Apple’s Troubling Sainthood

Apple’s Troubling Sainthood

Qualcomm, a global chip maker, has filed a lawsuit in China against Apple. It wants China to ban the production and sale of iPhone in China. Without China’s assembly lines, there will not be any iPhone. So, technically, if China agrees with Qualcomm, iPhone will be off market.

Bloomberg News reported on Saturday that Qualcomm had filed a lawsuit in Beijing seeking a ban on the assembly and sale of iPhones in China — a vital Apple manufacturing base and sales market.

The two California companies are fighting over Apple’s claims that Qualcomm is abusing its market power over certain mobile chipsets in order to demand unfair royalties

The fashion company named Apple (get the joke, we like fashion companies) which largely scratches core engineering is living on crises it manufactured. Apple thinks that Qualcomm is greedy by asking smartphone companies to pay a percentage of the product value as royalty for using its mobile chipsets. Apple had wanted a fixed price for the chipsets. By asking for a fixed price, it will be possible for Apple to buy a Qualcomm chipset at say $18 and create a luxury product it sells for $1,000. Qualcomm maintains that it wants a percentage and that means if Apple jacks up its price, Qualcomm makes more money since the percentage remains the same.

Apple pivots into a fashion company, in the likes of Louis Vuitton, with the launch of iPhone X today. It costs $999, heavy on fashion elements, but hardly moves the technology trajectory. But that does not matter, because it is Apple. The world will cover it for free, and Apple will enjoy a great earned media. From CNN to NBC to Nigeria’s AIT, the message will be the same: there is a new product from Apple.

In the semiconductor industry, what Qualcomm is asking is new.  Usually, partners pay for fixed prices of components. The prices are usually discounted for bulk buyers. Apple buys many chips from Samsung and pays at fixed prices.

Apple has scale and as the world’s most valuable company with hundreds of billions of dollars in cash reserves, it can bully anyone it wants. It wants Qualcomm to fade by asking manufacturing partners to even stop paying anything to Qualcomm. Its argument was that Qualcomm pricing was not fair.

When a fashion company tells an engineering company that how it prices its products is not fair, you will agree with me that there is a problem. A fashion company can use materials valued at $300 and make a product it sells for $1,000 to the people. But for it, that is fine: the people want the best phone ever, a luxury. Simply, Apple wants all the margins for itself and does not care if Qualcomm has a right to a new business model.

Qualcomm has maintained that its pricing is fair and Apple knew about it before choosing its chipset.  Yes, Apple has been paying as agreed for years to Qualcomm. Apple knows that only one company in the world can provide the 4G chipsets it needs. Intel Corp and others are just getting into the party and no one comes close to the quality of Qualcomm’s mobile chipsets. For 5G, the gap is even more: Qualcomm has a decade advantage.  (It has been reported that Apple has been hiring many engineers from Qualcomm to help build its own internal chipset.)

Apple has hired Esin Terzioglu, a vice president of engineering at mobile chipmaker Qualcomm.

Terzioglu had worked at Qualcomm since 2009, where he had led the company’s central engineering organization and was responsible for directing the company’s technology roadmap. Before Qualcomm, he was the cofounder, CTO and CFO of Novelics, a provider of memory intellectual property that was acquired by Mentor Graphics

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Apple and Qualcomm are also currently locked in a major legal battle over how Qualcomm licenses its phone technology. In January, Apple filed a lawsuit against Qualcomm for alleged monopolistic tactics and overcharging for its patents. Some analysts speculate the lawsuit comes as Apple may be working on its own cellular chip — an expensive and complicated piece of technology. Apple has filed a number of patents in this area.

Apple game plan is to weaken Qualcomm. As those engineers see their stock options evaporate, they will start moving to Apple. As this happens, the anti-trust busters will continue to think that they are dealing with St. Apple who is fighting a just fight. They ought to allow market forces to settle this. Apple does not need government help on how much it pays for its components. It is the richest company in the world. Its crusade to sainthood is troubling.

Over the last few months, Apple has used its power to push anti-trust campaigns against Qualcomm. Qualcomm has paid severely for that as its market capitalization continues to fall.  Apple has succeeded by getting countries like South Korea and U.S. to believe that any firm has a right to determine for others how to price their products. Apple has all the rights to go and develop its own chipsets or buy from others based on the terms they want.

Sure, I do not really commend unfair market practices but in this case I do support Qualcomm. Apple wants to play the win-lose game they always do to semiconductor companies where you buy components for pennies and make products you sell at huge margins. Qualcomm is pioneering a new model where the value of the component is tied to the final price of the product. I do agree that it is not only Qualcomm products that power iPhone, but its model can be copied by other chip makers to their advantages. So, everyone gets a piece of the price hike by Apple as it turns iPhone into a fashion product.

To Qualcomm, the move in China will not work. China will never stop the production of iPhone because it will mean it will fire tens of thousands of people that work on the assembly lines and material sourcing to produce iPhone. The lawsuit is a waste of time. China will not take jobs away from its citizens to please a foreign company over another foreign company. Qualcomm needs to try another plan to get Apple to begin to pay the royalties. The suit at the World Intellectual Property Organization makes more sense than this Chinese one.  If WIPO can ban iPhone, Apple will come back to pay Qualcomm and there is a possibility that will happen.


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