back to article A billion-dollar question: What was really behind Qualcomm's surprise ten-digit gift to Apple?

The chip industry's strong-arm tactics have been laid bare this month in the anti-trust legal battle brought by America's Federal Trade Commission (FTC) against Qualcomm. But as we enter day five of the trial, it's become clear that the case may pivot around a single payment made by Qualcomm to Apple back in 2011. It was a …

  1. Snowy
    Coat

    I do wonder...

    How much Intel paid to get it's chip into Apple's devices.

    1. DougS Silver badge

      Re: I do wonder...

      I think Intel "paid" in the form of more reasonable pricing to start with, and not forcing a complex deal with incentive payments, rebates, cross licensing requirements and so on.

      1. druck

        Re: I do wonder...

        That's the best joke I've heard yet this year!

      2. John Bailey

        Re: I do wonder...

        I think your opinion may just be sightly coloured by the involvement of Apple in this story, not by any actual knowledge.

      3. Charlie Clark Silver badge
        Facepalm

        Re: I do wonder...

        and not forcing a complex deal with incentive payments, rebates,

        Because it's not as if Intel has ever done something like that before. Oh, hang on. Wasn't this the subject of a massive anti-trust investigation by the European Commission?

        1. Wade Burchette

          Re: I do wonder...

          And let us not forget when Intel was paying Dell not to sell AMD chips. This video lays out quite well Intel's long history of anti-competitive actions.

        2. DougS Silver badge

          Re: I do wonder...

          Just because Intel takes advantage of situations where it has market power doesn't mean it doesn't behave in a more civil fashion where they lack that power. They can't twist Apple's arm like Qualcomm can (or like Intel can when dealing x86 server OEMs) in the modem market, because Apple is their only customer. If anything, Apple has the power over Intel in that relationship.

          From stuff just coming to light now, Apple exercised that power too. When Apple wanted to dual source the 2018 iPhones but Qualcomm said they would only sell to Apple in an exclusive deal, Apple went to Intel's CEO and said "instead of 50% of our iPhones we need modems for 100%". If Intel had said no, Apple would have had no choice but to enter into another exclusive deal with Qualcomm meaning Intel would have spent all that money developing their modems but have no buyers for them. Now you know where Intel's 14nm shortage last summer came from...

    2. phuzz Silver badge

      Re: I do wonder...

      Wait, are we talking about recent Intel chips in Apple's mobile devices, or back when they switched from Motorola's PowerPC series to Intel's x86 in their desktop machines?

      Bcause for the second one, PowerPC was basically at an end, so they were going to have to move to x86, and at that point Intel had their new Core chips which were head and shoulders above AMD's offerings at the time (plus Intel could sell you the chipset, wireless, ethernet etc. as well as the CPU), so at that time Intel was probably the right course to take.

      Of course, it's possible that Intel might have also been up to some shady behaviour as well, but I'm not a fan of getting sued so I'll not make any specific allegations.

      1. overunder

        Re: I do wonder...

        "...at that point Intel had their new Core chips which were head and shoulders above AMD's offerings at the time"

        Ummm, no they weren't. Perhaps you're remembering another time line. Apple switched to x86 when Intel was still insisting on _NOT_ using x64, during their "Itanium Everywhere, Lock You In!" campaign. AMD was far in front, so why did Apple choose Intel back then? Hmmmm, gee, what could it be... It wasn't until the Intel iseries did AMD basically drop the ball and leave the court (apparently they're back though).

        Off hand, I can't think of 1 core duo that was better than my equivalent AMD's, which I'm finding odd right now (although they were undoubtedly cooler).

        1. overunder

          Re: I do wonder...

          Ignore the above, I'm 100% wrong, I need to check my own time line. Sorry, I always forget OSX started on PPC (and I won't debate what a P4's performance Vs. the performance of a AMD overclocked at 20,000volts).

        2. phuzz Silver badge
          Facepalm

          Re: I do wonder...

          My memory's not that good either, I (mis)-remembered that the first Core processors had 64-bit versions, but apparently that waited until Core 2, about six months later. (Although we can assume that Intel let Apple in on their roadmap, so they knew that x64 was on it's way).

          I do agree that a year or two earlier AMD were spanking Intel with the Athlon64, we can imagine an alternate scenario where Apple decided to ditch Motorola a few years earlier and switched to AMD's chips instead of Intel...

  2. Charlie Clark Silver badge

    Pot, meet Kettle

    Apple: give as upfront cash rebate or we'll go elsewhere

    Qualcomm: OK, but only if you agree to buy only from us

    Consumers are always the losers in these deals. But we knew that anyway because this is an FTC investigation…

  3. LDS Silver badge
    Devil

    "because you can afford to"

    Oh well, in some ways Apple deserved to be told that.... anyway, two dangerous predators in the same cage - and some light upon how they work.

  4. Chris Evans

    Missing figure?

    The vital missing figure is how much Apple ended up paying Quallcom after allowing for the $1B upfront payment and $7.50 "rebate" on each phone?

    1. I ain't Spartacus Gold badge

      Re: Missing figure?

      Rebates can get really silly. When I worked for [insert multi-national retailer name here] we had all sorts of complex rebate deals going. Buy $1m of kit, get 1% rebate at the end of the year, make it $1.5m and get 2%, sort of thing. Plus regular payments of $5-10k to cover joint advertising - i.e. come to [insert retailer] to buy the latest HP laptop at super low prices.

      So the buyers have an incentive scheme - based on profitablility and sales of the stuff they pick plus rebates.

      We're doing a deal with HP. We buy a very large amount of kit at x price with an average 20% margin. But her boss is unhappy. We don't have enough rebate or advertising! Oh noes!

      So the deal ends up with us making 18% margin, but now we get $50k a year for joint advertising spend. Woohoo! Win for us? HP - who are now getting us to pay for advertising their stuff with our profits. Oh and win for the buyer, who's kept the bosses happy and got a bigger bonus.

      Lose for me too, my rebate database just got another 1% more complex.

    2. DougS Silver badge

      Re: Missing figure?

      Five years of phones from 2011-2016? That's about 800 million or so, so that's $24 billion for the chips themselves and then whatever else Qualcomm was able to collect in separate licensing fees.

      The only reason they have such a complicated setup is because they don't want to simply charge for the IP as part of the chip. If they wanted to charge $20 per phone in IP just charge $50 per chip instead of $30. But that would add too much transparency for Qualcomm's tastes I guess, or make their chips seem too uncompetitive with other options.

      1. Chris Evans

        Re: Missing figure?

        "That's about 800 million or so, so that's $24 billion for the chips" If my maths is right that is $30 per phone. Where did you get the figure from? I see no mention of it in the article.

        1. DougS Silver badge

          Re: Missing figure?

          Qualcomm's FRAND deal specifies a royalty of 5%, which Apple claims should amount to $1.50. It was easy to work out the price of the chip (you can also see similar number from BOMs on iPhones that used Qualcomm's chip so it actually comes from two sources)

  5. ThePhantom

    During the 1990s Rambus, Inc. famously withdrew from a standard-setting organization (SSO) for memory chips and began suing the other members for infringing its standard-essential patents after the SSO adopted a standard using Rambus’ patents.

    1. DougS Silver badge

      Yeah Rambus has always been the poster child for abuse of the standards setting process. The standards organizations all changed the contracts companies had to sign when they joined a standards setting effort to insure this sort of thing could never happen again.

      I'm sure Rambus wishes they had come up with the mobile phone industry's "charge as a percentage of the cost of device" scheme for getting around FRAND commitments. Imagine being able to charge for your DRAM patents based on a percentage of the sales price of a PC or server! Someone upgrades the default GPU or substitutes a bigger hard drive in their order, bingo more money for you!

  6. Hans 1 Silver badge
    Angel

    Could we not have them both lose, for once, pretty please ?

  7. Anonymous Coward
    Anonymous Coward

    simply too expensive...

    "it was simply too expensive for Apple to drop out of the deal."

    It always irks me when the poster child for things that cost too much and that deliver too little value shouts (from atop their mountain of money) something that THEY want is "simply too expensive".

    1. Hans 1 Silver badge

      Re: simply too expensive...

      You, sir, do not know how companies work.

      Whatever a company produces, it must keep the costs low, regardless of the price they get for their products. A company always has to maintain its margin and their profits or the investors will leave, worse, a lot even leave when your profit does not grow year on year according to their unrealistic "predictions". So, Apple must continue to grow or it will fall, it is falling right now, simply because the market is saturated, despite the price hikes, people keep their phones longer, Apple tried to get old iPhones to calculate pi or whatever to drain the battery and force them to buy newer models, but that did not work too well, so ... when a company starts falling, they tend to fall much faster than they grew ...

      PS: I am just explaining how this shit works, not giving my opinion ..

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