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Apple dares Qualcomm

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Qualcomm is not new in the technology arena; it has been around since 1985. That is a long time indeed to be in the fast-passed computer industry.

Unknown in the Wintel (Windows-Intel) era, Qualcomm is today an elephant in the computer chip jungle; it wields strength because as it rightly claims, is the reason your smartphone excites.

Qualcomm is in the right place at the right time; it derives most of its revenue from patent licensing and chip-making.

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With its headquarters in San Diego California, USA, the company has spread its wings to 224 worldwide locations. It is inconceivable that the idea of the smartphone was present when the two MIT alumnae, Professor Irwin Jacobs and Andrew Viterbi and their ‘accomplices’ teamed up back in 1985. Somehow, the smartphone chip ship went in their direction and they jumped on.

Being the elephant, Qualcomm is now trampling on the other animals in the technology ecosystem. Its first victim is Apple. Apple is not an antelope in the smartphone business; it is the lion. The company rakes in 70 percent profit of the smartphone business. Apple catches its prey, eats the softer tissues and the hyenas scavenge for the leftovers.

And the bone of contention? Qualcomm issued a decree that all its customers, Apple inclusive, should use not only the Snapdragon computer chips but qualcomm modems as well.

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For those that would not comply, Qualcomm would slap them with higher patent fees on its intellectual property; and Qualcomm has lots of those. In that way the offender’s costs would bloat and those complying would be advantaged. Clever move!

Apple, being one company that is excited with profits, saw the maths and went ahead to sign an exclusivity five-year deal. This entailed that all the modems that ever went into the iPhone for the last five years were exclusively from Qualcomm. Qualcomm in turn rewarded Apple for the loyalty by rebating a fraction of the patent licensing fees back to Apple.

The exclusive deal expired last year. Blossoming in newly acquired freedom, Apple started to purchase modems from Intel. Qualcomm was scratched in the wrong places and hit back by holding rebates totaling to $1 billion.

Apple played the crying baby and dragged Apple to court demanding $1 billion compensation. Apple claims that it is unethical to charge loyalties based on device’s total as opposed to the value of the chip used in the device.

Apple has sugar-coated its affidavit by revealing that Qualcomm charges five times more than other cellular patent license holders.

Qualcomm profits more from patent licensing that it does on chip manufacturing. In 2016, the company reported $6.5 billion pretax profit from $7.6 billion loyalties alone while the chip business needed $15.4 billion revenue to make a pretax profit of $1.8 billion. This means that 78.3% of qualcomm profits comes from patent licensing.

The fight ranges on with now Apple shouting from anthill that Qualcomm has no right to make money from every smartphone that is made. Time will declare the winner.

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