If you own a smartphone, chances are it’s powered by chips designed by a company called Qualcomm. For years, the company has dominated the market for microchips for mobile devices. Its Snapdragon chip system can be found in the most popular Android phones, its wireless modems are found in roughly half of all iPhone 7 handsets, and it sells chips or licenses patents to many other companies.
As drones fill the sky, semi-autonomous cars fill the roads, gadgets like the Amazon Echo fill people’s homes, and other new technologies powered by Qualcomm’s products hit the market, you’d think things would be going great for the company. Instead, it just can’t seem to catch a break.
Late Tuesday, Foxconn and three of Apple’s other manufacturers filed a lawsuit against Qualcomm, just one of at least half-a-dozen legal actions Qualcomm is currently involved in. The news of this latest litigation overshadowed the good news in the company’s quarterly earnings report on Wednesday: the company did better than expected, but revenue was still down, largely due to its many legal disputes. Worse, Qualcomm isn’t just dealing with routine patent disputes. It’s fighting to save its business model in the face of lawsuits from around the world.
A Song of Patents and Licenses
Qualcomm’s current troubles date back to 2015, when China kicked-off a string of antitrust cases against the chipmaker with a $975 million fine. Later that year, the European Union also accused Qualcomm of antitrust violations, but has yet to issue a fine. Last year South Korea fined the company $854 million. Then things got ugly.
In January of this year, Apple filed a $1 billion lawsuit alleging that Qualcomm withheld rebates in retaliation for Apple’s cooperation with South Korean regulators. Meanwhile, the Federal Trade Commission sued Qualcomm as well, based in part on a complaint from Apple, alleging that the chipmaker’s patent contracts unfairly discouraged customers from using chips from competitors.
Still with us? Good, because it only gets more complicated from here. Qualcomm countersued Apple in April, claiming that Apple deliberately slowed down Qualcomm modems used in iPhones to cover up slower performance of Intel-made modems used in other iPhones.
Apple then retaliated by refusing to pay its manufacturers the licensing fees they pass along to Qualcomm. That’s what led to the 12 percent revenue drop Qualcomm reported for the last quarter. Apple also expanded its suit, alleging that in addition to overcharging for patent licenses, Qualcomm essentially “double dips” by charging Apple licensing fees in order to use the chips Apple has already bought and paid for. Qualcomm then sued Apple’s manufacturers over the unpaid licensing fees and, earlier this month, sued Apple itself for patent infringement, going so far as to call for an import ban on iPhones. If you’re confused, you’re not alone. The ordeal is more convoluted the plot of Game of Thrones.
But it’s not just the lawsuits causing Qualcomm headaches—it’s also increased competition. Last March, Chinese smartphone giant Xiaomi launched a new line of smartphones powered by its own Surge chips. Xiaomi still buys Qualcomm processors for other phones, but the Surge chips nudge the Chinese company away from the chipmaker. If more companies head in this direction, Qualcomm might be facing not just a decrease in the amount it can charge for licensing, but fewer companies shelling out for its tech in the first place.
The natural thing to do when one revenue stream is threatened is to find another one. So last October, Qualcomm agreed to buy NXP, a Dutch semiconductor maker best known for producing microchips for the automotive industry. But even this plan is in legal jeopardy: EU regulators recently launched an investigation into the deal. That’s in addition to the EU’s 2015 antitrust case against Qualcomm.
Qualcomm believes it’s in the right, legally and morally. “Qualcomm’s inventions are at the heart of every iPhone and extend well beyond modem technologies or cellular standards,” Don Rosenberg, executive vice president and general counsel of Qualcomm, said in a statement this month. “The patents we are asserting represent six important technologies, out of a portfolio of thousands, and each is vital to iPhone functions. Apple continues to use Qualcomm’s technology while refusing to pay for it.”
But don’t shed too many tears for Qualcomm, even if it does end up losing its lawsuits. The company’s technology still underpins much of the wireless world, and that’s unlikely to change anytime soon, even as more companies build some of their own chips. Qualcomm enjoyed many years with few true peers. It could do with a little competition.