Ondrej Holzman Apple filed a lawsuit last week against Qualcomm, its network chip supplier, seeking $1 billion. It's a complicated case involving wireless technology, royalties and agreements between Qualcomm and its clients, but it also shows why, for example, MacBooks don't have LTE.
Qualcomm derives most of its revenue from chip manufacturing and licensing fees, of which it has thousands in its portfolio. On the patent market, Qualcomm is the leader in both 3G and 4G technologies, which are used to varying degrees in most mobile devices.
Manufacturers don't just buy chips as such from Qualcomm, but also have to pay them for the fact that they can use its technologies, which are usually necessary for the functioning of mobile networks. What is decisive at this stage is the fact that Qualcomm calculates license fees based on the total value of the device in which its technology is located.
The more expensive iPhones, the more money for Qualcomm
In Apple's case, this means that the more expensive its iPhone or iPad, the more Qualcomm will charge it. Any innovations, such as Touch ID or new cameras that add to the value of the phone, necessarily increase the fee that Apple must pay to Qualcomm. And often also the price of the product for the end customer.
However, Qualcomm uses its position by offering certain financial compensation to customers who, in addition to its technologies, also use its chips in their products, so that they do not pay "twice". And here we come to why Apple is suing Qualcomm for one billion dollars, among other things.
According to Apple, Qualcomm stopped paying this "quarterly rebate" last fall and now owes Apple exactly one billion dollars. However, the aforementioned rebate is apparently tied to other contractual terms, among which is that Qualcomm's clients in return will not cooperate in any investigation against it.
Last year, however, Apple began to cooperate with the American Trade Commission FTC, which was investigating Qualcomm's practices, and so Qualcomm stopped paying rebates to Apple. A similar investigation was recently conducted against Qualcomm in South Korea, where it was fined $853 million for violating the antitrust law and restricting competition from accessing its patents.
Bills in the billions
For the past five years, Qualcomm has been Apple's sole supplier, but once the exclusive contract expired, Apple decided to look elsewhere. Therefore, similar wireless chips from Intel are found in about half of the iPhone 7 and 7 Plus. However, Qualcomm still charges its fees because it assumes that any wireless chip uses many of its patents.
However, after South Korea, Qualcomm's very profitable strategy with license fees is also being attacked by the American FTC and Apple, which the giant company from San Diego does not like. Business with license fees is much more profitable than, for example, the production of chips. While the royalty division posted a pre-tax profit of $7,6 billion on revenue of $6,5 billion last year, Qualcomm was able to make "only" $1,8 billion on revenue of more than $15 billion in chips.
Qualcomm defends that its practices are merely being distorted by Apple so that it can pay less for its valuable technology. Qualcomm's legal representative, Don Rosenberg, even accused Apple of inciting regulatory investigations against his company around the world. Among other things, the FTC is now unhappy that Qualcomm rejected Intel, Samsung and others who tried to negotiate licensing terms directly with it so they could also make mobile chips.
After all, this is the tactic that Qualcomm still uses, for example, in relations with Apple, when it does not negotiate license fees directly with it, but with its suppliers (for example, Foxconn). Apple only subsequently negotiates side contracts with Qualcomm, when it is paid the aforementioned rebate as compensation for the fees that Apple pays to Qualcomm through Foxconn and other suppliers.
A MacBook with LTE would be more expensive
Apple CEO Tim Cook said that he is definitely not looking for similar lawsuits, but in the case of Qualcomm, his company saw no other way than to file a lawsuit. According to Cook, royalties are now like a store charging you for a couch based on which house you put it in.
Apple CEO Tim Cook on the Qualcomm lawsuit: “It was a last resort, but we didn't see another way. They wanted more money for no reason.” pic.twitter.com/zuwSSzUb10
— Jablíčkář.cz (@Jablickar) February 1, 2017
It is not clear how the case will develop further and whether it will have any significant impact on the entire mobile chip and technology industry. However, the issue of license fees well demonstrates one reason why, for example, Apple has not yet tried to equip its MacBooks with cellular chips for LTE reception. Since Qualcomm calculates the fees from the total price of the product, this would mean an additional surcharge to the already high prices of MacBooks, which the customer would certainly have to pay at least in part.
MacBooks with a SIM card slot (or nowadays with an integrated virtual card) have been talked about continuously for several years. Although Apple offers a very simple way to share mobile data to a Mac from an iPhone or iPad, not having to go through such a thing would often be more practical for many users.
It is a question of how high the demand would be for such a model, but similar computers or hybrids (tablet/notebook) with a mobile connection are starting to appear on the market, and it will be interesting to see if they gain ground. For example, for people who are constantly on the go and need the Internet for work, such a solution could be more convenient than constantly discharging the iPhone through a personal hotspot.
