CNBC: “5G: Why Apple had to settle its dispute with Qualcomm”

In the end, Apple had to choose the lesser of all evils:

Option one: Settle with Qualcomm, the leader in 5G chips. Qualcomm’s 5G chips are already shipping in some devices today, with more expected as the year rolls on.

But Apple has seen Qualcomm’s business model as detrimental to the entire industry since it uses its dominant position to squeeze large fees out of each company that uses its chips and patents. Hence that nasty lawsuit. Apple CEO Tim Cook made his disdain for Qualcomm’s practices known in a January interview with CNBC’s Jim Cramer, and even blasted Qualcomm’s decision to hire a PR firm to write fake news stories about Apple, which Business Insider reported.

Steve Kovach

In other words, company that squeezes monopoly profits out of its customers and app developers (and more recently newspapers) doesn’t like being squeezed by another company’s patent rights. Hard to see how Apple could have won this one, and others have said it much better than I could:

So rather than fixing their alleged wrongs and making Qualcomm whole, they appear to have withheld legitimate royalty payments and launched a barrage of somewhat specious trade and patent related counter-suits along with lowball press sniping. Like several other non-public IP issues, Apple seemed to think bullying, threatening, and not paying Qualcomm would bring them to heel. We will skip the intervening legal and press posturing by Apple and suffice it to say they aren’t laughing at the moment.

So what was the result? Apple on their knees begging Qualcomm for mercy. Why do we say that? Read this. Seems pretty simple, right? Apple paid Qualcomm an undisclosed sum and licensed modems from Qualcomm, likely exclusively, for six years with an option for two more. What is the problem there? First start by looking at Apple’s claims over the past two or so years on the topic. Compare and contrast the wrongs that Qualcomm was said to have committed against the evidence Qualcomm presented. Then look at who paid whom and reflect on the fact that that the magnitude of the amount Apple shelled out started with a B.

Charlie Demerjian

The story gets more interesting though: hours after the Apple/Qualcomm settlement, Intel has announced that the company will exit the 5G phone business.

There are two possible explanations for these closely related decisions. The simple one is that Intel decided to abandon its failed 5G modem research, notified Apple, which, faced with the prospect of not being able to launch a 5G iPhone to compete with Android smartphones, promptly decided to choose ‘the lesser of all evils’ and settle with Qualcomm.

The other explanation is more nefarious: Apple settled with Qualcomm first and so Intel was forced to scrap their 5G division because it lost their only customer for these products. Why would Apple do that, you may ask? Besides the fact that Intel’s modem designs were inferior, Apple probably plans to develop its own modems to cut the reliance on a hated external supplier. It has been rumored that Apple was in talks with Intel about buying its smartphone-modem chip business. Now that Intel chose to close that division, Apple may be able to start hiring these engineers for a lower cost than acquiring the division from Intel – and the six-year agreement with Qualcomm gives it time to develop new modem designs. Basically Apple used this opportunity to swiftly remove a company from the chip market (Intel), and to pave the ground to eliminate (or severely restrict) the other company on the market (Qualcomm), a pretty anti-competitive action. I’m no legal expert, but these out-of-court settlements between large corporations should be reviewed by a competition authority to prevent possible market manipulation, and the decisions should be more transparent.