Apple was cornered

Over the last three days, the share price of Qualcomm jumped by more than 30% due to the legal settlement between Apple and Qualcomm. A UBS analyst estimates Apple paid $5B to $6B to Qualcomm and agreed to pay $8 to $9 per iPhone in patent royalties given Qualcomm's post-deal guidance expects EPS will increase by $2. Apple was fighting a legal battle with Qualcomm in a global scale. If Apple could win the legal fight with Qualcomm, Apple would be able to significantly cut its costs for its devices. However, the legal fight did not go in the way Apple wished, Apple was defeated in several countries, including China and Germany. These defeats mean that Apple could lose the legal fights completely in a global scale if it insisted fighting Qualcomm; therefore, it was smart for Apple to stop the fight with Qualcomm.

There was another important factor forcing Apple to reach a settlement with Qualcomm. Qualcomm is a major player in the 5G industry. Without using Qualcomm’s 5G chips, if Apple does not want to miss or be late to the 5G era, Apple needs to consider using 5G chips from Huawei or Samsung. Samsung is a possible choice but since Samsung’s own smartphones need its 5G chips, the supply is much more limited and may not be able to meet Apple’s demands. Huawei is not possible at all given we cannot even see Huawei’s smartphones in the US market, Huawei is blocked outside the US market. Then the only way for Apple to avoid missing the 5G was to reach a settlement with Qualcomm and use Qualcomm’s 5G chips.

The defeat is a big win for Qualcomm, but a loss for Intel. Since Apple has reached a settlement with Qualcomm, it means Apple will continue using Qualcomm’s chips and reduce its demands fro Intel’s chips. It can mean that Intel has lost its chance of strengthening itself in the smartphone chip industry.

To conclude,  we can say that Apple was cornered by Qualcomm mainly because of the timing. The 5G era is just ahead of us, and Apple just could not bear the potential losses of keeping fighting with Qualcomm and missing the 5G.