A Look at Qualcomm (QCOM)-FTC Outcome and Its Impact on Apple (AAPL)
By Gene Munster
Qualcomm (QCOM) has lost a case to the FTC, effectively ruling the company has violated antitrust laws by unlawfully suppressing the market for smartphone chips and using its dominant position to overcharge for patent licensing fees. Qualcomm is appealing the decision.
Apple (AAPL) and Qualcomm, in April of this year, settled a related dispute with the companies agreeing to a 6-year deal in which Apple will continue to pay licensing fees to Qualcomm. We believe today’s announcement will have the following impact on Apple:
- The most likely outcome (we guess 80% chance) is that the ruling will be upheld and Apple’s recently negotiated deal with Qualcomm will remain unchanged. Apple and Qualcomm were obviously aware of the FTC case during their negotiations, and today’s outcome was likely factored into that agreement.
- This includes a royalty of approximately $8 per device, which means 1.8B in annual revenue to Qualcomm (Apple’s revenue this year is expected to be $257B). Previous to the agreement Qualcomm was attempting to charge Apple closer to $15 per device.
- The less likely (15% chance) case is that Apple is able to renegotiate its deal with Qualcomm based on today’s ruling.
- Even less likely (5%), is Apple’s option of finding another modem supplier. With Intel exiting the market, Apple is working on their own modems as to not be reliant on Qualcomm, but they likely won’t be available for several years. MediaTek, a Qualcomm competitor, is a more favorable option following today’s ruling, given their chip prices will decline with reduced royalties to Qualcomm.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.
Read more: Will Qualcomm (QCOM) Stock Price Get Back to $60-65? Not So Sure