Qualcomm financials under the gun if Apple postpones iPhone modem royaltiesApple chip supplier Qualcomm could take a major financial hit if the former decides to withhold royalties until its $1 billion lawsuit is finished, an analyst noted on Monday.
Assuming Apple is paying a standard royalty rate on the iPhone modem, Qualcomm's earnings per share for this year could fall 32.5 percent, J.P. Morgan's Rod Hall said in a memo obtained by AppleInsider. Apple would benefit in the short term, potentially improving its gross margins by 2 percentage points.
A Qualcomm loss could have further ramifications as well. Should it lose, the company's entire licensing model is in jeopardy, and the ruling may set off a chain reaction of lawsuits and re-negotiations with other companies using Qualcomm patents and chips in products.
Apple launched its lawsuit on Friday, leveling several complaints but foremost accusing Qualcomm of withholding rebates in retaliation for Apple cooperating with South Korean antitrust regulators. The Korean Fair Trade Commission recently leveled an $853 million fine against Qualcomm for its licensing practices, including forcing clients to accept licensing deals alongside chip orders.
Indeed Apple and the U.S. Federal Trade Commission have both accused Qualcomm of making lower royalty payments for Apple contingent on using Qualcomm as an exclusive chip supplier between 2011 and 2016.
Apple has further suggested that Qualcomm is charging "extortion-level" rates for standards-essential patents. In a public statement, Apple claimed that it's been paying Qualcomm "at least five times more in payments than all the other cellular patent licensors we have agreements with combined."
In a counter-offensive, Qualcomm called Apple's allegations "baseless," and moreover accused the iPhone maker of fostering "regulatory attacks" by "misrepresenting facts and withholding information" in its dealings with trade commissions.
The iPhone 7 is Apple's first model to use wireless modems from two suppliers, Qualcomm and Intel. The latter's chip, though, can only handle GSM-based networks, which could make it difficult or impossible to ditch Qualcomm entirely in the near future.