Apple and Qualcomm settle up as Intel quits 5G chip business

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Mobile device chipset supplier Qualcomm has emerged victorious from a two-year litigation battle with iPhone manufacturer Apple. The two firms have agreed a settlement that will see Apple make a substantial payment to Qualcomm, and has resulted in Intel being elbowed out of the 5G device business.

The agreement, which was reached behind closed doors even as a major trial in the US District Court for the Southern District of California heard opening arguments, also includes a six-year licence agreement effective from 1 April 2019, including a two-year extension option.

It also incorporates a multi-year chipset supply deal that will put Qualcomm’s modems (or baseband processors) front and centre in the first 5G iPhones, likely to be released in the next couple of years.

The lawsuit dates back to 2017, when Apple accused Qualcomm of charging it more for using its patents – Qualcomm gets a royalty on every smartphone sold, regardless of whether the device incorporates its components.

Qualcomm counter-sued and tried to get Apple banned in a number of markets, which drove Apple into Intel’s arms. Last year’s iPhone Xs, Xs Max and Xr all used Intel modems, and early 5G test models also incorporate Intel components – even though Intel modems are widely held to be much slower.

Shortly after details of Apple and Qualcomm’s successful peace summit emerged, Intel announced it was quitting the 5G smartphone modem business altogether, although it will continue to meet its customer commitments to supply 4G modems, and will assess the opportunities to supply 5G modems in other devices, such as internet-of-things (IoT) sensors.

Intel’s wider 5G infrastructure business is unaffected by the move.

“We are very excited about the opportunity in 5G and the ‘cloudification’ of the network,” said Intel CEO Bob Swan. “But in the smartphone modem business, it has become apparent that there is no clear path to profitability and positive returns.

“5G continues to be a strategic priority across Intel, and our team has developed a valuable portfolio of wireless products and intellectual property. We are assessing our options to realise the value we have created, including the opportunities in a wide variety of data-centric platforms and devices in a 5G world.”

Pio Suh, managing director of IPcom, a Munich-based consultancy specialising in intellectual property, said the Apple-Qualcomm settlement came as a surprise.

“Few will have foreseen such a settlement so quickly, and at this stage of the Apple/Qualcomm battle,” said Suh. “Both have emerged victorious – Qualcomm’s shares skyrocketed, and I’m sure Apple will have negotiated a great deal, settling on a figure far lower than they would have paid on a running royalty basis.”

But, he added, with the details of the settlement undisclosed, and Apple and Qualcomm getting back to business as usual with their dominant market positions retained, the rest of the mobile industry has been left somewhat in limbo.

“This was supposed to be a milestone case which set precedents and provided much-needed clarity on standard essential patent [SEP] licensing in the telecoms space,” said Suh. “We were hoping to learn what kind of practices had been incorporated, to better inform licensing negotiations in the future, as Qualcomm’s licensing model had been challenged. 

“Was the agreed royalty rate or lump sum based on the average price of the smartphone handset, for instance, or the price of the chipset component? How has the issue of charging a price for the chipset and, in addition to this, demanding royalties for Qualcomm´s patent portfolio, been resolved? 

“The settlement benefits both parties commercially, but leaves the patent licensing space with pressing questions around legitimate licensing practices, and antitrust and SEP licensing in the context of market dominance.”



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