Apple Demanded $1 Billion from Qualcomm for Exclusive Rights to Supply iPhone Modem

The Qualcomm vs. Apple battle has revealed some interesting tidbits about the business practices of both companies. Qualcomm paid Apple $1 billion as an “incentive payment” in 2011 as a part of a 3-year agreement to exclusively supply modem for iPhones. 

Qualcomm’s CEO Steve Mollenkopf revealed this incentive payment detail during his testimony on Friday. He said the payment was made to ease the technical cost for Apple to switch from Infineon baseband to those from Qualcomm.

While Qualcomm is known to make such payments to other companies as well, the figure of $1 billion is extremely high and unheard of previously. And since Apple could not commit to the number of chips it would buy from Qualcomm, the latter was forced to pursue an exclusivity agreement with it.

Ultimately, Apple and Qualcomm signed an exclusive deal for a three-year period and if Apple ended up sourcing baseband from any other supplier during this period, it would lose out on the rebate. Interestingly, it was Apple which first came up with the figure of $1 billion and not Qualcomm.

Apple’s supply chain executive Tony Blevins had testified earlier in the day that “They made it very unattractive for us to use another chip supplier,” Blevins said of the rebates. “These rebates were very, very large.”

Apple and Qualcomm struck a similar deal in 2013 where the latter was going to exclusively supply modem for three years. However, Apple started using Intel modem inside its products in 2016 which led Qualcomm to cut back on some of its incentives to Apple.

During cross-questioning by Qualcomm’s lawyer, CEO Steve Mollenkopf also made it clear that the company never cuts off modem supplies to any of its partners in a bid to enforce its patent licensing deal.

“We have the right to do it, but we don’t do it…It’s bad business, it isn’t good for the customer relationship and…It’s hard to be a top-tier supplier like we want to be if supply is disrupted,” Mollenkopf said.

He recounted how once Qualcomm accidentally stopped a shipment to Sony and he stepped in to solve the matter.

“Our team mistakenly put in a stop-ship [order]. I instantly got involved [telling Sony’s CEO that Qualcomm] sent the wrong signal, and I’ll make sure nothing happens to the chip supply. I told the [Qualcomm] team the same thing. I said if anything like this happens in the future I want to know about it,” Mollenkopf said.

Our Take

Qualcomm’s CEO testimony definitely paints a very different picture of the ongoing battle between the two companies. At first, it looked like Qualcomm was to blame but it looks like the deal was not as one-sided as we were led to believe in the beginning.

[Via EE Times]