Mobile chip giant Qualcomm delivered fairly solid quarterly numbers but it lowered its outlook thanks mainly to Apple.
A slight year-on-year fall in revenue was still better than expected, as were its earnings per share. But guidance for the next quarter was reduced by around 20% for both chip shipments and licensing revenues. Apple seems to be to blame for both, with the gadget giant switching to Intel for its modems and the ongoing dispute over licensing terms resulting in a bunch of payments being withheld.
“We delivered a strong quarter, with Non-GAAP earnings per share above the high end of our prior expectations, on greater than expected chipset demand in QCT and lower operating expenses,” said Steve Mollenkopf, CEO of Qualcomm. “We are executing well on our strategic objectives, including driving the commercialization of 5G globally in 2019 and returning significant capital to our stockholders.”
Despite this Qualcomm’s share price was down 7% at time of writing. Speaking to Reuters, Qualcomm’s CFO George Davis speculated that the chip shipment downgrade might have been greater than many anticipated. On top of that the dispute with Apple is showing no sign of resolution, so investors may be increasingly inclined to price in a negative outcome for Qualcomm.
Apple has boxed itself into a corner by going to war with Qualcomm, so a lot rides on the competitiveness of Intel’s 5G modem.
Fast Company has reported that Apple intends to use the Intel 8161 5G modem in its 2020 iPhones as part of its already-known strategy of switching to Intel as its sole provider of modems. This move seems to be largely driven by Apple’s dispute with Qualcomm over how much it charges for its chips.
When large companies declare legal war on each other the dispute usually metastasises as their respective legal teams search for further dirt they can use as leverage in the ongoing negotiations. These things usually conclude in an out-of-court settlement, the terms of which are largely determined by the relative legal strength of the respective positions.
The more likely one party is to win a court case, the stronger its position in the pre-case negotiation, which is why Qualcomm has been so keen to prove that Apple committed industrial espionage in sharing Qualcomm trade secrets with Intel in order to help it produce better modems.
While Qualcomm’s most recent court filing broadly outlines fresh allegations resulting from the discovery process, conversations we had at its recent event in Hong Kong suggested Qualcomm has got hold of emails that prove the alleged passing on of protected intellectual property took place.
If Apple did indeed offer Intel a helping hand, something that Intel denies, then the clear inference is that Intel’s modems were of insufficient quality without cheating. A worst case scenario might be that the 5G modems Apple apparently intends to use would be declared illegal, but even if that doesn’t happen there will be questions over the 5G performance of those iPhones versus phones running Qualcomm modems.
So, assuming this rumour is accurate, a hell of a lot is riding on those first Intel 5G modems. If they’re rubbish then not only will that be a direct competitive win for Qualcomm, but the sales and reputation of the iPhone are likely to suffer too. In its desire to dominate its suppliers Apple is forcing itself to make some technology choices that may be far more costly than any money saved on components.
Now with added video!
At a big corporate event in Hong Kong Qualcomm took the opportunity to whip up the 5G hype one more time.
While we have seen some of the first green shoots of 5G in the wild this year, 2019 will be twhen the roll out of 5G in real life will explode. Judging by the endless stream of 5G test announcements, each one claiming its own infinitesimally incremental ‘first’, 5G is ready to go. Qualcomm has spent most of this year, when not engaged in corporate warfare with the likes of Broadcom and Apple, talking up 5G and this Hong Kong event represented the culmination of that effort.
5G is a pretty big deal for a variety of tech sector stakeholders, many of which made an appearance at the event, but it’s fair to say 5G is critical to Qualcomm. The company established a dominant position for itself as a modem player during the 3G era by owning a lot of the technology from which the standard was comprised. It wasn’t possible to repeat that trick in subsequent generations, so Qualcomm diversified into other types of silicon generally found in mobile devices.
The whole point of 5G is to bring cellular connectivity to pretty much everything. While this opens up a whole bunch of new opportunities it also complicates the business of dominating it. More than any previous generation this means partnerships, both within the telecoms and tech sectors but also across other industries.
Qualcomm’s first guest speaker was Thomas Noren, Head of 5G Commercialization at Ericsson (pictured above with Cristiano Amon of Qualcomm). The highlight of his appearance was a set-piece claiming to be the first 5G NR sub-6 GHz (specifically 3.5 GHz) call to a mobile form factor device. This latest ‘first’ actually took place in an Ericsson lab, but they decided to re-enact the whole thing live at the event to ensure we could fully appreciate the sheet majesty of it.
“Today’s call marks a significant milestone as we have now successfully made 3GPP-compliant calls in the sub-6 GHz and mmWave spectrum bands, which will facilitate mobile operators’ deployment of their 5G NR networks,” said Durga Malladi, GM of 4G/5G at Qualcomm, in the accompanying press release. “Sub-6 GHz spectrum is instrumental to the global 5G NR rollout as it will provide wide area, high performance connectivity and has been allocated and auctioned in numerous regions around the world, including the US, Korea and Europe, with others to follow shortly.”
In the main opening session of the event alone, the following companies all got their moment in the Qualcomm spotlight: Samsung, OnePlus, Tencent, NextVR, Microsoft, Geely, Honeywell, AWS and Xiaomi. Other announcements made at the event included some new 5G mm wave antenna modules, some 5G small cell tech with Samsung, a new Snapdragon SoC designed for mid-tier smartphones and a new 5G smartphone reference design that actually looks like a smartphone.
Qualcomm is determined to makes itself as synonymous with 5G as it did the previous two generations. To do that it needs to be involved in a wide variety of technologies and sectors and the Hong Kong event seemed designed to demonstrate that it’s doing just that. There is a very real danger that the reality of 5G in 2019 will fall well short of the hype, but Qualcomm is clearly prepared to take that risk.
Qualcomm has accused Intel of cheating at modems with Apple’s help, but Intel’s weak public riposte is unlikely to sway much opinion in its favour.
Judging by the general quality of their press releases all three of the companies involved in this spat refuse to issue a single public utterance until every syllable has been pored over by battalions of lawyers. As a consequence, when they decide to slag each other off via the media the result falls pretty far short of Wildean in its wit.
To be fair to Qualcomm, its latest allegations weren’t strictly public, although you have to wonder what the source of the court filing leak that resulted in the rest of the world knowing about it was. Essentially Qualcomm is questioning how Apple was able to replace its modems with Intel ones in the latest iPhones and figured it must have given Intel trade secrets to ensure its modems were up to the job.
Intel’s General Counsel Steven Rodgers posted a riposte entitled ‘Qualcomm’s Rhetoric Pierced’, which promised all kinds of rebuttals, refutations and rebukes but instead delivered a disappointingly generic whinge that amounted to ‘how dare you?’ It started fairly promisingly with a round up of all the fines Qualcomm has been hit with over the past couple of years for violating competition laws.
But then it degenerated into a general purpose moan about how unfair the allegations are when everyone at Intel works really hard, actually. “We are proud of our engineers and employees who bring the world’s best technology solutions to market through hard work, sweat, risk-taking and great ideas,” pouted Rodgers. “Every day, we push the boundaries of computing and communication technologies. And, the proof is in the pudding: Last year, the U.S. Patent Office awarded more patents to Intel than to Qualcomm.”
The correct form of the proverb is ‘the proof of the pudding is in the eating’, but if Intel chooses to keep its patents inside some form of dessert, who are we to judge? “For the most part, we have chosen, and will continue to choose, to respond to Qualcomm’s statements in court, not in public,” said Rogers, showing the acute judgment that you would expect of a senior Lawyer. Qualcomm has yet to publicly respond.
The long-running legal battle between Qualcomm and Apple has been stepped up a level as the chipmaker effectively accuses the iLeader of industrial espionage.
After Apple released the iPhone XS without a shred of Qualcomm technology inside, it was only going to be a matter of time before there was a reaction. In a filing with the Superior Court of California, seen by Bloomberg, Qualcomm suggests Apple leaked trade secrets to Intel to overcome performance and develop a more suitable alternative in its chips.
The accusations come as an amendment to a complaint filed in November, which again suggested Apple broke confidentiality agreements by sharing information with Intel. With the trial already scheduled for April 19, if the judge allows this amendment it could push back the courtroom date. Qualcomm are pushing for the timetable to remain the same however.
The filing states:
“Apple has engaged in a years-long campaign of false promises, stealth, and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating the time to market of lower-quality modem chips, including those developed by Intel. Apple used that stolen technology to divert Qualcomm’s Apple-based business to Intel.”
The initial complaint came from Apple blocking Qualcomm attempts to audit the iPhone maker’s use of Qualcomm’s trade secrets. At the time, Qualcomm suspected Apple was leaking information to Intel, though there was little evidence to support the claim. Apple had requested deep access to its software and tools, but with strict limits on how those products could be used. Apple’s reasoning was to improve the performance of the devices when using Qualcomm chips, though this is now being contested.
While this is the latest chapter in the long-running tale which has seen dozen of complaints and counter-claims lodged with the courts, it all comes down to a single issue. Apple believes the royalties charged by Qualcomm to use its technology in its products are too high. The original argument has blossomed into a complex tapestry, offering collateral damage to other companies in the supply chain, but keeping the legal team at both the technology giants in gainful employment.
Apple first began using Qualcomm chips in 2011, before eventually using them exclusively. In 2016, it started using some Intel chips though due to the difference in performance, it was unable to drop Qualcomm completely. After the legal back-and-forth started in early 2017, the relationship continued to deteriorate until the point Apple decided to exclusively use Intel chips in its devices.
While this is certainly a considerable customer for Qualcomm to lose it does not look like the relationship can be repaired. Reading between the lines, Qualcomm does seem to have accepted this and is looking to salvage something from the disastrous ending. For some, this could be seen as more pressure to force Apple into settling outside the courtroom.
That said, Qualcomm’s loss is Intel’s gain. Securing an exclusive supplier relationship with Apple is certainly a win for the business.