Picture this: Opening arguments for Apple vs. Qualcomm are underway in the Southern District of San Diego. US District Court Judge Gonzalo P. Curiel first disallows, then reverses and allows live tweeting. So we all get to read along. Allegations are made of double-dipping, of Coke wanting to get paid for Pepsi. Of KFC and its secret recipe. Of chicken and potatoes. No, seriously. It got weird and fast.
Then, right there, out of nowhere, the inconceivable happens.
Qualcomm and Apple agree to drop all litigation
- Agreement ends all ongoing litigation, including with Apple's contract manufacturers
- Companies have reached a global patent license agreement and a chipset supply agreement
San Diego and Cupertino, California — Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide. The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.
And from Qualcomm:
Qualcomm and Apple reach multi-year agreement Global patent license agreement; chipset supply agreement; litigation to be dismissed
- Direct license between Apple and Qualcomm: six years with two-year option to extend
- Effective as of April 1, 2019
- Apple will pay royalties to Qualcomm
- Settlement includes a one-time payment from Apple to Qualcomm
- Multi-year chipset supply agreement
- All worldwide litigation will be dismissed and withdrawn, including claims involving Apple's contract manufacturers
- Contributes to increased stability for licensing business
- Reflects value and strength of Qualcomm's intellectual property Let's just put a pin in that last point for a hot minute.
Then, just as everyone and their analyst is busy trying to figure out what the frack just happened, the Intel aftershock hits:
Intel to Exit 5G Smartphone Modem Business, Focus 5G Efforts on Network Infrastructure and Other Data-Centric Opportunities
SANTA CLARA, Calif., April 16, 2019 – Intel Corporation today announced its intention to exit the 5G smartphone modem business and complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices. Intel will also continue to invest in its 5G network infrastructure business.
The company will continue to meet current customer commitments for its existing 4G smartphone modem product line, but does not expect to launch 5G modem products in the smartphone space, including those originally planned for launches in 2020.
"We are very excited about the opportunity in 5G and the 'cloudification' of the network, but in the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns," said Intel CEO Bob Swan.
So, what happened?
At some point, in the span of a few hours if not days, something changed. Apple and Qualcomm had been content to let their case go to court. Opening arguments had started. And Apple and Intel had been content to keep working on modems for future iPhones, including next-generation 5G modems for next-generation iPhones a year or two from now.
Then, in a judicial blink of an eye, the case is settled, all other litigation is dropped, and Intel is out of the phone modem business.
Immediately theories stated as facts began popping up on Twitter: Apple realized Intel wasn't getting anywhere with 5G so settled, killing Intel's phone business. Qualcomm didn't want to risk arming the anti-trust cases against it so agreed to more favorable terms with Apple. Intel decided phone modems was no longer a business they wanted any part of any more, forcing Apple to settle. It was like watching Rashomon in real time.
The truth is, in those moments, there were likely only a handful of people in each of those companies who really knew the full dimensions of what had happened and why. And none of them were on Twitter.
But, there were several smart analysts saying several smart things that we can draw on to get a sense of the possibilities. Especially because it's likely there really aren't that many possibilities.
The first is that Intel decided to get out of the phone modem business and that left Apple with only one functional option, at least if they wanted to keep connecting phones to cellular: Settle with Qualcomm.
Intel bought Infineon's modem business in 2011. While Infineon had supplied the original iPhone models, Apple had transitioned away to Qualcomm's chipsets to support CDMA in the U.S. and to offer world phones internationally. When Apple's relationship with Qualcomm soured and they wanted to start dual-sourcing the non-CDMA modems first, and all modems eventually, about the only place they could go was back to Infineon, now Intel.
But Intel's modems weren't as mature as Qualcomm's, which led to a performance gap, and Qualcomm had somehow managed to position themselves as both essential to wireless standards but without wanting to or having to respect the usual free, reasonable, and non-discriminatory licensing that goes with being part of a standard — something I'll get to in a minute. And that made it exponentially harder for Intel to keep up on LTE, much less catch up on 5G.
With Apple being their only effective client, albeit an enormous client, but one that demanded both low prices and high priority, Intel's new management may simply have decided none of it was worth the effort.
With Intel off the board and Huawei not a realistic option for anyone who, you know, wants to sell a phone in the U.S. Apple had to settle with Qualcomm.
The second possibility is that Apple decided to drop Intel as their modem supplier and that left Intel with absolutely no reason to stay in the business.
LTE was hard for Intel. They never reached Qualcomm's level of compatibility or performance, and the levels they did reach reportedly required significant investments in time and resources from Apple, and existed under constant threat of IP action from Qualcomm.
5G was reportedly even harder, with rumors flying that Intel wouldn't have any modems ready, never mind for this year, but not for next either, and who could really have any confidence after that?
Apple has never been an early adopter of radio technologies. The first iPhone didn't have 3G and Apple didn't go to LTE until the iPhone 5, more than a year and a half after the first LTE phone, the HTC Thunderbolt, hit Verizon.
Samsung has just begun the rollout of the Galaxy S10 with 5G in the U.S., which means even if Apple does their usual thing and wait for wider network deployment and more efficient modem generations, the same timeline would still land on iPhone 12 in 2020.
Some would argue that given the maturity of the smartphone market and the flattening of growth, it's risky to wait even that long. Others that 5G is significantly less than a reality right now and that, even as deployment continues, no one has come up with any compelling use cases for it yet. So, all of that is pretty much a wash.
Apple is all about the roadmap, though. And if there was no clear path forward for Intel's 5G modems, never mind at fisrt, but going forward, then there was no clear target for iPhones, which are always being developed a few years out, and have to come together as a tightly integrated whole at launch.
So, come to Jesus, reality check, whatever — Apple may have simply decided settling with Qualcomm may not have been what they wanted going forward, but the only way forward. And, with Apple gone, so too was Intel's phone modem business.
Also, just to cover all the bases, there may also be a reality where Qualcomm saw pressing Apple at trial on all this may have won them the battle over iPhone modems but lost them the anti-trust war in the U.S. and elsewhere and decided to offer Apple rates lower by just enough to bring them to settlement.
Given how Qualcomm, at least in my opinion, has been putting short term gains over long term viability for years now, and how hard it is for companies to come to those kinds of realizations, I consider this the least likely of the possibilities. Especially because of the language used in Qualcomm's PR and effectively removing Intel from the competition space doesn't make Qualcomm look any less anti-competitive.
So, who won?
We're human. We want winners and losers. We want victors and vanquished. People celebrating with cheers and high fives while looking down at the distraught desolation of those they've beaten.
In this case, though, it seems like everybody gains something and loses something, though the degrees and timelines vary greatly.
Up front, this looks like a big win for Qualcomm. Apple has ditched Intel and gone all-in on Qualcomm for at least the next 6 to 8 years. What's more, all the money Apple and their manufacturing partners were withholding will once again start to flow. On the surface, this shows what Qualcomm has long contended: That it is incredibly hard if not downright impossible to make a functional, let alone good, modem without their technology. It affirms the value of their IP, if not their business model.
I say if not their business model because there's been some talk that absent Apple pushing this case, what many in the industry would describe as Qualcomm's abusive, anti-competitive practices, will go unchallenged. I'm not so sure. The biggest risk to Qualcomm's business model was never Apple. It was an is the U.S., Korean, Chinese, and other governments. And, if anything, the arguments Qualcomm made vs. Apple could end up hurting them far worse in the regulatory courts.
Microsoft invested in Apple, and Intel licensed to AMD for a reason. A smarter, more forward-thinking Qualcomm might have done everything possible to insulate itself from anti-trust, where weak competition is so much better than no competition.
Apple probably — and I say probably because, again, no one really knows yet — secured better rates from Qualcomm, which is what they've been after this entire time. Apple can be a remarkably personal company and it often felt like it wasn't just what Qualcomm was charging but the way it was charging it that offended Apple: Based on the whole device rather than just the component, and with licensing fees even when their own components weren't being used.https://twitter.com/DanMatte/status/1118302903578480640
Apple's also getting better, more reliable, more dependable modems and modem roadmaps for the next few years. And yeah, they failed to break Qualcomm's business model but that's not really Apple's business. Again, are regulators for that.
Some are worried that this will also hit pause on Apple's own modem efforts, which have been reported for a while now. My guess is not. Count me as one o the people who believes the modem will become integrated with the system-in-package and, just like what happened with ARM, Apple will transition from buying Qualcomm chips to licensing Qualcomm IP for their own, custom, integrated modems. And that'll be a big win for Apple over time.
And, as much as I love all the history that ends up being unearthed at trial, all the stories about how chips and phones were developed, both Qualcomm and Apple come out of this without executives having to take the stand, and without secrets having to be made public. Humanity lose out on the cultural and technological anthropology, Apple and Qualcomm get to keep their pants on.
So, Intel. At the end of the day, I'm tempted to say they're still struggling so much with their core business — getting CPUs out in anything approaching a timely fashion — that while they lose some Apple modem bucks up front, they also lose the drain and distraction that comes with them. Intel's destiny, though, as always, seems entirely Intel's to win or lose.
For customers like us, long term we'll have to see how the lack of competition to Qualcomm, at least outside Asia, plays out, and what, if anything, we eventually gain from Apple's in-house modem team.
Short term, though, it's a big win. Modems aren't as in-your-face as cameras, but if you can't connect, you know it, and you hate it. For the next long while, iPhones will once again have the best modems in the business, and if anything compelling comes to 5G, it'll come to the iPhone along with it.
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