Apple and Qualcomm make their peace

The two technology corporations Apple and Qualcomm have reached an agreement on their dispute over patents, which has dragged on for years now – only a few hours after court proceedings on the dispute opened in the USA. The “iPhone” manufacturer had accused Qualcomm of charging overly high licence fees for smartphone patents and therefore instructed its contract manufacturers not to make licence payments to the chip developer. Qualcomm thereupon sued Apple for using the patents without making the associated payments.

The agreement now reached applies retroactively as of 1 April 2019 and terminates all ongoing legal proceedings worldwide, both between the two companies and between Apple’s contract manufacturers and Qualcomm. The corporations have now concluded a licence agreement that runs for six years with the option of it being extended for a further two years. During this time Apple will make licence payments to Qualcomm. Moreover, Apple has undertaken to make a one-time payment of an unspecified amount scale in order to compensate Qualcomm for the licence fees it did not receive. Furthermore, a multi-year agreement was reached whereby Qualcomm will supply chip sets to Apple and its contract manufacturers.

For Qualcomm, in our opinion this agreement brings relief overnight. The short-term inflow of funds, which we believe will total several billion US Dollars, plays a subordinate role in this regard. What is more decisive is that this agreement strengthens Qualcomm’s high-margin business of granting licences on its patents. Had the court case gone against Qualcomm, then this important pillar of Qualcomm’s operations would have potentially collapsed. The long-term licencing and product supply agreements now provide security. Added to which, one of the world’s most important smartphone manufacturers is back as a Qualcomm client.

For Apple, the agreement initially spells an outflow of cash, but given the company’s net liquidity of at present some USD 130 billion, it will easily absorb the payment. In the long term, the effects will essentially be positive: Firstly, Apple’s management can go back to focussing on its operative business, which precisely in the “iPhone” segment is at present not running that smoothly any longer. Secondly, the corporation can with immediate effect rely on Qualcomm’s powerful modems. As a result, Apple should be successful in introducing smartphones that support the new “5G” standard more swiftly. To date, Apple has relied (and been forced to) on the products still being developed by US chip developer and manufacturer Intel. The Intel products are not yet ready for the market, meaning that Apple faced the threat of falling behind competitors such as Samsung Electronics or Huawei in terms of both time and technology.

Only a few hours after the patent dispute was brought to an end, Intel announced that it was withdrawing from the business with “5G” modems for smartphones and would not, as originally planned, be introducing such products in 2020. Intel conceded that it saw no way it could profitably pursue such business. At the same time, the corporation emphasised that product development for the “5G” standard continued to be of great strategic importance – albeit outside the smartphone market. Intel will continue to invest in “5G” products for computer centres (cloud computing) and countless end-user devices such as desktop, notebook and tablet PCs and in expanding its “5G” patent portfolio. This decision is certainly not without its merits. As a result, Intel no longer runs the risk of ploughing further billions into an uncertain product that could in the final analysis come to nothing and where Qualcomm most probably has a significant technological edge. Secondly, we support the decision to focus in future more strongly on “5G” products for the globally prospering market for cloud computing and the Internet of Things.

All in all, the market participants in these segments are repositioning themselves, and this could definitely be to the benefit of technological advances.

 

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