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Will a Licensing Dispute Challenge Qualcomm’s Business Model?

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Part 7
Will a Licensing Dispute Challenge Qualcomm’s Business Model? PART 7 OF 18

Why Apple and Other Smartphone Makers Are Ganging Up on Qualcomm

Why is Apple suing Qualcomm after so many years?

Earlier in the series, we saw that Apple (AAPL), Samsung (SSNLF), and Intel (INTC), along with regulators from several countries, have ganged up on Qualcomm (QCOM) to force the chip supplier to amend its age-old licensing practices.

This move has raised the question of why Apple is promoting a large-scale legal attack after so many years.

Why Apple and Other Smartphone Makers Are Ganging Up on Qualcomm

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According to an article by EE Times, Apple sees Qualcomm as its competitor, as the latter is enabling other Smartphone makers to challenge it by offering high-performance phones at lower prices.

Around 115 Chinese (FXI) manufacturers use Qualcomm’s Snapdragon processors or modem technology in their phones. This usage has seen Chinese companies such as Huawei and Oppo grow in the double digits and stand next to Apple on the list of top five Smartphone vendors in the world.

While these Chinese manufacturers are paying lower royalty fees according to Qualcomm’s agreement with Chinese regulators, Apple is paying a higher fee for the same technology due to the chip supplier’s licensing terms. This high price scenario is proving to be a disadvantage for Apple.

Analysts guess about Apple’s intentions

Some analysts believe that Apple will resort to developing a modem in-house like it’s doing with its mobile graphics card. However, developing a modem is more complex, as it has to support several standards across the globe.

According to Moor Insights & Strategy president Patrick Moorhead, even if Apple develops its own modem, it will have to “pay license fees to Qualcomm as well as to Nokia and Ericsson.” 

Why have Smartphone makers ganged up on Qualcomm?

While it seems like Apple is trying to stave off competition from Qualcomm, why are other Smartphone makers forcing Qualcomm to change its licensing practices?

Qualcomm is leading the 5G (fifth-generation) revolution, with Intel (INTC) following suit. There’s a high possibility that Qualcomm’s 5G patents will get the standard essential designations. The company will sell its 5G chipsets and license its 5G patents to Smartphone makers like it did with its 3G (third-generation) and 4G (fourth-generation) technology.

According to a Bloomberg article, Apple and several Smartphone makers want to have favorable licensing terms when 5G technology arrives. The 5G opportunity is way bigger than 3G or 4G. It expands beyond mobile into the automotive, industrial, drone, virtual reality, smart city, and IoT (Internet of Things) spaces.

If the courts rule that Qualcomm must base its royalty fees on the price of the component rather than the price of the end device, Smartphone makers could stand to benefit, while Qualcomm’s growth prospects could take a big hit.

The ruling of this dispute is important for both Qualcomm and the entire Smartphone industry. Next, we’ll look at the other regulatory challenges being faced by Qualcomm.

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