Apple Halts License Payments to Qualcomm in ‘All-Out War’
Apple Halts License Payments to Qualcomm in ‘All-Out War’
Chipmaker forced to lower forecasts issued only days ago
IPhone maker says talks have dragged on for more than 5
years
by Ian King April 28, 2017, 4:32 AM PDT April 28, 2017, 9:40
AM PDT
Apple Inc. cut off billions of dollars in payments to
Qualcomm Inc., turning a contract dispute into what one analyst called an
"all-out war" that forced the chip supplier to slash forecasts given
only days ago.
The world’s largest publicly-traded technology company
and one of the main suppliers of components to the iPhone, its most important
product, have traded accusations of lying, making threats and trying to create
an illegal monopoly. The fight involves billions of dollars of technology
licensing revenue that, if permanently cut off or reduced, would damage
Qualcomm’s main source of profit and help bolster Apple’s margins.
Apple told Qualcomm it will stop paying licensing revenue
to contract manufacturers of the iPhone, the mechanism by which it’s paid the
chipmaker since the best-selling smartphone debuted in 2007, the San Diego,
California-based company said in a statement. Qualcomm removed any assumption
it will get those fees from its forecast for the current period. Apple doesn’t
have a direct license with Qualcomm, unlike other phone makers.
“We’ve been trying to reach a licensing agreement with
Qualcomm for more than five years but they have refused to negotiate fair
terms,” Apple said in a statement. “Without an agreed-upon rate to determine
how much is owed, we have suspended payments until the correct amount can be
determined by the court. As we’ve said
before, Qualcomm’s demands are unreasonable and they have been charging higher
rates based on our innovation, not their own.”
Qualcomm said revenue in its fiscal third quarter ending
June will be $4.8 billion to $5.6 billion, down from last week’s prediction of
$5.3 billion to $6.1 billion. It’s also short of the $5.78 billion average of
analyst estimates compiled by Bloomberg. Earnings per share will range between
52 cents and 62 cents, compared with the earlier forecast of 67 cents to 92
cents. Minus certain items, profit per share will be 75 cents to 85 cents.
For Qualcomm, Apple’s move is a further infringement on
its legal agreements with the contract makers of the iPhone, who also make
devices for other companies. Those agreements predate Apple’s entry into the
phone market and are still legally enforceable.
“While Apple has acknowledged that payment is owed for
the use of Qualcomm’s valuable intellectual property, it nevertheless continues
to interfere with our contracts,” said Don Rosenberg, Qualcomm’s general
counsel. “Apple has now unilaterally declared the contract terms unacceptable;
the same terms that have applied to iPhones and cellular-enabled iPads for a
decade.”
He said Apple’s interference with Qualcomm’s agreements
to other parties is wrongful and part of the Cupertino, California-based
company’s global attack on Qualcomm.
Stacy Rasgon, an analyst at Sanford C. Bernstein, said
Qualcomm’s largest customer has declared "all-out war," leaving a
dark cloud over earnings and its stock price.
"Even if one believed this was a worst case
scenario, we struggle to see a resolution anytime soon as the parties
entrench," Rasgon wrote in a note to investors Friday. Qualcomm managed
expectations around the dispute poorly, he added.
Shares fell as much as 4.1 percent to $51.05 Friday
morning. It was the lowest intraday price since June. They were trading at
$52.91 at 12:16 p.m. in New York. Apple stock edged 0.2 percent higher to
$144.12, close to a record.
Qualcomm’s lucrative licensing division funds an
industry-leading research-and-development budget, which has helped its chips
stay ahead of rivals. That strategy, which has helped the company more than
double revenue since 2010, is under threat as the dispute with Apple worsens and
it deals with regulatory investigations in the U.S., South Korea, Taiwan and
Europe. It says Apple instigated those investigations by making false claims to
government agencies. Apple’s end goal is to lower the fees, Qualcomm said.
When it began it’s suit against Qualcomm in January,
Apple accused Qualcomm of monopolizing the market for chips used in wireless
devices and withholding $1 billion in retaliation for cooperating with South
Korean antitrust authorities. Apple also said it wants back some of the
billions of dollars it claims it was overcharged in “Qualcomm’s illegal scheme”
to control the market for mobile phone chips. It wants a court to change how
Qualcomm charges for its technology.
Patents controlled by Qualcomm cover the basics of all
high-speed data capable mobile phone systems. It charges a percentage of the
total selling price of the phone regardless of whether the device uses a
Qualcomm chip or not.
Qualcomm had given a wider-than-normal forecast range for
the current quarter, reflecting the possibility that Apple may pressure its
suppliers, company President Derek Aberle said last week.
“We’d expect that they will pay, consistent with their
obligations,” he said at the time. “We can’t completely discount the
possibility that Apple will continue to interfere and cause them to pay less
than they owe.”
Comments
Post a Comment