Qualcomm adopts cheaper licensing for 5G tech, hoping to appeal to Apple & others

Seeking to appease customers like Apple and Huawei — and government regulators as well — chipmaker Qualcomm has switched to a more affordable patent licensing model, particularly for makers of high-end and/or 5G-capable phones.

Previously Qualcomm customers had to pick from two licensing bundles for phones: a robust one costing 5 percent of a phone's price, and a smaller one consisting of just standards-essential cellular patents for 3.25 percent. Most customers chose to license both in order to avoid lawsuits, Reuters said on Tuesday.

Under the new scheme, Qualcomm has made it more practical to adopt just the cheaper bundle, which now also includes patents for 5G. All fees will only apply to the first $400 of a phone's net selling price — in the past, that ceiling was $500.

Alex Rogers, the head of Qualcomm licensing, specifically cited the changes as coming in the context of legal problems with Apple and regulators. Apple and Qualcomm have become embroiled in an international legal war since the former launched a $1 billion lawsuit in January 2017. Regulators have meanwhile scrutinized Qualcomm's past deals — in January 2018 for example, the European Union leveled a $1.23 billion fine over a five-year chip exclusivity deal with Apple.

Qualcomm is under intense pressure to change as it copes with the financial blowback from lawsuits, lost income, and government fines. Recently the company confirmed mass layoffs, rumored to include about 1,500 people in California.

If Apple and Qualcomm don't reach a settlement, the latter could be completely cut out of the iPhone supply chain. Its share of iPhone cellular chips could shrink to 30 percent this year, and even if it doesn't Apple has been rumored as laying the groundwork for going Intel-only.

25 Comments

GG1 483 comments · 7 Years

About 6 years ago

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

muthuk_vanalingam 1367 comments · 8 Years

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

I think you missed to read the line "All fees will only apply to the first $400 of a phone's net selling price -- in the past, that ceiling was $500". With that, earlier cost was $25 per phone, now it is $20 per phone.

Anachr0n 37 comments · 7 Years

Not quite. Prior: $1,000 phone, but $500 cap so 5% of $500 = $25.

My concern is the double dipping. Are TSMC and Apple still both paying royalties for the same chip.

gatorguy 24608 comments · 13 Years

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

Incorrect. The previous cap price was $500, now reduced to $400. The cheaper SEP package is also 3.25% rather than 5%.

radarthekat 3902 comments · 12 Years

GG1 said:

If I understand correctly:

Past: $1000 phone x 5% licensing = $50 per phone (+ chip cost)
Present: $1000 phone capped at $400 x 5% licensing = $20 per phone (+ chip cost)

Correct?

What a business model -- if (while) you can get away with it.

It was previously capped at $500, so past was $25 per phone for any phone priced $500 or higher. For comparison with new licensing $20 for a phone priced at $400

New licensing would presumably be $400 * 3.25% = $13 per phone priced $400 or higher.

But the issue, to my mind, and likely on Apple’s mind, is that’s it seems inequitable to base a license fee for any technology within a product on the selling price of the product. If I manufacture sailboats and spec out a 80hp diesel engine I should be able to buy that engine for the same price any other sailboat manufacturer would pay for the same engine (in the same volumes), regardless of how much each of us sells our boats for, The cellular tech being licensed from Qualcomm basically represents the communications engine for the phone, or part of it (WiFi likely licensed separately). If Apple decides to manufacture two functionally identical phones, one priced at $300 and the other, with a ruggedized exterior, priced at $500, why should the provider of the cellular technology be paid more for Apple’s extra effort to ruggedize the case on some of its models? It makes zero sense.

And unfortunately, this olive branch by Qualcomm feels to me more like a Trojan horse. If phone manufacturers accept the lowered pricing then they will have defacto accepted the pricing model Qualcomm has recently been taking heat over. No doubt that’s part of their strategy here.