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.
From Apple (opens in new tab)
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- All worldwide litigation will be dismissed and withdrawn, including claims involving Apple's contract manufacturers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:
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.
Who moved first?#intel exits modem business #Apple needs #QUALCOMM #intel is late with #5G #Apple goes to #Qualcomm kills the Intel modem business
Either way #QUALCOMM was just waiting to get the callWho moved first?#intel exits modem business #Apple needs #QUALCOMM #intel is late with #5G #Apple goes to #Qualcomm kills the Intel modem business
Either way #QUALCOMM was just waiting to get the call— Carolina Milanesi (She/Her) (@caro_milanesi) April 16, 2019April 16, 2019
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 likely decided they didn’t want to be in the modem business as new management took over. That was likely the first ball to drop.
Apple saw the writing on the wall and needed to settle sooner than later.
All the days events feel very coordinated.Intel likely decided they didn’t want to be in the modem business as new management took over. That was likely the first ball to drop.
Apple saw the writing on the wall and needed to settle sooner than later.
All the days events feel very coordinated.— Ben Bajarin (@BenBajarin) April 16, 2019April 16, 2019
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.
For those looking for the answer to the question of “who blinked first Apple, Qualcomm, Intel?” All of this is interdependent across every variable.For those looking for the answer to the question of “who blinked first Apple, Qualcomm, Intel?” All of this is interdependent across every variable.— Patrick Moorhead (@PatrickMoorhead) April 17, 2019April 17, 2019
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.
So, what are the odds that @Qualcomm and the @FTC reach a settlement before Judge Koh issues her verdict? @Apple #aaplqcomSo, what are the odds that @Qualcomm and the @FTC reach a settlement before Judge Koh issues her verdict? @Apple #aaplqcom— Shara Tibken (@sharatibken) April 16, 2019April 16, 2019
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.
Utterly amazed that anyone would spin today's settlement as anything other than a crushing loss for Apple, every mobile vendor, and FRAND enforcement.Utterly amazed that anyone would spin today's settlement as anything other than a crushing loss for Apple, every mobile vendor, and FRAND enforcement.— Daniel Matte (@DanMatte) April 16, 2019April 16, 2019
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.
Ok so let's recap. Apple makes up with Qualcomm a few days into their jury trial, agreeing to pay royalties and opting for a 6-year licensing deal. Why? Because it needs a 5G modem and Intel's wasn't good enough. So license Qualcomm's the right way until it can build its own.Ok so let's recap. Apple makes up with Qualcomm a few days into their jury trial, agreeing to pay royalties and opting for a 6-year licensing deal. Why? Because it needs a 5G modem and Intel's wasn't good enough. So license Qualcomm's the right way until it can build its own.— Daniel Bader (@journeydan) April 16, 2019April 16, 2019
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.
Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.
It's clear who won. Apple huffed and puffed but eventually had to eat the humble pie. This shows Qualcomm was right all along and their share price increase yesterday also proves it. Apple whole argument was that Qualcomm was charging unfair amount (that's rich coming from Apple) and also multi year agreements are unfair. But now all of a sudden 6 year agreement is now fine with Apple. There is a reason why Steve Jobs never went that route and only Tim Cook has this problem.
I don’t see how you come to that conclusion without knowing anything about the terms of this agreement. At this point in time, nobody really knows. There’s also a lot to be said to the point of view that they actually both won. Apple can stay competitive and sell more smartphones while Qualcomm can get more royalties in.
The clear loser though is, again, Intel.
Apple did a complete 180º degree on their stance on Qualcomm. Now they're magically fine with Qualcomm's licensing practices because they're desperate and need a 5G modem for 2020 so it is clear who won. Or they thought they were going to lose and wanted an out that spared some of their image/ego.
Fact of the matter is if Apple thought they would have been successful in their argument, they wouldn't have settled. Why would Apple do a complete u turn, give money to Qualcomm and enter into a multi year contract when they could have simply got it all by winning the case. Does it make sense to you?
If Qualcomm was going to lose, Apple would have gone through with the lawsuit, but instead they're paying Qualcomm a lump sum, licensing IP, and buying their chips.
Correct. It's obvious who won and who lost. Qualcomm shares up 13% from 56 and change before the settlement to 80 and change after the settlement, apple shares down 5% after the settlement. However, they have rebounded and settled out again.
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