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Will a Licensing Dispute Challenge Qualcomm’s Business Model?

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Part 6
Will a Licensing Dispute Challenge Qualcomm’s Business Model? PART 6 OF 18

What Will Happen to Apple’s Earnings if Qualcomm Wins?

Impact on Apple if Qualcomm wins

If Qualcomm (QCOM) succeeds in imposing a ban on the import of Apple’s (AAPL) iPhones to the United States, it will have a significant impact on Apple’s earnings. Even a ban for a brief moment could delay the launch of the upcoming iPhone in 2017.

This year’s launch is important for Apple. It marks the tenth year since the first iPhone was launched. Moreover, if the ban goes forward, there would be a shortage of existing iPhone models in the United States, resulting in lost sales.

What Will Happen to Apple’s Earnings if Qualcomm Wins?

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In 2016, Apple earned 63.4% of its revenue from iPhones. The Americas accounted for 40% of Apple’s revenue. As the region is Apple’s key market and the iPhone is its key product, a shortage of iPhones in the United States would significantly reduce Apple’s earnings.

iPhone 2017 may not have Gigabit LTE

If Apple decides to break ties with Qualcomm and opt for Intel (INTC) as its sole modem supplier while the dispute is ongoing, its 2017 iPhone model may suffer from a technological disadvantage.

Qualcomm offers the most advanced LTE (long-term evolution) modems in the world. In 2017, the company launched the industry’s first Gigabit LTE X16 modem, and it was first featured in the Samsung (SSNLF) Galaxy S8. It’s expected to be featured in ten more Android phones in 2017.

Intel’s latest XMM 7480 modem has a maximum speed of 600 Mbps (megabits per second). It would take the company another year to launch its Gigabit LTE XMM 7560 modem.

According to a report by EE Times, the Gigabit LTE will be a signature feature in many flagship phones. If Apple uses only Intel’s modem, its 2017 iPhone model may not feature the Gigabit LTE, which has tested 18 times faster than current modems.

iPhone sales may take a hit

In 2016, Apple didn’t use the full potential of Qualcomm’s modem in its iPhone 7 in order to keep it similar to the iPhone 7s featuring Intel modems. At the time, this difference was unnoticed by users. However, the difference may not go unnoticed this time, as network carriers are now marketing the Gigabit LTE technology.

T-Mobile (TMUS) has announced that it will be the first carrier with Gigabit LTE, bringing this feature into the spotlight and making it a key factor in influencing buyers’ decisions.

Adding to Apple’s troubles

According to IDC (International Data Corporation), Apple’s Smartphone market share is being eaten up by Chinese (MCHI) handset makers Huawei and Oppo. Any regulatory issues would give Chinese handset makers the opportunity to bridge the market share gap.

Such a disastrous potential impact brings us to the question of why Apple and other Smartphone makers are objecting to Qualcomm’s licensing practices after so many years. We’ll answer this question in the next article.

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