According to recent reports, Qualcomm has recently fired back in its ongoing legal feud with Apple, accusing Apple's supporters of attempting to mislead regulatory bodies. The situation escalated earlier this month when Qualcomm petitioned the U.S. International Trade Commission (ITC) to prevent Apple from importing non-Qualcomm chips into the United States. This move sparked significant backlash within the tech community.
Last week, the Computer and Communications Industry Association (CCIA), a lobbying group representing major players like Google, Amazon, Microsoft, and Facebook, voiced concerns over the potential ban on Apple's import of Intel-based iPhones. They argued that such a ban would disrupt the mobile phone supply chain and harm consumer interests.
Adding fuel to the fire, Intel, Qualcomm's main competitor in the communications chip sector, joined the fray by submitting a complaint to the ITC. Intel accused Qualcomm of inflating patent fees and engaging in anti-competitive practices by slashing prices on its mobile chip products. This is essentially a secondary battleground in the broader patent war between Qualcomm and Apple. Just days ago, Qualcomm had requested the ITC to halt iPhone sales in the U.S., prompting Intel, a key supplier of iPhone modems, to escalate tensions.
Intel contends that Qualcomm's lawsuit against Apple is aimed at stifling Intel's growth and monopolizing the supply of Apple's baseband processors. Interestingly, the latest iPhones feature LTE baseband processors supplied by Intel. This complicates matters further as Qualcomm has now filed a lawsuit alleging that Intel is illegally using their patents. Qualcomm claims that in certain models, they intentionally "throttled" their own baseband processors to align with Intel's performance levels to maintain consistent iPhone performance.
On Monday, Qualcomm also pushed back against public organizations that have sided with Apple, accusing them of misleading government regulators. Qualcomm clarified that its request to ban the import of Apple's mobile phones was not targeting Intel's chips but rather Intel's use of Qualcomm's patented technology. Qualcomm insists that the ban on Apple's phones won't hinder long-term competition in the chip market, stating that "Apple can purchase and use any LTE baseband chip as long as it doesn’t infringe Qualcomm’s patents."
Foreign media commentators note that in the stagnant global smartphone market and intensifying competition, Qualcomm’s lucrative patent licensing business yields significantly higher profits than Apple’s operations. This explains why Apple has chosen to challenge Qualcomm’s dominance.
Over the past five fiscal years, Qualcomm has transformed $37 billion in licensing revenue into $32 billion in pre-tax profits, boasting a gross profit margin of 61%. Market research firm Canaccord Genuity predicts this margin may grow further. In stark contrast, Apple and Samsung reported a mere 39% gross margin in their most recent fiscal year, with analysts expecting this figure to shrink in 2017. Notably, in fiscal 2016, Apple and Samsung accounted for 40% of Qualcomm’s $23.5 billion in revenue, with the vast majority coming from patent licensing.
Data from market research firm IDC shows that worldwide smartphone sales reached 1.47 billion units in 2016, marking only a 2.3% increase from 2015. This represents a significant slowdown compared to the 11.6% growth rate seen in the second quarter of 2015. As competition intensifies, Apple’s decision to pivot away from Qualcomm highlights the growing tension over mobile phone profits.
Historically, all iPhones have relied on Qualcomm’s baseband processors. To reduce dependence on Qualcomm, Apple began purchasing Intel’s baseband processors last year. However, Intel’s subpar communication performance led Apple to deliberately slow down all iPhones to compensate for the shortcomings of Intel’s chips.
In its latest submission, Qualcomm reiterated that its aim is not to ban Intel chips but to address the unauthorized use of its patented technology in current iPhones. Qualcomm maintains that this ban won't impact long-term competition, as Apple can still use any LTE baseband chip that respects its patent rights.
Industry insiders suggest that Qualcomm’s counterclaims are a strategic move to push for a direct patent licensing agreement with Apple. Additionally, Qualcomm hopes to bring Apple back to the negotiation table to resolve disputes swiftly. Despite Apple's efforts to diversify its suppliers, Qualcomm remains indispensable due to its dominant position in the communications sector.
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