April 16, 2019 / 9:35 PM / 4 days ago

Breakingviews - Apple and Qualcomm face up to mutual need

The various colors of newly released Apple iPhone XR are seen following the product launch event at the Steve Jobs Theater in Cupertino, California, U.S. September 12, 2018. REUTERS/Stephen Lam

NEW YORK (Reuters Breakingviews) - Apple and Qualcomm have faced up to their mutual need. The $940 billion smartphone maker and $85 billion mobile-chip firm on Tuesday ended a two-year fight over royalties with a licensing agreement and a cash payment to Qualcomm. Apple can’t risk being stuck with second-rate semiconductors in its devices, and Qualcomm has huge revenue at stake. At first blush, both sides benefit from the truce.

Their lawyers have been kept busy since 2017 by the argument over how Qualcomm charges for chips that connect smartphones to data networks. Apple accused Qualcomm of withholding parts from suppliers unless they agreed to pay high royalties, something the iPhone maker said was anti-competitive. Qualcomm said Apple had put pressure on suppliers not to pay. The numbers were pretty big, even for such huge companies: Apple was seeking as much as $27 billion in damages, while its supplier-cum-adversary wanted up to $15 billion.

The nature of the truce is hazy. Neither side is saying how big Apple’s payment is, or what future royalties will be. Qualcomm did point out in a presentation to investors, however, that it expects an incremental $2 per share of earnings; details on exactly how and when that flows through are nonexistent, but with 1.2 billion shares outstanding, that probably implies a hefty payment. History suggests Apple, meanwhile, will get sweeter terms than it had before the dispute. About a decade ago, then-dominant phone maker Nokia and Qualcomm settled a similar dispute with Nokia getting a discount.

Investors seem to believe there are no losers. Apple’s shares rose slightly, adding around $1 billion to its market capitalization, reflecting that it will now have access to 5G chips from the dominant supplier. That’s better than the risk of delays in future iPhones, or worse, inferior handsets. Qualcomm’s market value jumped by $15 billion, or more than a fifth, as investors penciled in large, high-margin royalty payments down the road. Both sides can just about claim to have come out on top.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below