Qualcomm hit with $1.2 billion fine by the EU for paying Apple to use its chips

Things aren't looking good for Qualcomm. The European Commission has levied a €997 million ($1.23 billion) fine against Qualcomm for "abusing its market dominance in LTE baseband chipsets." The regulator found that Qualcomm violated EU antitrust laws by making "significant payments to Apple" on the condition that it would exclusively use Qualcomm chipsets in iPhones and iPads.

By doing so, the EU regulator alleged that Qualcomm shut out its rivals from competing effectively, enabling the chip vendor to solidify its position as the market leader. From the EU ruling:

In 2011, Qualcomm signed an agreement with Apple, committing to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its "iPhone" and "iPad" devices. In 2013, the term of the agreement was extended to the end of 2016.

The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers.

This meant that Qualcomm's rivals were denied the possibility to compete effectively for Apple's significant business, no matter how good their products were. They were also denied business opportunities with other customers that could have followed from securing Apple as a customer.

The deal was originally signed in 2011, and was extended until 2016 a few years later. Apple started exploring other options following the end of the agreement, resulting in the use of Intel LTE modems in the iPhone 7 and 7 Plus.

The $1.2 billion fine by itself won't hurt Qualcomm's bottom line significantly as it represents 4.9% of the company's overall revenue in 2017, but it is one of many regulatory battles Qualcomm is facing right now. The company is embroiled in a bitter patent fight with Apple, and is simultaneously fending off a $100 billion takeover bid by Broadcom.

For its part, Qualcomm has stated that it will appeal the EU commission's ruling. From Don Rosenberg, executive vice president and general counsel of Qualcomm:

We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers. We have a strong case for judicial review and we will immediately commence that process.

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