With Qualcomm announcing its own quarterly earnings results yesterday, it’s now come to light exactly how much it cost Apple to sue for peace to end its longstanding war with the chip maker.
According to Axios, Qualcomm said that it would be recording between 4.5 and 4.7 billion in revenue as “a cash payment from Apple and the release of related liabilities” — basically the money it received from Apple as part of the settlement that was reached between the two companies last month.
The numbers reported by Qualcomm are actually less than other industry analysts had speculated, with most setting the bar higher, suggesting that Apple had to pay closer to $6 billion to put an end to the battle and pave the way for the 5G iPhone. Analysts came up with the higher number based on the outstanding royalty payments that Apple had been holding back, on the assumption that Apple would have to cough up the whole amount in order to appease Qualcomm.
However, it’s entirely possible that the two companies agreed to a partial payment, especially if this was done in light of other considerations, such as the higher royalty payment per iPhone that analysts estimate also increased as part of the settlement — possibly to as much as $9 per iPhone — not to mention the fact that Qualcomm was able to lock Apple into a six-year agreement in the process as well, which will ensure a time of peace and stability for both companies.
While $4.5 billion is “couch change” to Apple, which is once again flirting with a $1 trillion valuation, it’s hard to see how Apple didn’t ultimately lose more than it gained in this fight. Sure, the company will be able to produce 5G iPhones next year without any impediments, but it also needed to sacrifice some long-held principles it was standing on in order to do so.
Shortly before the settlement was announced, reports revealed that the fight had not only become intensely personal between the two CEOs, but had also been brewing for many years, with Apple CEO Tim Cook having felt that Qualcomm was exploiting Apple with excessively high royalty fees since his days as Chief Operating Officer under Steve Jobs, and later leaving Apple feeling locked into its reliance on Qualcomm as a supplier — something that is absolutely antithetical to Tim Cook’s normal preference to use a diverse supply chain and own as many of the critical pieces as it can.
So a truce with Qualcomm, obviously borne out of necessity, would have been a bitter pill for Cook to swallow, despite his recent comments that he “feels good” about the resolution. Of course, with Apple struggling to get a sufficient supply of capable 5G modem chips anywhere else, and Intel throwing in the towel, Apple was ultimately left with no choice but to approach Qualcomm hat-in-hand and give in to the chipmaker’s demands, conceding the very point that Apple had been railing against from the beginning — that Qualcomm is in fact the 800-pound gorilla in the 5G modem chip business, and there’s really nowhere else it can turn.
Of course, the upside to all of this is that all uncertainty about a 5G iPhone is gone — at least for the next few years. Apple is of course working to build its own 5G modem chip, and it seems like the company will still typically hedge its bets by sourcing at least some chips from Samsung, but at the end of the day, it’s become apparent that for the next few years, Apple needs Qualcomm more than Qualcomm needs Apple.