Company / division: Qualcomm
ARM-Based Windows 10 PCs to Arrive in Q4 2017 (Apr 21, 2017)
Qualcomm has just reported its earnings for the March quarter, and one of the most interesting aspects is its commentary on its dispute with Apple. It says that Apple’s suppliers reported but did not pay around $1 billion in royalties in the quarter, which exactly offset the $1 billion Qualcomm is refusing to pay Apple under the Cooperation Agreement the two companies have, and which Qualcomm says Apple breached. Importantly, that Agreement ended in December, so there are no more payments to be withheld, which means if Apple suppliers continue to withhold royalty payments, they’d affect Qualcomm financially going forward in a way they didn’t this past quarter. As such, it’s given a wider EPS guidance range (25 cents) than usual (it was 10 cents in the last two quarters, for example) because of the uncertainty over these royalty payments (the math here is tricky but I reckon that’s about a $400m range in net income terms). Beyond the Apple dispute, the results are a little tricky this quarter because on paper they look terrible, with revenues and profits way down over the same quarter last year. But that’s partly because Qualcomm had to reduce from its GAAP revenues the nearly one billion dollars it’s due to pay BlackBerry as a result of arbitration between the two companies. The actual results are much better, in keeping with recent trends at Qualcomm, lawsuits aside.
Qualcomm Files Response to Apple Lawsuit (Apr 11, 2017)
Qualcomm has now officially filed a response to Apple’s lawsuit over anticompetitive practices and breach of contract, including both answers to the specific allegations in the suit and a number of counter-claims. One of the main counterclaims is that, by “inducing” regulators to look into Qualcomm, Apple breached the companies’ “Cooperation agreement” and therefore was no longer entitled to certain payments it had received previously. The document further alleges that Apple made many false statements in the course of both its own suit and the discussions it had with regulators, and tried to insert itself into relationships between Qualcomm and other Apple suppliers. Perhaps most interestingly, Qualcomm brings to light something which was covered in the press at the time but didn’t get much attention: the allegation that Apple deliberately hamstrung the Qualcomm chips in the iPhone 7 such that performance would be consistent with those models that had Intel modems, and then prevented Qualcomm from talking about it. On the face of it, that allegation has nothing to do with the broader allegations, but it’s an area where Apple’s public reputation could be vulnerable, and I’m guessing it’s been included in the suit to garner more attention than Qualcomm would get through focusing on the patent and other issues alone.
Another crazy wrinkle in the ongoing set of regulatory and legal actions against Qualcomm over anticompetitive practices: the Korean regulator responsible for the fine against Qualcomm last year says that one of the conditions of the contract between the companies was that Samsung would not be allowed to sell its own Exynos chips to any other vendors. What’s particularly crazy here is that Samsung is both Qualcomm’s biggest customer for chips and a contract manufacturer of those chips, so the two are inextricably intertwined here but are still going through this painful process. Samsung isn’t suing Qualcomm as Apple is, but it’s still likely cooperating with the authorities who are looking into its dealings in various markets. Just another sign of how far relationships between Qualcomm and some of its biggest customers have got, that they’re willing to start airing their grievances despite their close ties.
The data center business at Intel accounts for almost a third of its revenues, has high margins, and has been growing considerably faster than its Client Computing segment (which includes PCs, tablets, and mobile phones). And it’s done well in large part because of commitments from big players like Microsoft to using its chips in their data center servers. But now Microsoft is saying it plans to switch to using ARM-based chips made by Qualcomm in its Azure server infrastructure instead, which could put a dent in Intel’s future growth and reduce its share from the 99% cited in this Bloomberg article. This isn’t imminent – it’s a step on a path Microsoft is committed to, but hasn’t been rolled out to any customer facing servers yet. But ARM-based chips have been cited as potential substitutes for Intel chips in server farms for some time now, so this could be the beginning of a dramatic shift in the next few years. That’s obviously terrible news for Intel, for which the data center business has been a useful source of growth and margins in recent years. Meanwhile, this is such a small business for Qualcomm today that it doesn’t even get mentioned in its quarterly earnings materials, but that could obviously change rapidly going forward.
Just a quickie here – Apple has now sued Qualcomm in the UK too, on top of its existing suits in China and the US. There’s not a lot more detail in this article or, apparently, in the court filing itself, but the thrust of the UK case seems to be the same as in the other cases already filed.
5G Schedule Moves Up to 2019 – PCMag (Feb 27, 2017)
As I expected, 5G seems to have been a big theme at MWC this year, with lots more marketing type announcements but also some actual products being announced, albeit ones which should technically be described as pre-5G. The headline here is a bit funny, because of course it’s in these companies’ interests to suggest 5G is more imminent than previously thought, but it’s not up to them how quickly the technology gets deployed – that’s entirely up to the carriers, and I’m still very skeptical that we’ll see 5G available to more than a handful of locations before 2020 in the US (or probably anywhere else). And of course the idea that Qualcomm’s 5G modem would premiere in an iPhone seems laughable – Apple has been deliberately slow to adopt both previous wireless generations (3G and 4G), because the early trade-offs between performance and battery life make early entry unappealing. I don’t see that changing with 5G. But as a previous piece suggested, 2017 is going to be the year of pre-5G commercial trials, which is an important step along the path to eventual mainstream rollout and adoption.
Intel’s 7560 Modem Could Push Next iPhone to 1Gbps – PCMag (Feb 21, 2017)
There’s some conjecture here on two points: that simply because Intel has added CDMA/EVDO capability to its next LTE modem Apple will use it globally, and that a modem capable of delivering peak throughput of a gigabit per second will actually do so in real world environments. The latter is an obvious stretch, given that real-world performance is always a fraction of the theoretical peak, but the former may well be a stretch too. I’m not convinced that Intel could ramp up production quickly enough to be the supplier for all of the next generation of iPhones – that would be a massive step up over its iPhone 7 supply. And I’m not convinced that Apple, having finally gained a measure of redundancy by dual sourcing modems for the iPhone 7, would so quickly jump back into single sourcing, especially given the performance limitations of the current generation Intel modems. That’s not to say this would never happen, and it’s obviously a very interesting point of leverage in the context of the current bad blood between Apple and Qualcomm, but I still think it’s somewhat far fetched at this point.
The Apple-Qualcomm saga continues. Qualcomm was investigated by the Chinese authorities a couple of years back and although that investigation ended in 2015, Apple appears to be using it in much the same way as it is using the FTC’s action against Qualcomm in the US, as a basis for its own legal action. It’s still almost impossible for any outsider to know how much merit there is on each side of this argument, let alone how individual court systems might ultimately rule, but this fight just keeps getting uglier.
The Qualcomm ‘Tax’ Rebellion – Bloomberg Gadfly (Jan 24, 2017)
This is a great explanation of exactly what’s going on in the lawsuit between Apple and Qualcomm and the various investigations of Qualcomm by competition authorities in several jurisdictions. At root is the fact that Qualcomm charges a licensing fee based on the total cost of devices, not just on the parts Qualcomm makes, a model that’s increasingly out of whack with where the value is in smartphones. It really is starting to feel like the industry has reached a tipping point at which it will no longer put up with this licensing model, and if things don’t go Qualcomm’s way, that will be extremely damaging to its business. Meanwhile, it keeps selling chips to Apple to use in phones, because to stop would be incredibly damaging too.
via Bloomberg Gadfly
Why The LG G6 Won’t Have Snapdragon 835 – Forbes (Jan 24, 2017)
This is sourced reporting from a Forbes contributor who (as far as I am aware) doesn’t have a long track record in scooping news like this, so take it with a pinch of salt. But on the face of it, this makes sense – Qualcomm’s 835 chip is brand new, and Samsung would logically need bucketloads of them for its next Galaxy S phones, potentially gobbling up all the supply available and squeezing other OEMs out in the short term. Apple is famous for securing long-term access to the components it needs and squeezing others out in this way, and given the timing and Samsung’s scale in smartphones, it makes sense that it would be able to secure all the available supply of 835 chips on a short-term basis too. That’s going to be tough for other OEMs launching handsets in the first half of 2016 – even though the article downplays the jump from the 821 to the 835, there are some significant additions in the new chip which will create better performance in areas like battery life, VR/AR, and so on.
Qualcomm Comments on Apple Complaint – Qualcomm (Jan 21, 2017)
This is Qualcomm’s official statement on Apple’s lawsuit filed yesterday in San Diego, and it predictably pushes back on the key points in Apple’s filing. It argues that Apple has been the instigator of the various investigations of alleged anticompetitive behavior by Qualcomm in various jurisdictions, and that Apple has been misleading in its statements to the various authorities involved. Unlike some patent disputes, many of which are ultimately settled out of court, this one looks set to go the distance, given the sheer acrimony involved and the fact that this goes beyond a mere dispute over royalties. Combined with the FTC and Korean case, Qualcomm has plenty on its hands here.
First we had the FTC taking action against Qualcomm, and now Apple is joining the fray, and I’d argue that’s not at all coincidental. Apple would obviously dearly love to pay Qualcomm less money for licensing and chips, and the FTC has given it the perfect ammunition by highlighting alleged wrongdoing on Qualcomm’s part. Intriguingly, it appears that Qualcomm has been withholding rebates due to Apple in retaliation for Apple assisting the South Korean authorities with their recent investigations into anticompetitive practices by Qualcomm. But Apple is also going a lot further, by making some of the same arguments put forth in the FTC case about overcharging for essential FRAND patents. This is going to get ugly. I’m seeing – both in this Bloomberg piece and elsewhere – suggestions that this lawsuit stems from high pressure Apple feels around iPhone growth and margins, but that’s nonsense – Apple will always try to get the best margins possible, and when it’s given a way to apply pressure to a supplier, it’ll do so. The FTC action provided just such a way, so that’s the proximate cause here, not any sort of crunch on the Apple side.
FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones – Federal Trade Commission (Jan 17, 2017)
The link below is to the FTC’s official statement on this action. This isn’t the first time Qualcomm has been accused by authorities of anticompetitive practices, but it’s been possible to dismiss the Chinese action as the action of a country trying to keep a foreign competitor in check. That obviously isn’t the case here, with the FTC taking aim at a home-grown company. The allegations are serious – that Qualcomm illegally ties licensing and chip purchases, that it refuses to license so-called FRAND patents on reasonable terms to competitors, and that it forced Apple into an exclusive arrangement that squeezed out competitors. This won’t be easily dismissed, and the stock price took a quick tumble by about 4% late in the session, though it’s relatively stable after hours so far. Qualcomm has dominated portions of its key markets, but if some of the strategies it’s used to achieve that dominance are undone by regulators, things might open up in interesting ways to competitors.
Qualcomm’s new chip may finally get you to try VR – CNET (Jan 3, 2017)
Qualcomm’s new high-end mobile chip moves its product forward across a number of different categories, but it seems to be emphasizing the AR and VR aspects at its CES presentation. I’m looking forward to getting some more detail on this chip in a briefing later this week, but it looks like extending Qualcomm’s lead in this space at the high end.
Qualcomm Cutting-Edge Automotive Solutions Power Next Generation Infotainment for Volkswagen Vehicles – Qualcomm (Jan 3, 2017)
Qualcomm is one of three big chipmakers to have announced new automotive deals at CES this week, along with Intel and Nvidia. Given how similar many in-car infotainment systems are to the smartphones and tablets Qualcomm already powers, it’s always been a natural player in this space, and is starting to make some headway here. As Android starts to make more of an appearance in these systems, Qualcomm will be a natural partner too – I saw a Panasonic concept system that married Android and a Qualcomm chip on display at CES.
Following action in China in early 2015, Korea initiated similar action against Qualcomm in late 2016, with similar allegations about anticompetitive practices with regard to patent licensing. The Chinese action was easily (perhaps too easily) dismissed a being part of a Chinese government crackdown on US companies, but similar action in Korea is slightly less so, and of course subsequent action by the US FTC has no similar explanation. Yes, Samsung and LG are two of Qualcomm’s biggest customers, and so there may have been an element of protectionism in Korea too, but this was the first real sign of fire behind the smoke.
via Ars Technica
China Hits Qualcomm With Fine – The New York Times (Feb 9, 2015)
The context for this fine against Qualcomm is a broader crackdown by the Chinese authorities on US-based companies which compete with local ones or which are perceived to be gaining an overly dominant position in China. It would therefore also be easy to dismiss this action as more representative of a broader Chinese policy than of any wrongdoing on Qualcomm’s part. However, given all that’s happened since in Korea, the US, and China, it’s now somewhat harder to dismiss this case as being utterly without merit. There’s still the question of whether Qualcomm has genuinely done something wrong or whether Apple is merely flexing its muscles through seeking common cause with friendly regulators, but this Chinese action can now be seen as the beginning of something much bigger rather than a one-off, even if it took quite some time for that to become clear.
via New York Times