It is common knowledge that Apple and Qualcomm are in the middle of a legal dispute regarding patent fees on Qualcomm’s groundbreaking chip technology. We also know that Apple has depended upon its partner for many years and the company is seen as the front runner of the industry. However, the news coming out of America suggests that Apple is looking to manufacture iPhones and iPads in 2018 which would cut out Qualcomm chips to be replaced by Intel and possibly MediaTek devices.
Idle threat or game changer?
Those who follow the industry will be well aware that the two companies have been working together for well over a decade. It would appear Apple is now concerned about critical software required to test Qualcomm chips currently going into iPhones and iPads prototypes for next year. The accusation is that Qualcomm is withholding this vital software although the company refutes this suggestion. It also confirmed that chips intended for future iPhones and iPads have already been rigourously tested by the company.
In what is a sensible and traditional approach to business, Apple has recently begun using a mix of Qualcomm and Intel chips in iPhone 7 and iPhone 7+ models. This reduces any over-dependence on one individual company and gives Apple leverage over both chip suppliers. Insiders also confirm that plans to exclude Qualcomm chips from future models are already well advanced, suggesting that the threat is not idle but real.
Qualcomm rules the chip market
The relationship between the two giants already appeared to be strained with Qualcomm chip sales to the company set to fall from $3.2 billion last year to just $2.1 billion this year. In many ways this reflects the mix of two different chips but it could be the start of the end of what has been a very successful and lucrative relationship. It is also worth noting that while chip sales to Apple are relatively high this is not the most profitable area of the chip giant’s operations.
In 2016 Apple paid a staggering $2.8 billion in royalties to Qualcomm for permission to use the company’s patented technology. Historically Apple has reimbursed iPhone and iPad manufacturers who initially cover these royalty payments but this has now stopped and manufacturers have refused to pay these royalties out of their own pocket. This is the crux of the ongoing legal dispute, not an actual challenge to the company’s patents but the suggestion that it is “abusing its market position”. Perhaps ironic considering Apple’s track record?
Conclusion
While the legal action will no doubt drag on for some time yet, the more likely outcome is that they will come to an out-of-court settlement on future pricing. It is not very often that a company has so much sway over Apple and some may suggest this is payback time for previous and current companies who have been squeezed by the iPhone giant. Whether Apple like it or not, Qualcomm is head and shoulders above its competitors when it comes to chip technology. Qualcomm chips are quicker, more reliable and even though the likes of Intel have invested heavily in 5G chips the consensus is that Qualcomm is still winning the race.