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Apple Snubs Qualcomm for Intel's 5G Tech

Qualcomm Tanks as Apple Drops its Chips Entirely

Written by Wealth Daily Research Team
Posted November 10, 2018 at 7:00PM

In a continuation of the drama surrounding Qualcomm, Apple, and (now) Intel, Qualcomm’s stock fell by over 8% following its quarterly earnings release this week.

True, Wall Street traders and trading algorithms can often be fickle, especially in the short run. Unfortunately for Qualcomm, Wall Street could probably be forgiven for wiping out over $7 billion of Qualcomm’s market capitalization. After all, it was treated to this gem by CFO George Davis on the conference call:

Resolving our two licensee disputes is a key driver for fiscal 2019 performance.

Investors, who are constantly looking to the future when valuing stocks, were told point blank by the tech giant that (1) the company wasn’t focused on growth or new technologies to drive results next year, and (2) the company was having a hard time collecting on technologies it had already licensed to companies like (that’s right, you guessed it) Apple.

It would be like a retailer saying on its own earnings call, “Resolving bad accounts receivables will be a key driver for our performance next year.” One doesn’t know where to begin...

It’s a Small World

In Qualcomm’s defense, it isn’t wrong. And it’s not quite as bad for the San Diego, California-based company as it is for our fictional retailer.

You see, Qualcomm isn’t your typical tech firm. Its products aren’t clearly visible in stores like Best Buy, and you’ll never be able to show them off to your friends and family at holiday gatherings.

Qualcomm’s customers are other technology firms. Its recent 10-K filing states unequivocally, “Our inventions helped power the growth in smartphones,” and that’s not far from the truth. Qualcomm’s “products” are actually the patents and innovations that it then licenses to companies like Apple, which then use(d) it in the iPhone.

It can be a great business to be in. Its technologies are found in or have influenced practically every 3G- and 4G-powered device in the world. But as our devices have gotten smaller and smaller, the potential for technological disputes has grown ever larger.

“That Will Be $7 Billion, Please”

The race for technological dominance and continued expansion sometimes makes strange bedfellows — and mortal enemies. As we’ve previously covered, Apple and Qualcomm have been stuck in multiple disputes for a while. It would almost be out of place if one of them weren’t suing the other.

There are two major points that underlie dozens of court filings and amendments:

  1. Qualcomm claims Apple owes it $7 billion in royalties. Apple counters that Qualcomm is asking it to pay up twice: once for putting Qualcomm’s tech in the iPhone, and AGAIN through broader patent royalties.

  2. More sinister, Qualcomm claims that Apple actually stole its technological knowhow and literally gave it to Intel. The hope was to give Intel a boost and diminish (even slightly) Qualcomm’s clearly far-reaching technological innovations and prowess.

Every month, it seems, we are privy to a new court filing or amendment. The stakes are that huge.

Why Can’t We All Just Get Along?

The latest update, which has played out across court filings and corporate legal blogs, is that in addition to Apple and Qualcomm continuing to sue and countersue each other, Qualcomm has also taken to throwing some MAJOR shade Intel’s way via a court filing amendment dated September 25th:

Apple has engaged in a years-long campaign of false promises, stealth and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating time to market of lower quality modem chip sets, including those developed by Intel Corp.

The gauntlet has been thrown. And Intel was not going to lie there and take it. In a corporate blog post (only in 2018...), Steve Rodgers, Intel’s General Legal Counsel, said:

Qualcomm has had a lot to say publicly about its litigation campaign — and about Intel... It has publicly disparaged Intel’s products — products created by the innovation and hard work of dedicated teams of scientists and engineers at Intel... [but] the proof is in the pudding: Last year, the U.S. Patent Office awarded more patents to Intel than to Qualcomm.

If you’re wondering why these companies with billions upon billions of annual profits and bank accounts to match are going to war so aggressively, you’re not alone. But there’s a simple reason: 5G.

There Won’t Be a 6G

One of the best descriptions we’ve ever heard about a technological shift happens to revolve around 5G cellular coverage.

When asked to describe 5G, Professor Andy Sutton, the principal network architect at the UK’s 4G-service provider EE, said: “If we get 5G right, there won't be a 6G.”

Put another way: This one is for all the marbles.

In an interview with mobile-computing site Pocket-lint, Sutton went on to describe how 5G connectivity will “just be there like electricity.”

So it’s clear why Apple, Qualcomm, and Intel are fighting tooth and nail to one-up each other for 5G dominance. It’s entirely possible that the “losers” will be paying the winner(s) for decades if Professor Sutton’s prediction holds.

Qualcomm’s stock sold off this week not only because investors are worried (but hopeful) about the future, but also because it seems like Qualcomm is having a hard enough time getting paid for its 4G technology.

As 5G networks get deployed, fortune may turn for or against Qualcomm. Either way, though, one thing is for sure: The companies building the infrastructure today (and their investors) are experiencing massive growth.

That’s why we urge anyone with a brokerage account to review our free presentation on the emergence of 5G and three killer stocks riding its coattails this very moment. The sooner you get in on this one, the better.

Good Investing,

Wealth Daily Research Team


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