Apple Paid an Estimated $5-$6 Billion to Settle Qualcomm Dispute, Plus $8-$9 Per iPhone in Royalty Fees

[realtuner]

So if these numbers are made up like you say we can expect a write up from you a bit later with the real facts, right? These people crunch these numbers for a living, if the numbers aren't 100% accurate they aren't too far off. I know it hurts but just face it, Apple didn't have the upper hand and Apple knew they would've lost, that's why they settled out. The fact that Apple lied about having talks with Qualcomm says it all. Apple will never admit failure whether it's in faulty products or legal battles because their whole model is perfection and they know what's right. If Apple came out on top in this you'd dang well know it.

Logical fallacy.

Me calling out someone who doesn't have any knowledge of the settlement and is making guesses about figures they don't have access to doesn't mean that I have the real figures.

These people crunch numbers for a living? Is that why they're wrong 99% of the time?

 

[mikethemartian]

There are two sides. On one hand Apple is paying a lot of money and higher fees now than they did before, on the other hand it'll help Apple stay competitive in the smartphone market. The investor sentiment is apparently that the positives slightly outweigh the cost, hence the very moderate stock price movement.

To answer another question in Macrumor's article: it was Apple that made the decision and Intel reacted (don't ask me how I know). Though it was bad news for Intel, they obviously knew that this was a possibility and had considered their options, so they were prepared to respond quickly. Given that Apple was the only customer for their modem chips with sufficient scale, this was really the only sensible option.

Intel didn’t make and declare a major business decision based on that same day’s news. If anything they agreed not to mention their withdrawal from the market until Apple resolved their legal business with Qualcomm so not to undermine Apple’s negotiating position since they want to maintain good business relations with Apple. The Intel decision would have been well known by Apple ahead of time.

 

[realtuner]

No, you’ve selected one part of the market, the global market is just a tad different I’m afraid:

http://www.statista.com/statistics/266136/global-market-share-held-by-smartphone-operating-systems/

http://www.idc.com/promo/smartphone-market-share/os

A quick google. Apple only has 11 to 13% I’m afraid.

Wow, did you even read what I said?

I SPECIFICALLY mentioned price. None of the two links you posted separate devices out by price.

Try again...

 

[PickUrPoison]

Agreed. I expected to see a drop even today as people sell on this news, but they are up slightly as I write this. Overall this will definitely effect their next earnings statement or two. I'm not sure how much they re going to spread out this money or if it's all together.

It won’t have any appreciable impact on upcoming earnings, even if Apple pays it as a lump sum. (Paying the liability is strictly a balance sheet transaction.) Apple would have been including the estimated license fee as a current expense during the last two years’ income statements, while simultaneously accruing (accumulating) a liability for royalty payments due but unpaid.

There would be some slight adjustment to correct the estimate, which may have been higher or lower than the actual license fee they ultimately settled on, but it wouldn’t be large enough to be if any consequence.

 

[StralyanPithecus]

Say what? Apple OWNS the premium smartphone market. That's why:

• The App Store revenues are double that of Google Play, despite having fewer devices.
• The average iPhone users spends 4X as much money as the average Android user.
• In online shopping iOS users spend 5X as much as Android users.
• In enterprise/corporate use Apple commands an 80% market share.

Qualcomm isn't going to be selling 5G modems to those billion or so $50-100 Android phones sold around the world every year. Even Samsung's latest flagship, the S10, only has 5G on the top end model while the other 3 models use 4G. 5G will be a premium-only market for the first couple years.

The last report from Counterpoint Research showed that Apple had 61% of the $600 and up smartphone market and a whopping 79% of the $800 and up market. Don't kid yourself - Apple will be selling more 5G devices than any other vendor for quite some time.

51% in 2018, 58% in 2017, going down globally and 20% lost in China one on the biggest markets.

 

[apolloa]

Wow, did you even read what I said?

I SPECIFICALLY mentioned price. None of the two links you posted separate devices out by price.

Try again...

No you try again, I’ve provided proof that Qualcomm has an 80% plus percent of global mobile markets share to supply if it chooses, you have zero facts on how many Android handsets it supplies, the sales numbers you quoted are totally and utterly meaningless, I’ve really got no idea how much money the App Store makes has to do with Qualcomms sales?

 

[Rigby]

Intel didn’t make and declare a major business decision based on that same day’s news. If anything they agreed not to mention their withdrawal from the market until Apple resolved their legal business with Qualcomm so not to undermine Apple’s negotiating position since they want to maintain good business relations with Apple. The Intel decision would have been well known by Apple ahead of time.

No, that's not what happened. Intel was working hard on the 8160 modem until yesterday (and they will continue working on it, although with less urgency). As I said, the Qualcomm settlement was bad news but not a total surprise for Intel.

 

[rpmurray]

Apple got outmaneuvered by a company that actually still innovates.

 

[Carnegie]

Fully expect to see a hit to Apple’s stock here.

Why? There was never a dispute that Apple would have to pay royalties for Qualcomm IP.

I think, even if those numbers are close to accurate, they represent significant savings for Apple. And other terms of their agreement (e.g. required chip supply exclusivity, transparency about covered IP) are likely better for for Apple now.

Looking at the $5-6 billion estimate for the one-time payment: If that's accurate, it likely represents a significant reduction from what the contract manufacturers would have owed under their existing agreements. I say that based on what we know (from court filings and Qualcomm's financial reporting) about the royalties which Apple withheld from contract manufacturers during the fourth calendar quarter of 2016.

 

[itsmilo]

A 50 Cent hike will translate to an entry price of 1.199 $ for the iPhone 11

 

[radiologyman]

This is a pure speculation. But even if Apple flat out lost, finally they did it right by providing best possible reception in their Iphones. It should be about making best product possible even if margins will be 1% lower, right?

 

[mikethemartian]

Seems the markets hate uncertainty, more than they hate negative news. known negative > an unknown.

It depends how negative the negative is but yes. Especially with a stock that is growth based and doesn’t mainly provide return to shareholders through regular dividends. The time value of money (TVM) means that future cash flows from any investment have to be discounted by the required rate of return and adding risk increases that required rate. Plus when the return on investment is mostly pushed back until the stock is sold the compounding of that higher rate of return has a more significant impact on NPV.

 

[andiwm2003]

I'm confused how qualcomm can have a monopoly on 5G modems and countries allow 5G infrastructure to be built. Those towers are built on public lands and the frequencies are sold by the countries. I would have expected them to make sure that there is not only one modem provider that dominates the market. This is always bad because it not only leads to high prices, the holder of such a monopoly usually tries to delay development of new technologies so that they can milk their monopoly as long as possible.

I hope that there will be some competition or even an alternative standard to 5G to ensure competition.

 

[Rigby]

I'm confused how qualcomm can have a monopoly on 5G modems

They don't. They just had the best execution on early 5G modems. Qualcomm is also not the only company with relevant patents. Others (such as Ericsson) have a lot of key patents as well and receive royalties from Apple and other phone makers.

 

[velocityg4]

Forgive my ignorance. I keep hearing the line without Intel Apple would have to use Qualcomm modems for 5G. What about Mediatek? Sure Qualcomm is better. If Apple wanted to stick it to 'em. They could have used Mediatek until they had an in house design ready. Even if it hobbled wireless performance. They didn't seem to mind doing this with Intel.

All this fluff was about a $7.50 license on $1,000 phones? Now it's $8 to $9. I guess that means Apple will have to up their prices another $100.

 

[konqerror]

I think the years of this “partnership” would be pretty much numbered. Apple is only paying for some more time to develop its own modem.

You completely missed the fact that this dispute and the anti-trust investigations include standards essential patents. These are patents that are part of LTE and 5G standards. Anybody making a LTE or 5G phone has to pay Qualcomm, as well as other licensors like NTT DoCoMo and Nokia, no matter what.

 

[Glideslope]

So, it backfired for Apple and they're now worse off for trying to throw another partner under the bus.

Time to throw Tim Apple under the bus. Long overdue.

 

[realtuner]

Apple got outmaneuvered by a company that actually still innovates.

Is that why Qualcomm can't even design their own processor cores and have to rely on using off-the-sheld ARM cores (the A76) instead? And end up with a processor with 8 cores that can't even match a 6 month old Apple processor with only 6 cores?

Sounds like some real innovation going on there...

 

[Razeus]

Well played Qualcomm. Well played.

 

[jayducharme]

Remember too that reportedly Qualcomm was asking not only for a royalty for the use of their chips and intellectual property, but they also wanted a cut of every iPhone sold. They could do that because they essentially were a monopoly; no other company was able to successfully mass produce those wireless chips. That's what Apple was upset about: being essentially held hostage by Qualcomm. And with Intel now abandoning wireless chips, Apple was backed into a corner. If Apple wanted to keep making iPhones, they had to settle. This was a huge win for Qualcomm; not so much for the consumer.

 

[Packers1958]

Will Apple be releasing a new emoji as a result of this?

 

[Razeus]

Only if you believe liars and their made-up numbers.

There's no way Apple would settle by paying MORE than previously. They initiated this case and they had the upper hand. This analyst just caters to the anti-Apple crowd (and the stock market manipulators/stock shorters) by trying to spin this as a Qualcomm win and Apple loss.

They had the upper hand? The case didn't even last 2 days and Apple is forking over money. Lots of it.

 

[macduke]

Apple previously paid $7.50 in royalties, so at $8 to $9 per iPhone, Apple would be shelling out more cash than it did before.

Ah yes, I see Tim Cook has been reading The Art of the Deal.

 

[Infinite Vortex]

Apple likely paid somewhere around $5 to $6 billion to settle its ongoing legal battle with Qualcomm…

I guess karma was having a bit of a slow day and needed to spice some thing up.

 

[jamezr]

Remember too that reportedly Qualcomm was asking not only for a royalty for the use of their chips and intellectual property, but they also wanted a cut of every iPhone sold. They could do that because they essentially were a monopoly; no other company was able to successfully mass produce those wireless chips. That's what Apple was upset about: being essentially held hostage by Qualcomm. And with Intel now abandoning wireless chips, Apple was backed into a corner. If Apple wanted to keep making iPhones, they had to settle. This was a huge win for Qualcomm; not so much for the consumer.

To be honest Intel was all set to continue to make the chips for Apple. But when Apple settled and signed the new contract...Intel was left with no customers. The Intel chips were not as good as the Qualcomm chips as well. Qualcomm does not have a monopoly as much as they just produce better chips than anyone else.