Apple Stops Royalties to Q’comm

Release time:2017-04-29
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source:EETime
reading:306

Qualcomm is lowering its third-quarter guidance by about $500 million, claiming that Apple said it will not pay patent royalties. The disclosure suggests that Qualcomm receives a whopping $2 billion a year, or roughly $8 per device, in royalties for Apple products.

Specifically, Qualcomm lowered its third-quarter guidance from a range of $5.3 to $6.1 billion to a range of $4.8 to $5.6 billion. Apple said that it will withhold Qualcomm royalty payments starting in the first calendar quarter until the patent dispute between the companies is resolved, Qualcomm said in a press statement.

Apple filed suit against Qualcomm in January, claiming that Qualcomm’s royalties were exorbitant and the chip vendor pressured it to remain silent. In a countersuit filed earlier this month, Qualcomm said that it paid Apple to refrain from asserting patents and revealed that it gets royalty payments for iPhones and iPads through Apple’s contract manufacturers including Compal, Foxconn, Pegatron, and Wistron.

“Initial indications are that any [royalty] payment [from Apple’s contract manufacturers in the quarter] would likely be insignificant,” said Qualcomm’s statement.

Using rough estimates based on trends in Apple’s annual unit shipments of iPhones and iPads, Apple pays about $8 a system in patent royalties to Qualcomm. Apple sold more than 211 million iPhones last year, more than 231 million the prior year, and hit peak quarterly sales for the iPad of 26 million units in 2013, one online source reported. Market researchers estimate that most iPads are sold without cellular, a dominant technology in Qualcomm’s patent portfolio.

"Apple is improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees," said Don Rosenberg, general counsel of Qualcomm, in a statement. "We will continue vigorously to defend our business model and pursue our right to protect and receive fair value for our technological contributions to the industry."

Suits between the two companies are the tip of a legal iceberg. In late December, Korea regulators levied a nearly $1 billion fine against Qualcomm, charging unfair patent practices. Less than a month later, the U.S. Federal Trade Commission filed a suit against Qualcomm for similar charges.

The suits were far from the first for Qualcomm, which makes a significant portion of its profits from patent royalties. Korea fined Qualcomm about $208 million and imposed corrective orders in July 2009 after an investigation into its practices in CDMA patents. In February 2015, Qualcomm paid $975 million as part of a settlement over patent disputes in China. The deal also cut royalty rates that Qualcomm was charging in China.

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Apple — one of the world's most valuable public companies by market capitalization and a bellwether for the technology sector — slashed its revenue guidance on Wednesday, highlighting just how vulnerable large American companies are to the ongoing U.S.-Chinatrade war.Apple CEO Tim Cook told CNBC's Josh Lipton that the trade dispute between the world's two largest economies is exacerbating economic issues in China, which is an important source of revenue for the company.Other companies could face similar problems, according to experts."Weakening iPhone sales in China highlight the vulnerability of many U.S. multinationals to the U.S.-China trade war, both due the exposure of their manufacturing supply chains to China and because of the growing importance of China as a key consumer market for many U.S. products," said Rajiv Biswas, Asia Pacific chief economist at IHS Markit.Although data showed China's economy holding up for much of 2018, it now appears to be slowing as production metrics and export orders fall amid the country's dispute with the U.S., its largest trading partner.The fallout from a Chinese economic slowdown is likely to extend to other sectors like consumer spending — potentially hitting American companies that are doing business in Asia's largest economy."The U.S. is not the ultimate and unequivocal consumer with powers to dictate U.S.-China trade terms; given ... the undeniably large Chinese market with an aspirational and savvy middle class," said Vishnu Varathan, head of economics and strategy at Mizuho Bank."As such, U.S.-China trade disputes will be bumpy given the gap between U.S. President Donald Trump's perceived sense of leverage and a much more modest reality," Varathan told CNBC.Washington and Beijing agreed in early December to pause tariff escalations, but headlines about the ongoing negotiations have continued to send jitters through the market. Prior to that agreement, China and the U.S. had gone back and forth threatening to implement levies on billions of dollars worth of imports.While high profile, Apple's status in China is unlikely to be a bargaining chip in the trade negotiations, said Dan Wang, analyst at the Economist Intelligence Unit. "It's not a core technolo(gy) that both countries want," she said.However, if the trade dispute escalates, Apple products such as the iPhone may be subjected to higher tariffs imposed by both sides.The "iPhone's vulnerability to the US-China trade war serves as a red flag warning of the importance of concluding a U.S.-China trade deal in early 2019 to end the bilateral trade dispute and remove market fears about further escalation of the trade war," said IHS' Biswas.After all, in the case of smartphones, the Chinese burgeoning consumer class has a plethora of iPhone alternatives to choose from — especially if a trade war with the U.S. sparks anti-American sentiments that extend to products."An antagonistic U.S. may only tip the balance in favor of Chinese consumers adopting home-made devices rather than products like Apple," said Varathan.Louis Kuijs, head of Asia Economics at Oxford Economics, echoed that sentiment, telling CNBC that "this whole trade conflict between the U.S. and China is also affecting a little bit the choices that Chinese people make when they buy phones at the moment."
2019-01-07 00:00 reading:414
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Apple lowered its Q1 guidance in a letter to investors from CEO Tim Cook Wednesday.Apple stock was halted in after-hours trading just prior to the announcement, and shares were down about 7 percent when trading resumed 20 minutes later.Apple lowered revenue guidance to $84 billion, down from the $89 to $93 billion it had previously projected. The company lowered gross margin to about 38 percent from between 38 percent and 38.5 percent.Apple blamed a variety of factors for the lowered guidance, including a weakening economy in China and lower-than-expected iPhone revenue. Apple said the lower-than-anticipated revenue happened "primarily in Greater China," but also said that upgrades to new iPhone models in other countries were "not as strong as we thought they would be."Cook's letter said fewer carrier subsidies, price increases based on the strength of the U.S. dollar and cheaper battery replacements caused the weak iPhone upgrades for the quarter."If you look at our results, our shortfall is over 100 percent from iPhone and it's primarily in greater China," Cook told CNBC's Josh Lipton in an interview Wednesday. "It's clear that the economy began to slow there for the second half and what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy."A White House spokesman did not immediately have a response to Cook's comments on the trade tensions between the U.S. and China.There have been several reports pointing to weak iPhone sales in recent months. Some Apple suppliers cut their estimates last quarter, leading many to speculate consumers weren't upgrading to the new models. Apple also took the unusual step of promoting discounted prices for iPhones on its website if customers traded in an older model. The company also increased the trade-in value of some older iPhone models.Despite the lowered guidance, Cook did point out some growth areas in the letter to investors. He said Apple's device install base increased by 100 million units over the last year. Apple has been promoting its growing install base as a way to show it can squeeze more revenue out of each of its uses through subscription services like iCloud storage and Apple Music. The company is said to be considering new subscription products through its Apple News and TV apps as well."We had sort of a collection of items going on. Some that are macroeconomic and some that are Apple specific," Cook said in his CNBC interview. "And we're not going to sit around waiting for the macro to change. I hope that it does and I'm actually optimistic, but we are going to focus really deeply on the things we can control."
2019-01-03 00:00 reading:485
Amid forecasts of declining iPhone shipments, Apple is looking to India to reinvigorate sales, with plans to begin assembling its high end handsets at a Foxconn plant in Tamil Nadu in the south of the country.According to reports, Foxconn will start assembling some of the more recent iPhone X series devices at its plant in Sriperumbudur near Chennai, in southern India. Since Foxconn is currently producing the Xiaomi phones at this factory, the company is plannign a new $356 million iPhone production that will create about 25,000 jobs.Apple's plans to manufacture in India were rejected by the Indian government in 2017, due to Apple’s demands for duty exemption and a relaxation of the 30% mandatory local component sourcing requirement. However, it is believed that ministers requested new proposals and are expected to make an announcement when India’s commerce and industry minister, Suresh Prabhu, meets Apple executives at the World Economic Forum annual summit in Davos, Switerland later in January.Last week, Citi Research slashed its estimate for first-quarter production of iPhones by 5 million, bringing unit sales down to 45 million. Citi also nearly halved expectations on the most expensive iPhone XS Max. Analyst William Yang said the iPhone is entering a destocking phase, which does not bode well for the supply chain.Coupled with the trade war between the U.S. and China and the ban on some iPhones in China, Apple appears to view India as the next possible growth market. It already sells the iPhone 6S and 6E in India, made by Taiwanese manufacturer Wistron in Bengaluru. But since its higher end phones are mainly imported, the high handset cost makes it unattractive for a cost-conscious market. Hence the company appears to be lobbying to obtain tax concessions and incentives from the government so that it can assemble phones locally and reduce the end-user cost for the Indian domestic market.
2019-01-02 00:00 reading:446
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