apple settle if it could pretty reasonable terms. The important things were a direct licensing deal and a long term chip supply agreement. So long as it could get those at a reasonable rate (which it, based on what indications we have, seems to have gotten) and without having to agree to the kinds of terms it objected to, a settlement was in its interest.

The stock market's reaction tells use what we need to know on this front - at least, what the market thought. The market saw far more risk for Qualcomm in not having the dispute settled. Qualcomm's stock reacted immediately and dramatically to the upside (without knowing the terms of the deal). It was major relief that it got a deal done. Apple's stock hardly reacted at all. It just wasn't that big a deal for Apple. At least, that's what the market seems to have thought.

 

[notabadname]

The “lawyerese” on this site his so entertaining. None of us know the full terms of the settlement. It is reasonable to assume that both parties found the settlement agreeable, otherwise they would not have settled. This isn’t a contractor settling for pennies on the dollar because he can’t afford litigation to go for more money from his customer. This is two deep-pocketed companies that could both afford to drag this out. They likely settled due to it being mutually beneficial. Emphasis on mutual. Just to get Intel out of the market, Qualcomm could have moved nicely towards Apple’s goals as well. But much of this could be covered under a NDA, and we will never know the true “value” to either party.

 

[Degerz]

Of course Tim Cook is going to suck up to Qualcomm because they won't have a choice for YEARS to come ...

 

[tennisne1]

I think everyone can agree that Apple wasn't trying to completely avoid paying anything to Qualcomm, but ultimately lower what they had to pay to Qualcomm. In that sense, I think Apple did achieve what they set out to do.

From what I read, the biggest problem Apple had with Qualcomm is how they licensed and charged for their chips/modems. Qualcomm basically (and probably an over simplification) charged fees based on the percentage of the total cost of the device set by the device manufacturer.

For example, Qualcomm wanted 10% (not real number) for each device using their chips/modems. So if a phone cost $1,000, Qualcomm expected $100 in fees and licensing. The problem Apple had is that the Qualcomm licensing terms factored in fees that had nothing to do with their chips/modems. The same Qualcomm chips/modems used in a 64GB iPhone XS would cost Apple more if used in a 512GB iPhone XS Max. The extra cost coming from the bigger screen and storage, which has nothing to do with how the Qualcomm chips/modems are used. This is basically what Apple and many other companies were saying was illegal practice.

Apple knew the terms and had still agreed to the original terms. I'm sure the fact that Qualcomm has a near monopoly here in the US played a part and Apple might not had a real choice. Apple might have started taking issue due to the fact that iPhone prices had steadily increased over the years and was becoming a bigger expense they were trying to control.

At the end, I think the settlement was a win for Apple because it provided Apple with better terms (less fees) than the original terms and a win for Qualcomm as they can bank on additional revenue (although less than under the original terms) from Apple for the next several years.

 

[BootsWalking]

You're asking for iPhone unit numbers and ASPs from the past or for the future? The former is easy to find in Apple's financial statements, the latter is... of course... not available. Either way, we don't need to know them to know (at least in ballpark terms) what Apple would have owed per device under the contract manufacturers' existing agreements.

What I've been able to figure out is based on what has been said in court filings (and, to some extent, in Qualcomm's financial statements). It relates to, among other things, how much in rebates was withheld and how much Qualcomm claimed to not have been paid in late 2016. You have to go through a number of things and piece it together, and if you do that you can get a ballpark range for what the royalty costs were. I'll point you to some of the filings if you'd like to do the research and calculations for yourself.

But that's not even necessary, because we have other sources which have confirmed what I've calculated for my own purposes. We know from testimony in the FTC case that, without the rebates, Apple would have (at some earlier time) effectively been paying $13 per device. And that's what matters because Qualcomm had stopped paying the rebates when Apple started withholding royalties and filed suit. Further, the deal which had provided for those rebates (which effectively lowered the rate) expired. Further still, in order to get those rebates Apple had to agree to onerous terms which it was no longer willing to agree to (and which it almost certainly now has not agreed to). The point is, the rate Apple would have been paying was at least $13 per device.

That effective rate, or something higher, is confirmed by what Qualcomm told Judge Curiel. It said that Apple owed (under the existing contracts with contracts manufacturers) $7 billion in unpaid royalties. That would have been for 8 quarters worth of royalties, during which time Apple would have sold about 500 million cellular devices - mostly iPhones.

That rate is further confirmed by Qualcomm's own published rate - 3.25% with a base cap of $400. But that's only for SEPs, it doesn't cover other IP. Qualcomm currently says that its rate for an all inclusive 5G license is 5% with a $400 basis cap.

The point is, we have plenty of information to have confidence that $8-9 per device is less than Apple would have been paying had it not withheld payments, and a lot less than what Qualcomm currently says that it wants.

Thanks for the detail write-up. What leads you to believe the new agreement between Qualcomm and Apple (in which Apple pays $8-9/phone) doesn't reflect the net effect of continued rebates back to Apple, because if it does that is about what Apple is already paying Qualcomm post-rebate. Regarding the up-front payment of the settlement, the high-end of the analysts range was $6B, which is pretty close to the $7B figure you state Qualcomm included in their court filings?

Have you followed the regulatory actions against it? The decisions which have been made and Qualcomm has been ordered to do or not do? And have you followed the court cases? Have you read, e.g., Judge Koh's summary judgment with regard to licensing chip competitors? It's been ordered not to do a number of things which it previously did - the very things which Apple and Intel and Samsung and others have complained about. For instance: refuse to license chip competitors, not provide licensees with clarity on what IP was actually being licensed, demand cross licensing of IP without compensation, require that chip buyers agree to Qualcomm's unilateral licensing terms or refuse to sell them chips, effectively charge lower licensing rates if customers buy chips from them rather than from competitors. That's not an exhaustive list. But do you think Qualcomm is still doing, and will continue to do, those things? That it will defy court orders and regulatory body decisions?

I have been following the regulatory actions against Qualcomm. Are you someone correlating those actions with Apple's decision to withhold royalties and engage in a public feud with Qualcomm? Because those regulatory actions predate Apple's tussle with Qualcomm. Putting that aside, you haven't connected the dots between Qualcomm's ongoing legal troubles with your assertion that their business had been fundamentally changed by it. If such correlations were self-evident then companies like Facebook would be a very different company than what was reflected in their just-released earnings.

But Apple had most of the leverage. It was causing considerable financial pain for Qualcomm. And Qualcomm hadn't been shy about saying as much. Further, Apple had won most all of the important legal battles. Decision after decision went Apple's way. Qualcomm won a few inconsequential decisions, some of which were later effectively erased. But on the legal front, things have been looking pretty bad of Qualcomm.

I wouldn't read much into Qualcomm's complaining about the pain Apple was causing them. That was obvious posturing in the lead-up to their trial, where if Qualcomm was victorious would certainly have factored into the damages they would have requested.

That said, why wouldn't Apple settle if it could pretty reasonable terms. The important things were a direct licensing deal and a long term chip supply agreement. So long as it could get those at a reasonable rate (which it, based on what indications we have, seems to have gotten) and without having to agree to the kinds of terms it objected to, a settlement was in its interest.

What choice did Apple have? They had no alternative source for 5G chipsets. Unless you're able to convincingly dispute that point I don't see how you could argue Apple had any leverage.

The stock market's reaction tells use what we need to know on this front - at least, what the market thought. The market saw far more risk for Qualcomm in not having the dispute settled. Qualcomm's stock reacted immediately and dramatically to the upside (without knowing the terms of the deal). It was major relief that it got a deal done. Apple's stock hardly reacted at all. It just wasn't that big a deal for Apple. At least, that's what the market seems to have thought.

Certainly the market saw more risk for Qualcomm because they were already losing out on revenue that was already assumed to be baked into the cake. The market discounts uncertainty far more in the short-to-intermediate term than they do the long term. In the long term Apple would have been at significant risk had they not secured a source for 5G chipsets.

 

[Greymacuser]

Apple goes in the cage, cage goes in the water, Cook goes in the water. Lawyer's in the water, Qualcomm's lawyer.
Farewell and adieu to you fair Spanish ladies.

 

[Kabeyun]

I see it as a positive for both companies... Apple was paying (2011) $7. Qcom wanted to increase $18-19.
They settled on (2019) $8-9, I believe.

Apple got rates similar to 2011.
Qcom got most of it's money that Apple was holding hostage and got a 6-year agreement AND as a side benefit sunk a competitor (Intel). And by resolving, resulted in a hefty stock bump for shareholders.

I think that's better than dragging it out for a few more years for both sides.

Informed, reasonable, balanced. You clearly have no place in this thread among all these experts to whom Apple’s total capitulation is so obvious.

 

[Da_Hood]

Apple paying a bit more than if they had stood their ground, small price to pay to access 5g stop gap before roll your own. Qualcomm takes a bath on pricing but improves position in anti trust filings, revenue stop gap before Apple rolls own solution.
Seems Qualcomm trying to soft land the inevitable fall. Win/Win, unless your anti Apple stance blinds you to reality.

 

[farewelwilliams]

There were risks for Apple as well. So a settlement was desirable from its perspective as well as from Qualcomm's, and that was always the most likely outcome. The question was when would a settlement happen.

But Apple had most of the leverage. It was causing considerable financial pain for Qualcomm. And Qualcomm hadn't been shy about saying as much. Further, Apple had won most all of the important legal battles. Decision after decision went Apple's way. Qualcomm won a few inconsequential decisions, some of which were later effectively erased. But on the legal front, things have been looking pretty bad of Qualcomm.

That said, why wouldn't Apple settle if it could pretty reasonable terms. The important things were a direct licensing deal and a long term chip supply agreement. So long as it could get those at a reasonable rate (which it, based on what indications we have, seems to have gotten) and without having to agree to the kinds of terms it objected to, a settlement was in its interest.

The stock market's reaction tells use what we need to know on this front - at least, what the market thought. The market saw far more risk for Qualcomm in not having the dispute settled. Qualcomm's stock reacted immediately and dramatically to the upside (without knowing the terms of the deal). It was major relief that it got a deal done. Apple's stock hardly reacted at all. It just wasn't that big a deal for Apple. At least, that's what the market seems to have thought.

If there were risks that Apple did not want to take, Apple wouldn't have started this lawsuit in the first place. Qualcomm looked like it had an upper hand with the imminent 5g phones coming out. Could Apple go a few more years without 5G? Sure, but it sounds like iPhone sales could plummet substantially, and the board/investors will start getting their pitchforks out against Tim.

And it's not just me that thinks Apple lost this. Professional articles about this settlement have said that Qualcomm seemed to have won. Marketwatch interviewed an analyst saying that Apple had to conceded if they needed a 5G phone in 2020. NYT mentioned that it was a partial victory for Qualcomm. BBC mentioned an analyst saying that it was a huge vindication for Qualcomm and that "Apple had run out of options". CNBC interviewed an analyst saying "This was a major win for Qualcomm". None of the articles I saw mentioned Apple had the upper hand in this. Markets agree with this side as well.

 

[Beaubarre]

@Carnegie

So you say Apple has been winning because it pays 8-9 $ instead of 13 $ at least to Qualcomm.

But I think you are missing the fact that’s it’s because Apple increased the average price of their iPhones so much that they had to pay more to Qualcomm.

Honestly I think it is not balanced, to gouge out the customer of 400-500 usd prices increases and then says 6 usd more for one key supplier is too much.

 

[scrapesleon]

More money in Qualcomm pockets

 

[Nozuka]

It's quite impressive how everyone knows the exact details of the non-disclosed deal.

 

[Lancer]

I'm glade this is settled but I get the feeling Apple was backed into a corner to get 5G in the iPhone by 2020.

 

[Da_Hood]

And it's not just me that thinks Apple lost this. Professional articles about this settlement have said that Qualcomm seemed to have won. Marketwatch interviewed an analyst saying that Apple had to conceded if they needed a 5G phone in 2020. NYT mentioned that it was a partial victory for Qualcomm. BBC mentioned an analyst saying that it was a huge vindication for Qualcomm and that "Apple had run out of options". CNBC interviewed an analyst saying "This was a major win for Qualcomm". None of the articles I saw mentioned Apple had the upper hand in this. Markets agree with this side as well.

Funny, “vindication” requires the court endorsing Qcomms practices. Apple on the other hand, only needs a better deal to be vindicated. Whilst Intel forced Apples hand here, Qualcomms motives to settle are unclear. In fact you could argue they vindicate Apple, as why else would Qcomm seek a mutually acceptable compromise if they were in the right. In fact if Apple had erroneously besmirched me repeatedly and so publicly I would revel in smacking them down via court, and would go after damages from every angle.

 

[Carnegie]

Thanks for the detail write-up. What leads you to believe the new agreement between Qualcomm and Apple (in which Apple pays $8-9/phone) doesn't reflect the net effect of continued rebates back to Apple, because if it does that is about what Apple is already paying Qualcomm post-rebate. Regarding the up-front payment of the settlement, the high-end of the analysts range was $6B, which is pretty close to the $7B figure you state Qualcomm included in their court filings?

....

I don’t have much time to respond this morning; hopefully I can finish responding this evening. But to answer this part...

If the new rate is about what Apple had previously been paying, with the rebates being accounted for (and I think it’s in that ballpark), then that’s a big improvement from Apple’s perspective. It was no longer getting the rebates when it filed suit. If it hadn’t started to withhold payments, it would have effectively been paying the higher rate. It was Qualcomm’s decision to stop rebate payments which precipitated the suit (though the suit was about far more than that). Further, in order to get those rebates - and thus the lower effective rate - Apple had to agree to terms which it didn’t want to agree to and which, when it filed suit, it was no longer willing to agree to. And it didn’t have the direct licensing agreement and chip supply surety that it wanted.

Had Apple been able to get the lower effective rate without those disagreeable terms, and with a direct licensing agreement and long term chip supply surety, I believe it would have accepted that and not filed its suit. For a 5G all inclusive license (which Apple almost certainly got), Qualcomm now wants $20 per device for devices which cost $400 or more. If Apple’s now paying $8-9, I think it’s happy with that - so long as the other issues are resolved. It might have hoped to do a little better, but it mostly got what it wanted. So it wouldn’t have been worth the risks (e.g. relating to 5G) to push Qualcomm further in hopes of saving another dollar or two per device.

As for the $7 billion figure, that wouldn’t have included the last 2 quarters which are covered by the one time payment which was agreed to. One of those quarters was a holiday quarter. Including those additional quarters the number would be $9-10 billion. From that we’d need to subtract the $1 billion or so which Qualcomm would have owed Apple for withheld rebates from the last 3 quarters of 2016. So instead of $8-9 billion Apple may have agreed to pay $5-6 billion. That lines up pretty well with, e.g., going from $13 per device to $8-9 per device.

 

[FFR]

Thanks for the detail write-up. What leads you to believe the new agreement between Qualcomm and Apple (in which Apple pays $8-9/phone) doesn't reflect the net effect of continued rebates back to Apple, because if it does that is about what Apple is already paying Qualcomm post-rebate. Regarding the up-front payment of the settlement, the high-end of the analysts range was $6B, which is pretty close to the $7B figure you state Qualcomm included in their court filings?



I have been following the regulatory actions against Qualcomm. Are you someone correlating those actions with Apple's decision to withhold royalties and engage in a public feud with Qualcomm? Because those regulatory actions predate Apple's tussle with Qualcomm. Putting that aside, you haven't connected the dots between Qualcomm's ongoing legal troubles with your assertion that their business had been fundamentally changed by it. If such correlations were self-evident then companies like Facebook would be a very different company than what was reflected in their just-released earnings.



I wouldn't read much into Qualcomm's complaining about the pain Apple was causing them. That was obvious posturing in the lead-up to their trial, where if Qualcomm was victorious would certainly have factored into the damages they would have requested.



What choice did Apple have? They had no alternative source for 5G chipsets. Unless you're able to convincingly dispute that point I don't see how you could argue Apple had any leverage.



Certainly the market saw more risk for Qualcomm because they were already losing out on revenue that was already assumed to be baked into the cake. The market discounts uncertainty far more in the short-to-intermediate term than they do the long term. In the long term Apple would have been at significant risk had they not secured a source for 5G chipsets.

You do realize the trial would have only lasted a week. 5g was not a consideration for the settlement. Apple could have procured orders for the 5g modem after the trial, 7 days later.