Apple-Qualcomm settlement: What the influencers are saying

More Wall Street analysts weighed in overnight. Also Ben Thompson and Jim Cramer.

Wamsi Mohan, Merrill Lynch: Access to 5G technology no longer an issue. In our opinion, the settlement is positive for Apple as: 1) it clears the way for the introduction of 5G iPhones (Qualcomm currently has the best performing 5G chipset, and Intel also announced that it will exit 5G smartphone modems (see note from our semiconductor team)), and 2) it means there should be no restrictions on selling iPhones anywhere (related to the Qualcomm dispute). We maintain Buy on improving iPhone inventory in supply chain, stabilizing order cuts, large cash balance, and upside from new Services. Buy. $220. 

Samir Chatterjee, J.P.Morgan: Moving Beyond (Apple) Litigations to Showcase Strong 5G Positioning. Qualcomm and Apple announced a settlement agreement yesterday that appears to be overwhelmingly positive for Qualcomm despite the absence of details at this time… Our preliminary math indicates that royalty payments on an ongoing basis on a per iPhone basis are unlikely to be materially different from Qualcomm’s licensing rate for SEPs, and points to potentially only modest headwinds (if at all) from offering the same licensing rate to other OEMs. Upgrades QCOM to Overweight from Neutral. 

Krish Sankar, Cowan: Apple and Qualcomm Reach License and Supply Agreement. While AAPL will have to pay an undisclosed amount to QCOM, it should not be material given AAPL’s cash hoard and cash flow, in our view. The two positives are: (1) This clears the deck for the companies to work together on 5G development. We believe this opens up the possibility of Qualcomm supplying 5G modems to future iPhones and helps AAPL have a 5G phone ready by C2H20. (2) This also helps with iPhone units for CY20, which could have been depressed if consumers hold out on a new iPhone purchase in 2020, due to a delayed 5G phone introduction in 2021. While we have highlighted that Apple could decide to internally develop a 5G modem at an estimated ~$2.0-$2.2B/yr R&D (plus margins paid to TSMC for production) to alleviate sourcing risk at Samsung/ Mediatek, this development would not be without its own execution risks and thus view the QCOM agreement favorably from a supplier perspective. Outperform. $220.

Matthew Ramsay, Cowan: Finally! Though consistently overshadowed by legal headlines, our checks have consistently pointed to Qualcomm’s ~1-year+ technological leadership in 5G modems versus peers. This was evident at Mobile World Congress this year where Qualcomm dominated early 5G launches with wins at Samsung, Xiaomi, LG, and ZTE. We see significant value in this position entering a period of 5G volume shipments as carriers and handset OEMs look to incentivize upgrades… This IP was not developed overnight, and we believe Qualcomm has been investing for years ahead of the rollout and 5G share gains could be accompanied by more significant RF companion revenue catalyzed by mmWave… In our view, today’s Apple/Qualcomm settlement confirms that Intel’s position as the sole- source iPhone baseband supplier was essentially over in 2019, and demonstrates the extent of Qualcomm’s 5G technology lead.

Aaron Rakers, Wells Fargo: Apple & Qualcomm Reach Settlement.The news comes after a 3/26 [International Trade Commission] ruling that banned some iPhone imports into the United States. Qualcomm has disclosed that it expects an incremental $2.00 of EPS (implying ~$2.4B) from the agreement as product shipments ramp. We see this move as positive for Apple as the company is able to put years of legal battles behind it and potentially position the company to offer a 5G capable iPhone in-line with its competitors. Market Perform. $160.

Daniel Ive, Wedbush: The Soap Opera is Finally Over. With a settlement there is no more uncertainty abound for either company and thus removes an overhang that has long weighed on both companies. Outperform. $225. 

Jim Cramer, Mad Money: My biggest worry was that Apple would be late with 5G. It’s no longer an issue. All anyone talked about was the benefit for Qualcomm. I think that Apple should have been up more than 2 cents on this news, even if Qualcomm was right to rally $15. I smell a downgrade of Apple tomorrow morning. What can I do? Shouldn’t be down.

Ben Thompson, Stratechery: Apple’s Miscalculation. I strongly suspect that Qualcomm got the better of this agreement: Apple almost certainly got a lower licensing rate, but I would bet that rate is based on the overall price of a device, not the individual component (if you know tell me if I’m wrong!). More importantly, Qualcomm got Apple’s business for at least the next six years, and potentially eight. There is more to this story as well: Apple has been hiring modem engineers for a while now, both in Cupertino and San Diego (Qualcomm’s headquarters), and is surely building their own modem. Indeed, I wouldn’t be surprised if Apple makes a deal soon for Intel’s modem IP. The company may have also received favorable terms from Qualcomm for the future; Qualcomm knows that Apple doesn’t want to be their customer forever, and it would make sense to lock-in a revenue stream beyond that six (or eight) year agreement now.

Ben Bajarin, Techpinions: The long road back to Qualcomm. Ultimately, I think Apple’s end goal had always been to acquire a Qualcomm license on their terms, not Qualcomm’s. My reasoning? Apple was single-handedly keeping Intel’s smartphone modem business afloat, and doing most the heavy engineering for Apple, simply so they could have some leverage on Qualcomm. This was one step in a longer plan. Apple then organized some tactical lawsuits, including heavily lobbying the FTC and ITC regulatory bodies to file suits against Qualcomm on the basis of antitrust. Apple was spreading a wide net, hoping to have a few favorable rulings which would force Qualcomm to make some changes to their licensing model, or at the very least, give Apple even more leverage to negotiate an extremely favorable license deal.

Some people have theorized that Apple wanted to dismantle Qualcomm’s licensing business model completely. This theory has never set well with me,

Nick Wingfield and Aaron Tilley, The Information: Behind Qualcomm Truce, a Setback for Apple’s Chip Independence. Just hours after Apple and Qualcomm announced their agreement, Apple’s current supplier of modems, the chip giant Intel, said it no longer plans to make smartphone modems that rely on 5G, a new generation of wireless technology. Intel had struggled to develop the modems, which left Apple with few options but to make peace with Qualcomm. Make no mistake though, the armistice is likely to be a temporary one.

Sascha Seagan, PCMag: Qualcomm Deal Means Apple’s 5G iPhone Is Back on for 2020. Even knowing that Apple has a good path to 5G takes a lot of air out of the Android world’s competitive sails. Samsung, Qualcomm, and various Android vendors have all been promoting 5G as an “only on Android!” technology—you see the banner ads pop up whenever you run the Speedtest app. It’s in Apple’s interest to cut that line of thinking short… September 2020 will still be very early in 5G network rollouts, and it would give Qualcomm time to make a special modem to fulfill Apple’s requirements… The “multi-year” chipset agreement also takes the pressure off Apple’s own modem development team. It’s been an open secret for years that Apple is trying to build its own modem chips. I’d previously thought they’d have to be ready for 2021, but if Apple can rely on Qualcomm now, Apple may start phasing its own modems in around 2022.

Florian Mueller, FOSSPatents: Clash of California tech giants is amicably resolved. There is a new patent license agreement as well as a new chipset supply deal in place. In other words, California’s two mobile hardware giants–Apple from the North, Qualcomm from the South–are working together again. An amicable resolution of a dispute that last more than two years and was a bit acrimonious at times… A trial that could have lasted, if one includes jury deliberations, 1.5 months or more has therefore ended after only 1.5 days. This would have been a huge and extremely difficult case for the jury to decide. As always, I congratulate both parties on their deal, and in this case I think either side would have had to take quite some risk by letting a jury render a verdict on complex commercial and partly technical issues.

Shira Ovide, Bloomberg Opinion: Qualcomm’s Apple Settlement Doesn’t End Risk to Its Business Model. And as long as Qualcomm continues to make money by selling chips and licensing patents, it will continue to attract the ire of other customers and government authorities… Apple most likely got what it wanted all along — a price break —  and won’t be stirring up trouble about Qualcomm’s business model any longer. That controversy has not ended, however, just because Apple removed itself from the fracas. It remains unclear whether Qualcomm’s business model can survive intact.

Ina Fried, Axios: Why it matters. The conflict pitted two giants of the tech industry against one another, threatening to both disrupt Qualcomm’s entire business model and potentially imperil Apple’s ability to bring 5G to the iPhone. Our thought bubble. By settling now, Qualcomm ideally preserves its licensing business while Apple increases its ability to have 5G iPhones on the market next year.

Jacob Kastrenake, The Verge: Apple and Qualcomm’s legal battle had the potential to reshape pricing around modems as a critical time in the mobile phone market just as 5G is starting to take shape. If Apple had won, it could have secured lower prices for itself and potentially made it easier for competitors to Qualcomm to build their own alternatives. If Apple had lost, Qualcomm may have been able to secure even higher fees going forward, further taking hold of the modem market amid a generational change. For both sides, the stakes may just have been too high.

My take: As Ben Bajarin points out, nothing about the settlement overnight on Apple News.


  1. Keith Hope said:
    From Daring Fireball;

    … did Apple settle with Qualcomm because Intel warned them they were getting out of the 5G modem business, leaving Apple with no other option?
    Or did Intel get out of the 5G modem business because Apple settled with Qualcomm?

    My initial guess is it’s the former: Intel decided to get out of this market, and Apple got squeezed.

    April 16, 2019
    • David Emery said:
      That, my friend, is probably the $640m “chicken and egg” question…

      April 17, 2019
  2. Aaron Belich said:
    So, what do we make of the numerous rumblings that Apple was setting up its own 5G design and fab in and around Qualcomm’s backyard? Poppycock, or Tim Cook playing the long game and prepping an internal second supply of chips? Or something else related to networking? AR/VR would require a phenomenal amount of bandwidth between wireless devices… so whatever it is, my guess it’s still simmering in the pot.

    April 17, 2019
  3. Peter Kropf said:
    I believe Apple accomplished 2 goals. The lesser being a reduction in cost per phone.

    Apple now has a license to Qualcomm’s 50,000 patents. Before, only Apple’s chip manufacturers had the license.

    I believe that Apple can use QCOM’s deep patent portfolio to build its own A-Series chips. That’s huge – having contractual agreement and certainty to invest $Bs in R&D towards this goal.

    April 20, 2019
  4. David Drinkwater said:
    I have to come back to this, because something has been sticking in my craw a bit over the “why?” with Qualcomm. To me, the answer comes (indirectly) from a synthesis of Ben Thompson and Ben Bajarin: Apple has been hiring Qualcomm engineers, yes, and surely to develop improved modem technology. (See “modem” as a simile for cellular radio.) Initially, the thought may have been to develop that technology with Intel, which would make sense, since it would make independent competition more real against Qualcomm. However, the “word on the street” that I hear in my office (which is not secret data, but since it it semiconductor manufacturing, I trust that the designers that I work with know and understand some things that I do not) is that the Intel modems are power hogs. They may work fine in laptops, but not in cell phones (Intel has only elected to exit cell phone modem business: that says nothing about laptops).

    Those engineers that Apple has hired from Qualcomm are surely required by some NDAs not to share everything that they know, but as they are Qualcomm trained, there will be an inherent bias to what they know. They know how Qualcomm makes (manufactures) modems. In my view, at this point, that gives Apple a tremendous advantage in designing a modem that can be built by Qualcomm. Merchant fabs (“foundaries”) frequently have process kits (“these are the steps that we are able to perform”). With that kit – and a very well-trained design team – I think Apple could still design “its own” modem and have Qualcomm manufacture it, to a degree that no other company in the world could hope to match in a mutually beneficial way.

    So if you can’t beat ’em, join ’em! And you can’t do that while litigating against them.

    April 22, 2019

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