Future Apple iPhones to use Qualcomm modem chips as settlement is reached
We could soon see Qualcomm modem chips back inside the Apple iPhone. After the billion-dollar Apple v. Qualcomm trial started in San Diego yesterday with jury selection and continued today with opening statements, both sides have reached a settlement covering all legal action between both companies. According to a joint statement released today, Apple will be paying Qualcomm an undisclosed amount of money, and both parties agreed to a six-year licensing agreement that is dated April 1st, 2019. The licensing agreement has an option for a two-year extension. Apple and Qualcomm also signed a multi-year chipset supply agreement. There is no word about the terms of these pacts.
The settlement looks good for Qualcomm CEO Steve Mollenkopf who said last November that Qualcomm was "on the doorstep" of resolving the many issues it had with Apple. At the time, Apple CEO Tim Cook denied that a settlement was near, noting that both sides hadn't been in talks since the third quarter of 2018.
Apple exclusively used Qualcomm's modem chips in the Apple iPhone from 2011-2015. After legal problems between the two started to surface, Apple started using both Qualcomm and Intel modem chips before switching to Intel only for the 2018 models. While Qualcomm already has 5G modem chips available, Intel wasn't expected to ship its 5G modem until later this year. Some inside Apple were concerned that Intel would not be able to deliver the component in time for the company to launch a 5G iPhone until 2021. Apple even revealed in court earlier this year that it had talked to other chip companies including Samsung and MediaTek. This led Huawei to say that it would sell its internally designed 5G modem chips to Apple.
"Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide. The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement."-Joint statement from Apple and Qualcomm
It's unknown when Apple will start employing Qualcomm chips again
Qualcomm's shares surged following the announcement of the settlement with Apple. The stock is up nearly 22% today to $69.64 as the Wall Street trading day comes to a close. Apple's stock was up just .15% to $199.53 after the announcement. But Qualcomm is not yet out of the woods. It still awaits the decision from Judge Lucy Koh related to the FTC v. Qualcomm non-jury trial that took place earlier this year. That trial included testimony related to all of Qualcomm's controversial business practices including its "no license, no chips" policy and its licensing of standard-essential patents at above FRAND rates. Those are patents that manufacturers must license in order for their products to meet technical standards. As a result, the cost to license such a patent is usually arrived at in a fair, reasonable and non-discriminatory (FRAND) manner.
If Judge Koh rules against Qualcomm, the company could be forced to change how it sells chips to smartphone manufacturers. Ironically, since Apple and Qualcomm have already signed a licensing and chipset supply agreement covering multiple years, any change that the FTC forces on Qualcomm might not apply to Apple. We asked Apple and Qualcomm if they could release the terms of the agreements, but Qualcomm referred us to the joint press release that was issued today.
While the licensing agreement between both firms is dated April 1st of this year, it is unknown when Apple plans on using Qualcomm's modem chips in the iPhone. The 2019 models will probably be unveiled in September and Apple might have to wait until next year before it starts using Qualcomm's parts again. We also don't know if the settlement means that Apple will no longer be working on its own in-house modem chip as rumored.
"This was a major win for Qualcomm as fears of a loss in the courts was a major overhang on the name with Apple going after this IP issue full steam ahead. A settlement is a surprise to investors as ultimately Apple realized this was more about two kids fighting in the sandbox and they have bigger issues ahead with 5G and iPhone softness rather than battling Qualcomm in court."-Dan Ives, analyst, Wedbush Securities
The settlement is a win-win for both sides. Apple now has locked up a supplier of 5G modem chips and doesn't have to worry about whether Intel will have its chip ready for next year. Qualcomm once again will be doing business with Apple on terms that both sides have agreed to, and both companies can lower their future legal bills.
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