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Qualcomm pushed for iPhone exclusivity in response to $1B incentive payment demand, CEO says

Qualcomm CEO Steve Mollenkopf took the stand to defend his company at a trial with the Federal Communication Commission on Friday, saying the chipmaker pushed for exclusivity on iPhone because Apple demanded a $1 billion "incentive payment" to secure the deal.

Qualcomm CEO

Qualcomm CEO Steve Mollenkopf speaks at the Brainstorm Tech conference in 2017. | Source: Fortune


According to Mollenknopf, Apple said the payment would be used to cover technical costs to transition from communications hardware made by Infineon to comparable components manufactured by Qualcomm, reports Reuters.

Qualcomm agreed to Apple's request, at least in part, as the firm rendered an undisclosed sum to Apple in the form of a rebate starting in 2011. As described by Mollenkopf, Apple received the rebate on chips and licensing as long as Qualcomm remained the sole supplier of iPhone modems.

The deal, which was renewed in 2013, put Qualcomm in a precarious position as it did not specify the number of chips Apple would be obligated to buy. Qualcomm sought an exclusivity arrangement to offset the inherent financial risk, Mollenkopf testified.

"The risk was, what would the volume be? Would we get everything we wanted, given that we paid so much in incentive?" Mollenkopf said on the stand.

The testimony adds a wrinkle to the FTC case, which alleges Qualcomm participates in anticompetitive business practices to the detriment of industry competitors like Intel. Both Apple and Intel assisted antitrust regulators in bringing the case against Qualcomm to court, saying the chipmaker abuses FRAND (fair, reasonable and non-discriminatory) patent licensing commitments to maintain a stranglehold on the market.

Mollenkopf's statements contrast testimony offered by Apple supply chain executive Tony Blevins earlier in the day.

Apple typically attempts to diversify its supply chain by securing at least two manufacturers for each iPhone component, Blevins said, adding that Qualcomm's rebate made it "very unattractive" to seek a secondary chip supplier.

"We think competition and market forces are very important to us to achieve the best leverage," Blevins said, according to CNET. "With exclusivity, there would be no competition."

Apple is involved in its own legal struggle with Qualcomm over licensing, patents and alleged nefarious business practices. Apple fired first with a $1 billion suit in January 2017, claiming the chipmaker abused its "monopoly power" of the wireless modem industry to demand excessive royalties. Qualcomm has since filed multiple countersuits claiming Apple is in breach of contract.

Most recently, Qualcomm won two key rulings in China and Germany, where courts issued a sales ban on certain iPhone models for infringing on Qualcomm patents. Apple is appealing both cases, though Qualcomm this month posted a $1.52 billion bond in Germany to take all iPhones save for iPhone XS and XR off store shelves.