Apple-Qualcomm tussle to hit earnings
Qualcomm’s countersuit against Apple threatens a relationship that helped both companies rake in billions of dollars as leaders of the smartphone revolution.
The acrimony in Apple’s suit and Qualcomm’s response late Monday raises the prospect of Qualcomm losing a big portion of the revenue it gets from one of its biggest customers. For Apple, it suggests doubt about the iPhone’s ability to remain a prestige product without the chipmaker’s wireless technology.
“The war between the companies appears to be growing,” Sanford C Bernstein analyst Stacy Rasgon wrote in a note to investors on Tuesday.
Apple says Qualcomm uses market dominance to illegally overcharge for its wireless technology while Qualcomm argues the iPhone maker is just trying to pay less. The dispute is already threatening Qualcomm’s earnings because contract manufacturers that make the iPhone and pay Qualcomm on behalf of Apple are holding back payments, Rasgon noted.
Qualcomm fell 2.1 per cent, the most in more than two months, to $55.35 in New York. That extended Qualcomm’s loss of market value to almost $14 billion since Apple filed its complaint January 20. While Apple has surged in the period on optimism about new iPhones coming later this year, the stock slipped 1.1 per cent to $141.63 on Tuesday.
While the iPhone was taking the world by storm, the partnership served both well. Qualcomm revenue reached $24 billion last year, from $15 billion when it first began supplying chips to Apple in 2011. In that year, iPhones generated $46 billion in sales for Apple. That soared to $137 billion by Apple’s latest fiscal year.
But in 2016, iPhone unit shipments dropped for the first time, making the company focus more on profitability, not just growth. Apple pressured suppliers more to save money, and its battle with Qualcomm is the toughest of these tense negotiations. The two companies accuse each other of lying, bullying and other allegedly illegal practices. Underpinning it all is a dispute over licensing fees that make Qualcomm one of the world’s most profitable chipmakers and shave a few percentage points off Apple’s iPhone margins.