Apple attacks Qualcomm in Europe
In the previous part of this series, we saw how Qualcomm (QCOM) litigated against Apple (AAPL) in China to force Apple to negotiate licensing terms. Apple isn’t resting on its laurels, as it has retaliated against Qualcomm in Europe (IEV).
Apple, through the Fair Standards Alliance, is lobbying European regulators to replace their patent fee guidelines based on the value a technology adds to a product to a fixed fee. Europe’s current guidelines favor Qualcomm and Ericsson’s (ERIC) licensing model. Apple stated that these guidelines could hurt consumers and hinder innovation.
European regulators are discussing the issue and plan to finalize the guidelines by the end of November 2017.
Apple’s lawsuits impact Qualcomm’s licensing business
Apple’s legal and regulatory attack against Qualcomm’s licensing model impacted earnings for QTL (Qualcomm Technology Licensing). In fiscal 3Q17, QTL’s revenue fell 48% and operating income fell 56.4% sequentially as Apple withheld $1 billion in royalty payments. Qualcomm appealed to the US court to force Apple suppliers to continue paying royalty while the litigation was ongoing. But its appeal was rejected, which means QTL earnings would remain low until the litigation is over.
Moreover, Qualcomm appealed the court to stop Apple from filing lawsuits in other jurisdictions. Even this appeal was denied, so Qualcomm hit Apple where it hurts the most—China.
Apple looks to reduce its reliance on Qualcomm chips
Whatever the outcome of the lawsuit, Apple is looking to reduce its reliance on Qualcomm’s baseband modem chips by developing the chips in-house. In May 2017, Apple hired Qualcomm’s vice president of engineering, Esin Terzioglu, to oversee the company’s technology roadmap.
Even Qualcomm is looking to diversify its revenue streams beyond smartphones and into automotive and IoT (the Internet-of-Things).