First the Federal Trade Commission sued Qualcomm for allegedly bribing Apple not to make a WiMAX iPhone, and now Apple wants to take a bite out of the chip maker too. The iPhone maker filed a suit against Qualcomm in Federal District court in California, alleging that the company monopolized the market for chips and withheld about $1 billion in rebates. Today analysts weighed in on the lawsuit, debating just how serious the damage may get for the chip maker.

Apple Vs. Qualcomm In Court: Lawsuit Filed Over Alleged Chip Monopoly

Shares of Qualcomm tanked on Monday following the news, falling by as much as 11.9% to $55.39 during regular trading hours. Apparently investors see a lawsuit filed by Apple as an even bigger problem than the one filed by federal regulators.

Qualcomm’s earnings will take a big hit

In a research note released on Jan. 23, JPMorgan analyst Rod Hall described the earnings impact on Qualcomm as “severe” if Apple withholds payments. The iPhone maker’s lawsuit states that the terms of its agreement with the chip maker called for it to pay a percentage of the average selling price to Qualcomm as licensing fees. Apple also agreed to exclusively use Qualcomm chips in iPhones for at least the years 2011 to 2016.

The iPhone maker said it received the quarterly rebates from the chip maker according to the agreement for a time. However, Qualcomm allegedly started withholding the rebates last year following Apple’s meeting with antitrust regulators in South Korea.

Apple taking its tone from the FTC

The chip maker said the company has no case and accused it of “actively encouraging regulatory attacks” on its business and also of having “intentionally mischaracterized our agreements and negotiations.” In its own statement, Apple accused Qualcomm of collecting money “for no reason,” making it “more expensive” for it to innovate. The iPhone maker accuses the chip maker of charging “at least five times more in payments than all the other cellular patent licensors we have agreements with combined.”

Hall feels that the tone of Apple’s complaints “aligns very closely with” the FTC’s complaints in its lawsuit. He pegs the impact of the iPhone maker’s withheld payments at 32.5% of Qualcomm’s calendar year 2017 earnings per share. This assumes a royalty rate of 3.5% on the iPhone transfer price.

2017 earnings may be the least of Qualcomm’s worries

While Hall feels the impact on Qualcomm could be quite severe, Bernstein analyst Stacy Rasgon said in a note dated Jan. 23 that the $1 billion in allegedly withheld rebates is only a sideshow. The analyst actually feels an even deeper concern about the case, calling it “a direct assault on Qualcomm’s basic licensing business model.”

Rasgon also feels that Apple is “attacking the ‘essential’ nature of their IP, and directly targeting QCOM’s device-level royalty model.” Further, he warns that this lawsuit could significantly damage the chip maker’s relationship with the iPhone maker, possibly resulting in a material reduction in royalty rates.” He doesn’t seem to think the relationship will end, however. Certainly the tests on the iPhone 7 Plus last year which showed that Qualcomm’s modems outperformed Intel’s should help Qualcomm in this respect.

He feels that Qualcomm’s earnings this week are “virtually irrelevant” as a result of the lawsuit and places more importance on the buyout deal with NXP and the royalty business’ long-term state. Rasgon slashed his price target for Qualcomm stock from $80  to $65 per share and reiterated his Market Perform rating on it.