Apple Taking Qualcomm Out Of The Equation With Future iPads And iPhones

Apple Inc. (NASDAQ:AAPL) is said to be developing iPads and iPhones that lack components from Qualcomm, Inc. (NASDAQ:QCOM) as the legal fight between the two California-based companies intensifies. Rather than use Qualcomm’s modem chips, Apple is planning to use components from MediaTek and Intel. Apple is doing this on the grounds that Qualcomm has withheld the software that is necessary to test chips in the prototypes of the iPad and the iPhone.

According to sources the standoff started when a federal lawsuit was filed by Apple earlier in the year accusing the chipmaker of abusing its market dominance to block competition. With regards to standalone modem chips, Qualcomm currently controls the market with about half the market share.

Biggest supplier

Apple also accused Qualcomm of charging exorbitant patent royalties. Qualcomm has however rejected the accusations saying that its practices are being mischaracterized by Apple.

“We are committed to supporting Apple’s new devices consistent with our support of all others in the industry,” a statement from Qualcomm said.

Qualcomm is currently the largest supplier of modem chips that bear the latest wireless standards in the world. Its chips are also considered superior to those of rivals especially with regards to performance. Prior to the launch of the iPhone 7 Plus and the iPhone 7, Apple relied exclusively on Qualcomm’s modem chips. But with the above-mentioned models, Apple used both Intel’s and Qualcomm’s modem chips. This is also the case with the recently released iPhone 8 Plus and iPhone 8 which went on sale in September.

Patents business

While Apple is one of the biggest customers of Qualcomm constituting about 20% of the total modem chip sales, the chipmaker’s more profitable business is patents. Last year Qualcomm received $2.8 billion from Apple in royalties and this was about a third of the firm’s earnings per share.

The value of modem chips that Qualcomm sold to Apple last year was $3.2 billion and this year it is expected to decline to $2.1 billion since Apple is also using chips from Qualcomm’s rivals.

On Tuesday shares of Apple rose by 1.39% to close the day at $169.04.