Intel (INTC) and Qualcomm (QCOM) struggled for smartphone chip market share for a decade. The rivalry ended with Intel’s exit from the market, but it didn’t go quietly. It filed a brief in a US court supporting Apple’s (AAPL) and the US FTC’s (Federal Trade Corporation) allegations against Qualcomm’s anticompetitive practices. Intel stated that Qualcomm’s NLNC (no license, no chips) policy had forced competitors such as itself out of the market.
A bit of backstory
Let’s take a look at the story behind Intel and Qualcomm’s fraught relationship. Qualcomm entered the smartphone chip market early and dominated with its most advanced modem and smartphone processor technology. Intel entered the market late, and its Atom processors failed to beat Qualcomm’s Snapdragon processors. After suffering a $4 billion loss, Intel discontinued its Atom processors for smartphones. However, it continued to invest billions in modem technology. This investment paid off in 2016, when it secured Apple’s order for iPhone modems on the back of the licensing dispute between Apple and Qualcomm.
However, Apple and Qualcomm reached an out-of-court settlement for their two-year licensing dispute in April. On the same day, Intel exited the smartphone modem business and later in July announced the sale of this business to Apple. This brings us back to the present, and all is not well.
Smartphone modem deal completed
On December 2, Intel completed the sale of its smartphone modem business to Apple for $1 billion. This deal affected both parties and Qualcomm. Intel sold the smartphone modem business to focus on higher-margin 10-nanometer chips that generate a better return on investment. However, Intel didn’t exit the connectivity business completely. It retained the rights to develop modem chips for other applications, such as PC, autonomous vehicles, and IoT (Internet-of-Things).
Apple purchased Intel’s smartphone modem business to accelerate its efforts to build a modem chip in-house. This will help Apple reduce its dependence on Qualcomm and also give it greater control of its hardware and software. However, the 2020 iPhone models will use Qualcomm modems.
Now the question is how Qualcomm is involved in the Intel-Apple deal. Intel says Qualcomm is the cause of the deal.
Intel blames Qualcomm for its smartphone modem business’s poor valuation
In a US FTC lawsuit court filing, Intel blamed Qualcomm for forcing it to sell its smartphone modem business to Apple for a loss. This statement came as a big blow to Qualcomm, which is trying to overturn the FTC’s decision that found it guilty.
Both Apple and the FTC alleged that Qualcomm had used unfair licensing practices and forced competitors out of the market. The ruling of one would have affected the ruling of the other, but Apple settled out of court in April, whereas a district court ruling for the FTC lawsuit found Qualcomm guilty in May. Had Apple waited another month, it would have had a higher probability of winning the licensing case. But bygones are bygones. Apple has already signed a six-year agreement with Qualcomm, and Intel has exited the market.
Why Qualcomm wants to overturn the district court’s decision
As for the FTC lawsuit, Qualcomm has appealed the district court’s decision, which requires that it do the following:
- Adopt component-level licensing instead of device-level licensing.
- Not enter into exclusive supply deals with handset makers that prevent them from purchasing chips from competitors.
- Stop the NCNL policy forcing handset makers to license its technology whether they use it or not.
- License standard patents to competitors in fair, reasonable, and nondiscriminatory terms.
In August, Reuters reported that Qualcomm had won reprieve on the above ruling thanks to the backing of the US Department of Justice. The reprieve will remain until the appeals court makes a decision, which is unlikely to happen before 2020.
Intel believes that the district court’s decision should stand, as Qualcomm’s anticompetitive practices forced it out of the business. Intel stated that it had invested billions of dollars in developing the modem technology, and that investment started to bear fruit in 2016. “But when all was said and done, Intel could not overcome the artificial and insurmountable barriers to fair competition created by Qualcomm’s scheme and was forced to exit the market this year,” wrote Intel general counsel Steven Rodgers in a November 29 blog post. Qualcomm stock fell 5% between November 29 and December 4.
Intel is supplying modems for the 2019 iPhone models, but Qualcomm will supply 5G modems for the 2020 iPhone models. Although Intel lost to Qualcomm in the smartphone market, it’s now waging war in the PC market.
Intel and Qualcomm have a new battleground
On November 25, Intel partnered with MediaTek (MDTKF) to develop a 5G modem for PCs and laptops. Intel will define the specifications, optimize, and integrate the 5G modem across its PC platforms, and Mediatek will develop and manufacture the modem. Going by Intel’s road map, the first modem will appear in laptops in early 2021.
Interestingly, Qualcomm has already entered the PC chip market in partnership with Microsoft to deliver cellular PCs. Intel was a small fish in the smartphone market, but it’s a big fish in the PC market with an 80% share. Now, Intel is where Qualcomm was in the smartphone space. It remains to be seen whether Intel kicks Qualcomm out of the PC space.