Apple COO Jeff Williams says that Qualcomm refused to sell it modems for use in the new iPhone XS and iPhone XR, affecting the company's timetable for shifting to 5G.
CNET shared details today from Williams' testimony in the FTC trial against Qualcomm which kicked off on January 4th in San Jose, California. The FTC alleges that the company engaged in anti-competitive tactics to maintain a monopoly on cellular modem chips. They highlighted the same 'no license, no chips' policy which Apple sued the company over. Qualcomm refuses to sell its chips to customers unless they also sign a patent license agreement and pay the company fees. The FTC says Qualcomm also refuses to grant licenses to rivals.
During his testimony, Williams revealed that Apple wanted to use Qualcomm modems for its new devices but the company refused.
"We have been unable to get them to support us on new design wins past that time [when Apple filed a lawsuit against Qualcomm]," Williams said. "This has been a challenge."
Like it had in previous years, Apple intended to use modems from both Intel and Qulacomm.
"The strategy was to dual-source in 2018 as well," Williams said. "We were working toward doing that with Qualcomm, but in the end they would not support us or sell us chips."
After determining that Qualcomm would not provide chips for the new iPhones, Apple asked Intel CEO Brian Krzanich to supply all the modems needed.
"He had to scramble," Williams said. "We would have loved to continue to have access to Qualcomm's tech."
Qualcomm's refusal to supply Apple with chips has likely shifted back the company's timeline for moving to 5G. While most Android vendors will have a 5G phone available in 2019, Apple will need to wait for Intel's 5G modem which isn't expected to be ready for iPhone until 2020.
In response to Williams' comments, Qualcomm referred CNET to remarks the company has made in recent months.
In July, Qualcomm President Cristiano Amon said, "if the opportunity present itself, I think we will be a supplier of Apple."
In September, Qualcomm CFO George Davis said, "we would welcome the engagement with Apple on 5G."
The trial is also revealing some interesting information on the licensing fees that Qualcomm has been demanding from Apple.
Initially, Qualcomm wanted to charge Apple's contract manufacturers a 5 percent fee for every iPhone sold which would have been $12-$20 per device. Apple negotiated that down to $7.50 per device in exchange for exclusivity but even that was five times higher than what the company deemed was fair. Apple wanted to pay 5% on each modem sold ($1.50) not 5% on the entire value of the device.
In 2013, when negotiating a new contract, Qualcomm wanted to raise the licensing fee by $8-$10 per device. Apple managed to keep the fee at $7.50 but again needed to agree to exclusivity clauses and provisions that limited its ability to use a second supplier.
"We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head," Williams explained. "The alternative was if you don't accept it, it just defaults to the contract manufacturer rate of $18, $17."
"We needed their chip supply. If we tried to pursue them legally, we wouldn't have access to the chips. We didn't have a lot of options."
The trial continues tomorrow.
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CNET shared details today from Williams' testimony in the FTC trial against Qualcomm which kicked off on January 4th in San Jose, California. The FTC alleges that the company engaged in anti-competitive tactics to maintain a monopoly on cellular modem chips. They highlighted the same 'no license, no chips' policy which Apple sued the company over. Qualcomm refuses to sell its chips to customers unless they also sign a patent license agreement and pay the company fees. The FTC says Qualcomm also refuses to grant licenses to rivals.
During his testimony, Williams revealed that Apple wanted to use Qualcomm modems for its new devices but the company refused.
"We have been unable to get them to support us on new design wins past that time [when Apple filed a lawsuit against Qualcomm]," Williams said. "This has been a challenge."
Like it had in previous years, Apple intended to use modems from both Intel and Qulacomm.
"The strategy was to dual-source in 2018 as well," Williams said. "We were working toward doing that with Qualcomm, but in the end they would not support us or sell us chips."
After determining that Qualcomm would not provide chips for the new iPhones, Apple asked Intel CEO Brian Krzanich to supply all the modems needed.
"He had to scramble," Williams said. "We would have loved to continue to have access to Qualcomm's tech."
Qualcomm's refusal to supply Apple with chips has likely shifted back the company's timeline for moving to 5G. While most Android vendors will have a 5G phone available in 2019, Apple will need to wait for Intel's 5G modem which isn't expected to be ready for iPhone until 2020.
In response to Williams' comments, Qualcomm referred CNET to remarks the company has made in recent months.
In July, Qualcomm President Cristiano Amon said, "if the opportunity present itself, I think we will be a supplier of Apple."
In September, Qualcomm CFO George Davis said, "we would welcome the engagement with Apple on 5G."
The trial is also revealing some interesting information on the licensing fees that Qualcomm has been demanding from Apple.
Initially, Qualcomm wanted to charge Apple's contract manufacturers a 5 percent fee for every iPhone sold which would have been $12-$20 per device. Apple negotiated that down to $7.50 per device in exchange for exclusivity but even that was five times higher than what the company deemed was fair. Apple wanted to pay 5% on each modem sold ($1.50) not 5% on the entire value of the device.
In 2013, when negotiating a new contract, Qualcomm wanted to raise the licensing fee by $8-$10 per device. Apple managed to keep the fee at $7.50 but again needed to agree to exclusivity clauses and provisions that limited its ability to use a second supplier.
"We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head," Williams explained. "The alternative was if you don't accept it, it just defaults to the contract manufacturer rate of $18, $17."
"We needed their chip supply. If we tried to pursue them legally, we wouldn't have access to the chips. We didn't have a lot of options."
The trial continues tomorrow.
Read More