Apple To Dump Qualcomm Chips As iPhone 8 Sales Collapse In China

Tyler Durden's picture

The bitter legal dispute between Apple and Qualcomm has escalated sharply overnight as the former designs out Qualcomm components from future products. According to the WSJ, Apple, locked in an intensifying legal fight with Qualcomm, is designing iPhones and iPads for next year that would jettison the chipmaker’s components.

Apple is considering building the devices only with modem chips from Intel and possibly MediaTek because "Qualcomm has withheld software critical to testing its chips in iPhone and iPad prototypes, according to one of the people." The move is a dramatic reversal for the long-running relationship: Qualcomm, which has worked with Apple for a decade, stopped sharing the software after Apple filed a federal lawsuit in January accusing Qualcomm of using its market dominance unfairly to block competitors and to charge exorbitant patent royalties. Qualcomm has accused Apple of mischaracterizing its practices.

The dispute is centered on modem chips, but Apple’s strategy to reduce its dependence on Qualcomm has been underway since the iPhone 7 rollout. The WSJ continues.

Apple’s planned move for next year involve the modem chips that handle communications between wireless devices and cellular networks. Qualcomm is by far the biggest supplier of such chips for the current wireless standard. Qualcomm said its “modem that could be used in the next generation iPhone has already been fully tested and released to Apple.” The chip company said it is “committed to supporting Apple’s new devices” as it does for others in the industry. Apple in the past used only Qualcomm modem chips for iPhones, but started also procuring the chips from Intel for its iPhone 7 and 7 Plus models last year. It again used a mix of the two in the iPhone 8 and 8 Plus that started selling in September.

Some additional context on Apple’s significance to Qualcomm’s revenue.

The Apple plans indicate the battle with Qualcomm could spill beyond the courtroom feud over patents into another important Qualcomm business where it has the potential to send ripples through the smartphone supply chain. Qualcomm last year sold around $3.2 billion of modem chips a year to Apple, or 20% of its total chip sales, according to an estimate by Macquarie Capital. This year, Qualcomm’s chip sales to Apple are likely to come to $2.1 billion, or 13% of total chip revenue, reflecting more fully the iPhone 7’s mix of Qualcomm and Intel modems. Selling chips is generally less profitable for Qualcomm than its patent business. Apple paid $2.8 billion last year in Qualcomm royalties, which accounted for nearly 30% of the chip maker’s per-share earnings, according to Macquarie Capital. In the last year, Apple has stopped reimbursing those fees to iPhone and iPad manufacturers, which in turn have stopped paying Qualcomm.

Despite the continuing escalation, both in commercial and legal terms, the situation is fluid and there is hope for compromise, the Journal notes.

Apple’s plans to exclude Qualcomm chips from next year’s model could still change. People familiar with Apple’s manufacturing process said the company could change modem-chip suppliers as late as June, three months before the next iPhone is expected to ship. Still, some of the people said Apple hasn’t previously designed iPhones and iPads to exclude Qualcomm chips at a similar stage of the process. Qualcomm Chief Executive Steve Mollenkopf earlier in October described the dispute with Apple as “fundamentally about pricing” and expressed optimism that the two companies would find common ground. “For big companies, you sometimes have these disputes but you have a broader relationship,” he said at the The Wall Street Journal’s WSJ D.Live conference.

While Qualcomm remains heavily exposed to Apple, the latter has a precarious course to steer if it is going to drop Qualcomm components entirely.

Jettisoning Qualcomm chips would create risks for Apple. Semiconductor analysts widely consider modem chips from Intel and MediaTek, a smaller chip designer based in Taiwan, to lag Qualcomm in performance in areas such as download speeds. For example, Qualcomm has shipped a chip in phones that can process 1 gigabit of data per second, while Intel and MediaTek haven’t demonstrated modem chips that fast, said Patrick Moorhead, principal analyst at technology research firm Moor Insights & Strategy. Also, Apple typically wants at least two suppliers of key iPhone components to bolster its negotiating leverage, according to people familiar with its procurement process. So it would have to add a new supplier such as MediaTek in addition to Intel to maintain that for modem chips.

Meanwhile, Intel has the biggest opportunity to grow its market share by a factor in modem chips.

If Apple—which ships more than 200 million iPhones annually—taps Intel and MediaTek to provide modems for future handsets, both would stand to gain a greater piece of the roughly $5 billion market for stand-alone modem chips. Qualcomm currently dominates that market with a 50% unit share while MediaTek has a 25% share and Intel a 6% share, according to market research firm Strategy Analytics. Intel’s chips so far have been designed to manage communications for only one of two earlier-generation cellular standards still in use, while Qualcomm’s chips have been capable of handling both. As a result, Intel has been trying to broaden its portfolio to catch up with Qualcomm and this year announced a chip compatible with both of those standards. The chip would be Intel’s first modem that works with a full scope of wireless carriers. Intel hasn’t said when the unit would be available. Qualcomm and Intel also are vying for leadership in the next generation of wireless technology, known as 5G. Phones featuring 5G-capable chips are expected to hit the market largely in 2019, and Qualcomm is ahead of many peers, said Mr. Moorhead of Moor Insights & Strategy.

Removing Qualcomm components is not Apple’s only near-term challenge to its iPhone franchise. Overnight, the South China Morning Post reported further headaches for Apple's recent product offering, as retailers in mainland China are offering steep discounts only a month after the disappointing launch of the iPhone 8.

Unlike the frenzy generated by pre-orders for the wallet-busting iPhone X on Friday, the popularity of Apple’s other new smartphone, the iPhone 8, has quickly run out of steam in mainland China just a month after its release, with major e-commerce platforms offering big discounts to encourage customer orders. Suning.com, the e-commerce platform of China’s largest electrical appliance retailer, Suning Appliance, is offering discounts of as much as 1,100 yuan (US$165.5) on the iPhone 8 to customers, making its prices as competitive as or even cheaper than those offered in Hong Kong, where mainland visitors swarm to purchase Apple products for savings of up to 15 per cent. Customers who pay a 100-yuan deposit on Suning.com and Suning’s official store on Tmall will be offered discounts of 900 yuan or 1,100 yuan on different iPhone 8 models, which will ship after Single’s Day on November 11. The cheapest iPhone 8 model, the 64-gig variant, for instance, will cost 4,788 yuan (US721) after the discount by Suning, as compared with the official price tag of 5,888 yuan in China, which is 6 per cent lower than the phone’s HK$5,988 (US$768) price tag in the Apple Store in Hong Kong.

The SCMP article contained a stinging assessment from one analyst.

“The iPhone 8 might be the most poorly sold flagship iPhone model in China, as such huge discounts have never been seen before in the country,” said Zhao Ziming, a senior analyst at Pintu Tank in Beijing. Zhao said a month after the iPhone 7 was launched last year, the models were still hard to find in the market and consumers had to compete for an order online, let alone any huge discounts offered by authorised retailers. The iPhone 8, which offers few upgrades in terms of appearance over the previous version, has failed to trigger any shopping spree in China since its launch on September 22.

With hindsight, the lack of upgrades and, to some extent, cannibalization of iPhone 8 sales by the imminent rollout of iPhone X has exposed poor judgement on behalf of Apple’s senior management. Will the Qualcomm decision have a similar fate?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
07564111's picture

It's all taken care of..Apple + Intel = Deep State Pockets.

PrivetHedge's picture

Must be why it's now being run by morons then.

Bokkenrijder's picture

Apple obviously still hasn't gotten the memo yet that their products aren't that popular anymore and that they can't bully their suppliers around like before.

svayambhu108's picture

Qualcomm and AMD really inovate, Apple and Intle is just milking and bulshitting

flapdoodle's picture

(((Intel))) and the Mossad want easier backdoor access into all cell phone conversations. Besides, there is ugly fact that the desktop market is disappearing, Intel's cell phone CPU entries have been less than spectacular, and the long term outlook is grim as China and other countries figure out how to design and manufacture CPUs that are good/fast enough.

A wakeup call to what is going on is (((Intel))) putting CPU design facilities and manufacturing in Israel. This was never an *economic* move.

The Zionist Deep State seeks to give Israel a monopoly on leading edge technology (not bloody likely that will succeed, but they will try anyway).

svayambhu108's picture

Intel is not only losing big time in mobile it loses in x86 to AMD, power/price/performance/nr of cores, now AMD beats Intel with almost all its CPU options.

Intel is still first in absolutes values for most of the CPUs but with high prices, high tempeatures, and expensive setups just to get a few single digits percent above AMD

 

Fireman's picture

Rotten apple harvest, who cares!

saldulilem's picture

Um, why not just repost the WSJ artcle?

FreeNewEnergy's picture

OK, it's early Tuesday morning. Let's see if anybody agrees with me here.

Apple has a problem with its business model in that they have to keep selling essentially the same product over and over and over again, every two years or so (their imaginary product cycle) to conumers who are probably fiarly content with the model they currently own.

In other words, in order to maintain their high level of profitability, Apple has to sell new iPhones to current iPhone users every two years.

I am (well, was, when Steve Jobs ran the company) an ardent fan of Apple. In fact, I'm using a MacBook Pro to connect to the internet and compose this missive. Its from 2011, six years old, and still performs incredibly well, so, why hasn't Apple forced me to upgrade?

Different market, I guess.

Anyhow, not to get too deep into the weeds, the problem I see is that their business model, as currently constructed, is unsustainable. Anybody who thinks they need to upgrade their phone every two years is off their rocker. America was built on products that worked well and lasted a long time. Maytag washers, GE refrigerators, Ford trucks, etc.

If every company adopted Apple's business model of a 2-year product cycle, the average consumer would have been tapped out long ago.

Why don't they just install a kill switch which renders their phones inoperable after 24 months? Admittedly, I am not a big cell phone advocate. I use a 10-year-old flip phone, and very seldom, at that.

OK, that's my take. Comments welcome.

PrivetHedge's picture

In the Laptop market Apple has deleted Magsafe and useful USB ports on the Airbook replacements: the Macbook 12.

Their current laptop business models appears to be to force people NOT to upgrade as they now make nothing worth buying - their most buyable product now is the overpriced Airbook 13 with its ancient lo-res screen.

fattail's picture

They did have a Kill Switch.  It was their shitty glass screen that would crack at the slightest jolt, and require you to buy a new iphone every 12-18 months.  Which was great for the entrepreneurs in the plastic industry.  There was a consumer revolt and third parties started making hard cases and hard plastic screens to attach to the shitty iphone glass screen so they wouldn't break.  Every iPhone buy has about $50 in plastic protection surrounding it.  Never had to replace an iphone due to the screen.

The marginal improvement from each generation of iphone to the next is becoming smaller, as to the point right now it is almost insignificant.  It seems the next thing they will have to start selling is the speed or storage capacity.  Although the capacity issue will slow down their cloud storage business for awhile, until people fill it up with some useless selfies or pictures of their supper.  

Byte Me's picture

Seems to be pretty much a business model for any consumer article.

APPL is just the example that takes it to this extreme and draws the most publicity.

If you buy any 'consumer durable' you're lucky to get three years out of it. Last week, I bought a cheap but stylish tablelamp. Three days later the LED bulb blew. "Chinese shit, I muttered," except that it was a German LED bulb... Quite surprised me, but the hyperobsolescence model seems pervasive.

 

(I had a full immediate refund anyway)

FreeNewEnergy's picture

Well, I'm not the only one who's discovered the worhtlessness of Chinese-made products.

My "light bulb moment" came when I bought some standard 3-in nails from Home Despot to hammer together some pallets into shelves. Now, I'va always been pretty good at hammering nails, but these suckers were bending on the second or third strike, and, mind you, I was hammering into pine, a pretty soft wood.

After about an hour struggling with these nails and questioning my manhood, I looked at the package and it said, "Made in China." Took the rest of the box back to HD and asked the guy in the department if he'd had other complaints.

"All the time," he said. "The Chinese nails are made from cheap alloys."

Holy shee-it, I thought. That's the last nail (pun intended). I will not buy anything made in China, especially building materials. Unlike Apple and other companies, I'd like my stuff to last longer than two years before falling down.

Guess I'm just old school.

Cardinal Fang's picture

The flaw in their business model that you are seeking to define is that they have relied on technological advances to sell new designs.

Since technology has not advanced to a degree that devices catch up to hype, sales are dropping.

From this article, you could infer, why buy a X when 5G is around the corner?

Handheld devices are at a plateau.

My suggestion is that the immediate future to make devices more marketable, there should be more 'peripherals'...

Instead of hopping up chips inside, they should work on adapting handhelds to actually do something. Voltmeter, thermal imagery, O-scope, control panel etc. I don't mean IOT, I mean useful tools that people use every day that can be adapted to a human interface through a handheld device.

Of course, that would require potential redesign of just about every industrial product, but hey, sooner or later we will all have 3D printers too.

So, I guess, the real issue is lack of vision.

Common problem in the modern Industrial Age.

Rock and roll is just a fad, man.

FreeNewEnergy's picture

Thanks. I think you nailed it, Moore's Law notwithstanding. The common misconception is that all tech improves at the same rate as the capacity for smiconductors (Moore's Law - I cheated, wnet to Wikipedia), doubling every two years.

Eureka! Tim Cook gets the dunce cap for his mistaken belief that the tech in "smart" phones will double every two years.

Going back in time to 1972, when, as a freshman at Syracuse University, I took a sociology course titled, Is a Competent Citizen Possible In a Technological Society? by Dr. Manfred Stanley. Amazingly, I still remember the course. The conclusion, based on lots of reading and conjecture, was that the vast majority of people could not keep up with technological advancement. I got an A in the class despite writing my final paper in long hand. I apologixed to Dr., Stanley when I handed it in, but he kindly told me that the final paper being typewritten was not a requirement.

Anyhow, being that we're where we are some 45 years later, I know I was right then and am right now. Consider the computing power in the standard laptop or cell phone and how much of that the average person uses. 10-20%, maybe? And for games, mostly.

Now, the question becomes - since we have discovered the fatal flaw in modern society - how do we take advantage of such knowledge, i.e., short Apple, short FB. That hasn't worked. We're in a time warp, Spock. Get us out of here, warp speed, Mr. Sulu.

DisorderlyConduct's picture

Apple has not had a new product idea since the iPod touch.

Iphone is a touch with a radio.

All iPhones are just resizes of the same idea.

MacBook is just an up sized touch with different radios.

Same for the whole iPad line.

It's all the same shit. It's depressing people only now are catching on.

Temporalist's picture

Even the iPod was just another music player except for the advertising. Gullible, stupid humans.

flapdoodle's picture

Actually, they do have a kill switch,at least two in fact - one is a battery that can not be easily/cheaply replaced, and the other is delivered by OS upgrade that "accidently" makes older models run slower or not at all...

Seriously, I find it incredible that people will put up with shelling out $500+ every couple of years for (IMHO) a device that is only marginally better than what it replaces...

In mobile devices, speed ceases being as important. AI may require more processing, but it it means the battery needs to be recharged every couple of hours no one will want it. Low power consumption and better batteries are where its at. The problem with (((Intel))) is that other companies (e.g. ARM, Qualcomm) have also figured out how to do fast enough but low power so they have a lot more competition these days and are used to having a near monopoly...

Endgame Napoleon's picture

MacBook Pro is the rare, Made-in-the-USA product.

Infinite QE's picture

Anyone still on the iPhone hamster wheel needs to double their dose of flouride.

DoctorFix's picture

You must mean anybody on the "stupid-phone/entertainment-zombie/complex" hamster wheel, eh?  Brand is almost meaningless

Grandad Grumps's picture

It seems that as with the flavor of politicians, the preferred flavor if hardware is rotated at intervals beyond the ken of mortal man.

Motorola > Nokia > Blackberry > Samsung > Apple > ?????
(I forgot, was there a second Motorola in there with the "Razor"?)

And people blindly follow the direction of the hidden hand. So who will the hand designate as "hot", now that it seems to be turning against Apple?

ludwigvmises's picture

AAPL will likely gap up +3% on these news. So positive.

PrivetHedge's picture

Two giant american comapnies fighting each other like small children.

Meanwhile their competitors in China and Korea just Get On With The Job.

 

I'll have more time for Apple when it figures out how to put a USB port into laptops like the Macbook 12, a feat managed by Dell, ASUS, Lenovo, Acer etc, etc.

Instead we see them spending $billions on vanity HQ buildings, making stupid watches and useless phones while fighting their allies. 

Pathetic. Steve Jobs would be turning in his grave, even without Tim's DNC/LBGT crap.

Ejonsie23's picture

When my 6S+ eventually dies, Ill be going to Hauwei. Apple innovation died with Jobs.

Panic Mode's picture

I have been using Hauwei P9 Lite for nearly a year. The camera quality is shocking, then I play a song through the phone speaker. Fuck me, so crisp and clear like hi-fi sound!!.

I ditched Apple since iPhone 4 no longer support.

soulcalibur's picture

Quick question. does your GS6 Fast Charge? mine has stopped fast charging long ago. tried everything. new charger new cable, even opened up the back changed battery, and micro usb port. I remember it stopped working after a software update. I have a feeling it was a software issue or even possibly "kill switch" like to encourage me to buy a new phone.

DisorderlyConduct's picture

If it happened after a firmware/software update, then it was probably because they were fast - charging the LiPo's too quickly. They'll never give that back. Probably stealthed the update to avoid losing face.

FreeNewEnergy's picture

Or, let the chips fall where they may.

spanish inquisition's picture

Apple "if Qualcomm won't give us the software for testing, it makes it extremely difficult to reverse engineer the product"

TheSilentMajority's picture

Some anal-ysts say the demand for iPhone X must be good because the wait time is claimed to be 5 weeks.

However, it is well known that there is a huge supply issue for the iphone X. They cant get enough 3d imaging components to work properly, and supply is very low compared to other models.

Therefore, there is actually a huge supply deficit issue that is being erroneously construed as as a high demand.

Spike77's picture

Apple better get ready to pay 3x treble damages in this fight - as well as potential liability for forcing its suppliers to stop paying too.

TrueNorth0691's picture

I am still not sure what Apple's strategy is with this dual release. On the surface it just seems plain stupid. But perhaps it is the launch of 2 divergent lines of phone, or a hedge against failure of the X and some of its "innovations" that offer little or no real value despite the hype of the Apple marketing juggernaut. What I do see is a company that has lost confidence in it ability to maintain its status.

jimijon's picture

You have 10 years of people trained on what a smartphone is and how it works. The HUGE fact that people are missing here is that Apple is on a roll. It id DESIGNING ITS OWN CHIPS! It has created an amazing device, heads and tails way above any other device, in the Apple Watch. To dismiss that tech is completely blind. Then the OS that we developers use is getting better and better with more frameworks like ARKit and Machine Learning!

The phone is more powerful than computers of 10 years ago.

PS: Any alogirthmic traders here who know a bit about AI and ML, ping me, I would be interested in using the X Phones neural chip to "suggest" trades.

 

jimijon's picture

As a developer, the anti Apple crowd here on ZH are not unlike the bitcoin peanutz. Apple has a far superior development environment and an amazing collection of quality open source frameworks. Plus it’s secure and does not use and sell your info unlike ALL Android phones.

Plus, Apple now designs a majority of its chips and has been rumored to be working on its own modem chips.

Then in this corner we have the Apple Watch which is really amazing tech. Again blowing past all competitors.

I’ll just buy my next iPhone X with my BTC gains while still searching for my gold and silver from that boating accident.

And if you have an iPhone and want to track your cryptos, check out my new app : www.indxapps.com

Infinite QE's picture

Apple doesn't sell your data? LOL. What do you think iTunes is all about. And an Apple Watch? Lots of laughs. Nothing like pulsing cell signals into your wrist meridian points to get one's health all fucked up.

FreeNewEnergy's picture

jimijon, you're just a spammer, right?

jimijon's picture

No. I am a very long time reader of ZH doom porn and an early adopter of crypto coins. I know they are some BTC fans scattered amongst the crowd here and am proud of my little app. Of course it will cost you $5. OMG ????

Meanwhile Apple understands that all the aspirational buyers will want the X. And guess what? Demand is through the roof.

FreeNewEnergy's picture

I'm enjoying this thread, so let's not ruin it by phasing into a discussion of bitcoin, but I will anyway because bitcoin is bothering to me as I'll explain below.

OK, I'll admit, I considered buy some at around $150. Missed my chance. Story of my life. I recommended - in an article I wrote for a tech mag - that everybody buy AAPL in 1999. I didn't take my own advice.

Now, the only strategy is buy the dip or go short almost anything, neither of which are appealing long term. My issue with bitcoin is that it's inherently WORSE than fiat currency in that it isn't even worth the paper it's printed on, since it isn't even printed. It's the ultimate zero-value currency. It's worthless, long term.

The people pumping it to OMG, $6000, are insane. It's intinsic value is precisely ZERO. I cannot buy it, can't touch it, don't know where the hell it is at any given moment. The fact that governments (Russia, Japan) are embracing cryptocurrencies tells me they're worthless. We're in a massive bubble. Cryptos are just the current manifestation of the mania, and maybe the last.

When all the bubbles burst at once, do you really think BC is going to be worth anything at all?

I eagerly await your response to my concerns.

jimijon's picture

Doesn't matter anymore. I took out my initial investment in BTC and am just a HODLR now. However, the tech behind it, and the disruption of all things rentier, is truly divine. The blockchain will indeed make finance more equitable and will level the playing field. It is majorly disruptive. I think of it as a holographic datastore of all ledger type transactions. And, almost all of FIRE use a central ledger for their value.

flapdoodle's picture

Because of supply problems the roof you speak of is only a foot off the ground. I am no fan of Apple or Google/Android and am waiting for open source to gain a foothold on cells, and will immediately switch. It will end up being much better IMHO and allow me to control my device, not some marketing flunky or the NSA...

Grandad Grumps's picture

Maybe they will also cut down on the EMF radiation with the change. Apple phones generate a lot more radiation than Samsung phones.

silverer's picture

Attention US indebted parents: It's a good thing your kids put their nose to the grindstone at college and studied those math and science courses diligently so they could compete with those top ranking eastern engineers that produce stratospheric math scores. Thank goodness they didn't just party and drink with their loan money instead. Oh wait...

Temporalist's picture

If they could take out my brain, slap me in the face with it and put it back in backwards, I would then be an Apple user.

BetterRalph's picture

Got Land? you could put up an antenna.

BetterRalph's picture

200' coax, antenna matcher, antenna and a radio. SSTV, CW, RTTY for data. The apples are on the tree you tie your doublet up on

hannah's picture

'....and to charge exorbitant patent royalties.'

 

is this a joke. apple claiming someone makes too much profit. fuck apple.