Since the iPhone 4S in 2011, Apple had been using Qualcomm modems exclusively in its smartphones for network connectivity. But the tech giant began diversifying its supplier base in 2016 by sourcing modems from Intel as well for some variants of the iPhone 7 and 7 Plus.
Why Qualcomm modems were not used in 2018 iPhones
When the Cupertino company launched the iPhone XR, XS, and XS Max with Intel modems, most people in the industry believed that Apple had ditched Qualcomm. A senior Apple executive has revealed that Apple was keen to use Qualcomm modems in 2018 iPhones, but the chipmaker refused to sell modems for the iPhone XR, XS, and XS Max after Apple sued it over its licensing practices. So, Apple had to rely entirely on Intel. It didn’t have much choice.
Apple’s Chief Operating Officer (COO) Jeff Williams made these revelations on Monday during the Federal Trade Commission’s antitrust lawsuit against Qualcomm. According to Cnet, Williams said Apple wanted to split the modem orders between Qualcomm and Intel, just like it did with the iPhone X and iPhone 8 releases. But Qualcomm flat out refused to supply chips for 2018 iPhones. “We have been unable to get them to support us on new design wins past that time [that Apple filed suit],” said Williams.
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Jeff Williams had directly reached out to Qualcomm chief executive Steve Mollenkopf, but the latter refused to strike a deal. Qualcomm continues to supply modems for older iPhones, though. When asked why Apple continued to source modems from Qualcomm if it is so abusive, Williams said, “We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head.”
The Cupertino company needed Qualcomm’s chip supply (for the older models). It didn’t have many options. Apple’s reliance on Intel for modems in the iPhone XS, XS Max, and iPhone XR comes at a cost. Intel’s modems are not as fast as those of Qualcomm’s. In the iPhone 8 and iPhone X devices, which had chips from both Intel and Qualcomm, Apple had to limit the speeds of Qualcomm chips to ensure that both variants offered similar speeds.
Also, Apple won’t be able to launch 5G iPhones this year because Intel’s 5G chips won’t be ready until 2020. In contrast, Qualcomm has already announced its 5G modem, which will be used in as many as 30 Android devices coming later this year.
How much was Apple paying Qualcomm?
Williams also revealed that Apple had been paying Qualcomm $7.50 per device. That’s 5x higher than $1.50 per device that Apple wanted to pay. Qualcomm charges royalties as a percentage of the price of smartphones. Apple has called it an unfair practice, and said it should pay Qualcomm royalties only for patents actually licensed.
The FTC lawsuit has accused Qualcomm of abusing its monopoly to engage in unfair business practices and damaging the competition. Qualcomm is accused of forcing vendors such as Apple and others to pay excessive licensing fees on its patents for using its chips in their smartphones. The suit alleges that Qualcomm forced Apple into an exclusive deal from 2011 through 2016 in exchange for lower patent royalties.
Qualcomm owns a number of smartphone-related patents, for which it charges ridiculously high royalties. It has already been slapped with $853 million fine in South Korea for engaging in unfair practices. The European Union (EU) has levied roughly a billion euros fine on Qualcomm. Apple has filed a $1 billion lawsuit against the chipmaker. Qualcomm has also filed countersuits accusing Apple of violating its patents.
Recently, Qualcomm was able to secure a ban on older iPhones in China and Germany. It had also sought a ban on iPhones in the US. Apple has been forced to stop selling the iPhone 7 series and iPhone 8 series handsets in Germany. In China, Apple was able to circumvent the ban by issuing a minor software update. Qualcomm has also accused Apple of sharing the details of its proprietary technologies with Intel.
Patent licensing is a huge business for Qualcomm. Its legal battle with Apple has attracted unwanted regulatory scrutiny into its licensing business not only in the US but many other countries. It could force the two companies to eventually settle. Qualcomm said last year that the two giants could reach a deal within months, but Apple told media that no settlement talks were in progress.