Qualcomm vs. Apple – Another Fight Coming

Apple is itching to restart the fight but there is a limited window.

• While it is clear that Qualcomm’s modems are still far better than Apple’s, Apple finally has a credible path to remove Qualcomm and reignite its legal warfare over royalties, but it must conclude its campaign before the next wireless standard or suffer a repeat of what happened in 2019 (see here).
• A Qualcomm-commissioned evaluation (see here) of Apple’s C1 modem against Qualcomm’s X75 and X80 platforms has produced results that were pretty much as I expected.
• Under optimal conditions, the C1 performs “somewhat comparably” to the Qualcomm X75 and X80 but where network conditions are sub-optimal, then large gaps in performance are observed.
• These conditions are typified by network congestion, areas of weak coverage such as being at the edge of the cell, a dense urban canyon or deep inside buildings, which is where a significant amount of cell phone usage is carried out these days.
• Under these conditions, Qualcomm performed around 35% better on download and around 85% better on upload and displayed much better spectral efficiency.
• These two modems are available in Android devices with similar price points to the iPhone 16e, making this a reasonable comparison to make.
• The fact that millimetre wave is no longer a defining criterion, for the mobile operators in the USA, makes Apple’s life much easier as it will not need to support frequencies above 28Ghz (mmWave), which I have long viewed as a bit pointless for smartphones.
• Where it makes sense is in fixed wireless access (FWA) and I suspect that it will continue to be used as an alternative to fibre or cable for the last mile.
• Supporting mmWave is extremely challenging, and with it no longer being a criterion to sell a premium US smartphones, the bar that Apple has to clear has become much lower.
• However, that bar is still pretty high, and it is clear from these results that there is no way the C1 will make it into a premium iPhone, although Apple has managed to solve the bulk of the 4G/5G problem.
• The independent radio experts I have spoken to think that the way is now clear for Apple to use its own modem in its premium flagships and remove Qualcomm entirely, but it will take another 3 years to do so.
• This means that it will be something like the C4 in 2028 before Apple can remove Qualcomm modems entirely from its lineup, meaning that revenues may last slightly longer than Qualcomm has indicated.
• Qualcomm is planning on no revenues from Apple for fiscal 2027 (ending in September 2027), but based on my research, I reckon this might slip to 2028.
• This is important not because of the revenues and profits from Apple that the market nonsensically obsesses over, but because removing Qualcomm leaves Apple free to restart its long-running legal battle with Qualcomm over handset royalties.
• Apple was forced into an ignominious defeat in 2019 because it needed Qualcomm modems to make 5G iPhones but could not get access to any without a patent license.
• By all accounts, the current deal with Apple expires in 2027, which is why I suspect that Qualcomm is not planning on any chip revenues from Apple for that year, but I am not convinced that the C series will be ready by then.
• Assuming that Apple has the C series ready earlier than I think, then when the contract expires, it will be able to restart the long-running legal fight with Qualcomm over patent royalties.
• However, Apple will need to re-initiate the fight and bring it to a successful conclusion before 6G rolls around because I suspect that 6G will be a repeat of what happened in 3G, 4G and 5G.
• With these technologies, Qualcomm got to market meaningfully ahead of anyone else with working high-end modems, implying that any flagship device that needs to support 6G in the early days will need a chip and a license from Qualcomm.
• If the fight is still ongoing at that time (as it could easily be), then Apple will be forced into another embarrassing climb down and another 6-year wait while it tries to get rid of Qualcomm all over again.
• In the grand scheme of things, this whole issue is fairly immaterial as what the company stands to lose in terms of profits from selling modems to Apple is dwarfed by the opportunities it has in other areas such as PCs, cars, IoT and now the data centre.
• The problem is that because Apple is so high profile, the market obsesses about losing it as a customer far more than it should when one just looks at the impact on the bottom line.
• By the time Apple has removed Qualcomm from its line-up, these other opportunities should have more than made up for the loss, making this a bit of a non-issue.
• Consequently, if the shares collapse as a result of Apple reinitiating hostilities (as Apple surely will), then this would certainly be an opportunity to capitalise on the market’s irrationality.