Apple stops Qualcomm royalty payments

Analysis: Qualcomm issues profit warnings

Apple has  decided to stop the royalty patent payments to Qualcomm claiming that it wants to wait until a court decides what is the right amount.

Qualcomm has warned its investors that the profits might be lower than expected since Apple has refused to pay a license for millions of iPhones it sells. The big part of the Qualcomm is the licensing business, and the company has so many patents that if you want to make a smartphone, you need to get a licensing pack from Qualcomm. Apple’s belief that it should use Qualcomm’ patents for free for now is happenig few weeks after Qualcomm filed counter claim to Apple suit. 

While some don’t like licensing business models, Qualcomm has tens of thousands of engineers and staff around to world who work hard to earn these patents. It costs you a lot of time and a pile of cash to file a single patent and there is a chance it will not get granted.

Accusing Qualcomm for being a bully in this case is like accusing Microsoft for dominating the market with Windows or Office or accusing Intel for starting its CPU story more than 40 years ago. It would be the same as going after Nvidia and ATI (now AMD) for making GPUs – it is just ridiculous.

Apple is not winning or losing, yet

Here at Fudzilla we had our mind blown by conclusion of some of our colleagues. Without pointing any fingers some came to the conclusion because Apple decided not to pay anymore means that Jobs’ Mob is certain that it will win. Well, it doesn’t.

Qualcomm executive vice president and general counsel Don Rosenberg said in statement that

“Apple is improperly interfering with Qualcomm’s long-standing agreements with Qualcomm’s licensees. These license agreements remain valid and enforceable.”  

To simplify. It is not over until the fat lady sings, it will bea US judge who will make the decision. The final conclusion is not if Apple should pay at all, it is all about how much.

This is starting to sound like going to court with your landlord, while still living in the property and protesting that the rent is too high. One major difference is that Apple doesn’t have an alternative, as Qualcomm has the patents anyone needs to build the phone, so they are stuck with each other.

Apple strong-arms Qualcomm for a better deal

If anything, you can draw two conclusions from this aggressive action. One is that Apple wants to twist Qualcomm’s arm and get a better second sourcing pricing on the modem side. This is a standard practice that anyone who was invoiced in any business in the world and it is called the negotiation. In case you didn’t see how this process works, you should go back and watch the reality TV star Donald Trump on his Apprentice TV show. Of course, when negotiating you want to get the better end of the bargain. The. President of the USA is good in business negotiation, at least on ‘reality’ TV.

Apple profits and innovation on a decline

The second piece of the puzzle is that Apple is having a hard time to get people excited about its products lately. iPhone 7 was not a great product and iWatch was only marginally successful. 

In late 2016, Apple reportedly captured 91 percent of all global smartphone profits worldwide.

It is hard to get any higher than that and in corporate America, that is a big problem. Apple is facing a decline in iPad sales. Apple sold 13.081 million iPads in Q1 2017, down 19 percent compared to Q1 2016. This generated revenue of $ 5.533bn, down 22 percent on last year.

In Q1 2017 Apple sold 5.374 million Macs in Q1 2017 (up 1 percent on Q1 2016) and this made $ 7.244bn, up 7 percent on last year.

Apple sold 78.29 million iPhones in Q1 2017, generating revenue of $ 54.378bn. Both figures are up 5 percent on the same quarter a year ago.

Without getting lost in Apple finances we just wanted to make the point that despite incredibly good sales, Apple is losing market share and making tiny 1 to 5 percent gains. This is not what the Wall Street wants from Apple, they ned it to grown even further, and this is mission impossible.

The best action is to reduce your own margins and go after company that takes most of your margin  from this 78.29 million iPhones in Q1 2017 you sold in royalites – Qualcomm.

Dangerous path

Alienating people, you must work with is never a good idea. This is a very dangerous path. 

Numerous people remember Qualcomm lost the lawsuit in Korea so they assume that there is no smoke without fire.                                        

The Korea Fair Trade Commission (KFTC) has announced in last days of December that some of Qualcomm’s business practices violated Korean competition law. It wanted to get 1.03 trillion South Korean Won (approximately $ 865 million at current exchange rates). Qualcomm claims that this ruling lacks a coherent theory of competition law violations, lacks any evidence of harm to competition, which is robust among chip and handset suppliers because Qualcomm’s business model promotes competition and has a few more good points.  

Without getting any deeper, don’t you think it is suspicious that the home of Samsung fines Qualcomm, one of Samsung’s biggest competitors in many fields for bad business practice. Currently Qualcomm is appealing on the decision and we will see the end of it.

Numerous people don’t realize that Apple can end up paying much more if it loses the case, as they money they are currently withholding will include some court ordered interest too.

We will have to wait and see the outcome but we just wanted to make you aware of these points.