Apple vs Qualcomm: iPhone maker accused of attempting to undermine the smartphone market

Qualcomm’s tussle with Apple over licensing fees and other accusations of anti-competitive behaviour may have hurt Qualcomm’s revenue. Share prices also fell.

Apple has accused Qualcomm of anti-competitive practices and for overcharging for its chips. Apple has also been in touch with the Korea Fair Trade Commission (KFTC) on this issue. Apple has filed a lawsuit seeking $1 billion in damages at a Federal District Court in California.

In December, Qualcomm was fined $853 million by the South Korean antitrust regulator for violating antitrust laws.

Probably as a result of these issues, Qualcomm’s first quarter earnings call only indicated a 3.9 percent rise. Share prices fell by 3.4 percent.

Apple’s lawsuit accuses Qualcomm of withholding $1 billion in promised rebates over Apple’s decision to cooperate with the KFTC. Qualcomm is accusing Apple of making “false claims” and making “misleading statements”.

A larger issue is with Qualcomm’s licensing model. Qualcomm currently licenses its technology at a royalty rate that’s determined as a percentage of the retail product. Since Apple makes expensive phones, Apple pays high royalties. Apple is apparently seeking to change this model and is demanding a flat rate based on the price of the chip used rather than the device itself.

In an earnings call with investors, Forbes quotes Qualcomm CEO Steve Mollenkopf as stating, “They [Apple] want to pay less than the fair value that Qualcomm has established in the marketplace for our technology even though Apple has generated billions in profits from using that technology.”

The Forbes report also adds that Qualcomm accused Apple of “instigating” government investigations from the likes of the United States Federal Trade Commission (USFTC) and the KFTC. Apple has already filed two lawsuits against Qualcomm in China as well.

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Qualcomm is the world’s largest chipmaker and the bulk of its revenue comes from its licensing model. Qualcomm sees Apple’s move as an attack against the company, and one can appreciate the significance of the issue.

Qualcomm’s president Derek Aberle labelled Apple’s action as an “attack on the smartphone competition that Qualcomm’s business model enables.”

Qualcomm will continue to supply Apple with chips despite the ongoing lawsuits.