Narrative: Qualcomm is Anticompetitive
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Narrative: Qualcomm is Anticompetitive (Jan 28, 2017)
Written: January 28, 2017
This is an a new narrative, but also an unusual one – few in the industry had made the argument that Qualcomm was behaving anti-competitively unless very recently, and it was mostly regulatory authorities in Asia who had made this argument. The initial action in China in early 2015 was dismissed by many as protectionism on the part of the Chinese authorities in the context of a broader set of actions against US companies. Until the end of 2016, when Korea slapped Qualcomm with a similar fine, I don’t think that perception changed much. Even then, there were arguments to be made that Korean authorities were trying to help homegrown Qualcomm customers Samsung and LG.
But then came the US FTC’s lawsuit against Qualcomm in January 2017, and there was no longer any argument to be made about protectionism. With the Apple lawsuits that followed in the US and China later in the month, it suddenly became clear that Apple was likely behind a lot of the other regulatory actions, perhaps together with other device vendors, and that this was the beginning of what might turn out to be a long drawn out battle between the two over patents and licensing.
Although we now have three regulatory bodies and one private company alleging anticompetitive behavior on Qualcomm’s part, neither of Apple’s lawsuits nor the FTC’s action have yet reached a conclusion, and so the only definitive statements we have are those from the Asian authorities. It remains to be seen whether the FTC or Apple will win in court, and therefore whether similar conclusions will be drawn in the US. The fact is, though, that these various regulatory authorities have seen enough evidence to warrant serious allegations against Qualcomm, and that there has to be at least a 50/50 chance that it will lose.
This Bloomberg piece does a great job of explaining the ins and outs of the case in a way that’s fairly easy to understand, and I recommend if it you want to understand more about what’s really at stake here. Ultimately, Qualcomm and the various device vendors have been licensing technology on a basis which the vendors no longer feel is fair, and they are now challenging the system in the courts and through these various regulatory authorities. At stake is Qualcomm’s massively profitable licensing business, which makes up much of its overall profits, and so it’s likely to defend itself vigorously. In the meantime, Qualcomm will keep selling its chips to Apple and others on the existing basis while all this gets worked out.
Qualcomm Seeks iPhone Sales and Manufacturing Ban in China (Oct 13, 2017)
Qualcomm has announced that it’s filed lawsuits in China seeking a ban on iPhone sales and manufacturing in the country, the latest salvo in the ongoing dispute between the two over patent royalty payments. Qualcomm previously requested the International Trade Commission to ban the import of Intel-based iPhones into the US, and importantly the Chinese government earlier fined Qualcomm on antitrust grounds, so it’s not necessarily disposed to siding with it in this case. However, Qualcomm has been among a set of companies looking to curry favor with the Chinese government, so it’s possible that the Chinese government might look more favorably on such a request. On balance, though, I think it’s unlikely that Qualcomm will prevail here given its history not only in China but elsewhere around these antitrust issues, though of course a successful ban would be a huge blow to Apple in China, so it’s understandable why Qualcomm would seek it as a way to gain leverage in the case.
Qualcomm Fined $773m by Taiwan for Antitrust Violations (Oct 11, 2017)
Following existing investigations and/or action over antitrust issues against Qualcomm in the US, South Korea, and China, Taiwanese authorities have issued a $773m fine against the company over the same issues. The government’s Fair Trade Commission found that Qualcomm acted anticompetitively when it forced licensees for its standards-essential patterns to accept onerous terms as a condition of licensing. The fine relates to a 7-year period in which the FTC says Qualcomm was paid around $13 billion by Taiwanese manufacturers (presumably HTC and contract manufacturers like Foxconn). This antitrust situation is going more and more badly for Qualcomm, but the biggest outstanding case is of course its fight with Apple, which is withholding its own and contractors’ royalties from the company pending the outcome of various lawsuits. It’s hard to see this all going Qualcomm’s way at this point, and it feels like it’s mostly a question of how much the royalty rate will end up being reduced, and therefore what the financial hit will be.
Apple Wins First Small Battles in Court Against Qualcomm (Sep 22, 2017)
I haven’t seen much coverage of this today, but it appears that Apple won a first couple of small battles in its various lawsuits with Qualcomm. A California judge ruled that Apple’s supply chain partners don’t have to pay the royalties they’re currently withholding until such a time as the proper amounts to be paid have been determined, and Qualcomm was also denied its request to end the litigation being pursued separately by Apple in other countries. These are initial steps in what’s going to be a potentially long and complex set of court cases between the companies, but it’s possible that the companies will end up settling once it becomes clearer which way the legal wind is blowing, and they would then likely drop all outstanding litigation. By themselves, these first decisions aren’t indicative of which way things are going to go, but they do put increased financial pressure on Qualcomm, which has seen reported revenues drop as Apple’s partners withhold royalties, which will likely push it to move to settlement sooner rather than later, something that’s probably good news for Apple.
via Apple Insider
Qualcomm reported its results for the June 2017 quarter today, and revenues and profits were both down, in large part because of the various antitrust and other disputes and legal proceedings in which it’s involved. Shortfalls in revenue from Apple, several of its suppliers, and a Chinese customer each caused problems, but it also had to pay out to both BlackBerry and the Korean government over separate disputes. It’s impossible to look at Qualcomm today without noticing the massive cloud of uncertainty and potential financial liability associated with these various cases. On a non-GAAP basis, the company’s results are holding up rather better, though still not stellar. As with Samsung, its semiconductor business was an area of strength, but its core MSM chip sales continue to decline over time as the smartphone market matures, while the broader opportunity it has in CDMA and related technologies continues to grow. Meanwhile, Apple, its suppliers, and Qualcomm all filed new suits over the last couple of days in relation to their dispute, even as Qualcomm’s CEO was quoted earlier this week as saying he expected the case eventually to end in a settlement.
via Financial Times