Apple’s Truce with Qualcomm Remedies Path to 5G iPhone

Qualcomm and Apple have finally settled their two-year court battle and signed a new patent license agreement. Few financial details of the settlement are available, but it includes a six-year patent license deal between the two companies and a multi-year agreement for Qualcomm to supply smartphone modems for iPhones, notably 5G, that will ramp up over time. Apple will also make an undisclosed payment to Qualcomm, which is likely to cover owed patent fees from the past two years.

Putting aside the six-year patent licensing agreement for a moment, the most important aspect of the settlement is that Qualcomm will become a key supplier of 5G modems to Apple for its future generation of iPhones. In previous years, Apple has followed its usual mantra of having more than one supplier for the majority of its components for iPhone, which lowers supply risk and reduces costs, and in the case of the modem it had been using those from both Qualcomm and Intel. In July 2018, and as a consequence of its ongoing spat with Qualcomm, Apple stated it would begin using Intel’s modems in future iterations of the iPhone or else it would consider building them itself.

In just a matter of months, this settlement has completely turned that assertion on its head; not only has Apple patched up its differences with Qualcomm, but Intel has also announced that it is to exit the 5G smartphone modem business after admitting that it sees no clear path to profitability and positive returns in the sector. Intel will instead focus its 5G efforts on network infrastructure and other data-centric opportunities. Both pieces of interrelated news broke in the same week, and while probably coincidental they do look very well-coordinated. Although Intel does not expect to launch 5G modem products in the smartphone space, including those earmarked for launch in 2020 (which would have meant the iPhone), it has not yet quite finished with Apple as it does intend to honor current customer commitments for its existing 4G smartphone modem product line.

The deal will also help accelerate Apple's move to 5G. Analysts had previously questioned Apple’s ability to bring 5G capabilities to its iPhone devices in 2020, owing much to its choice of Intel as sole 5G modem partner. The two companies found it difficult to align their commercial and technological objectives to differentiate 5G iPhones from their competition while also attempting to resolve the RF front-end (RFFE) challenge when moving to 5G. As Apple and Qualcomm have now made amends, the pressure is on Qualcomm to demonstrate it can enable Apple to bring 5G to the iPhone in 2020 and help it differentiate effectively in what is going to be highly competitive market.

Indeed, with Apple now back in its stable, Qualcomm is set to be the largest supplier of 5G mobile modems by far. The company may face a certain level of competition from other captive modem vendors such as Huawei or Samsung, but this will be limited and confined mostly to these companies’ flagship models. There are, however, rumors suggesting that Samsung is looking to provide its 5G modem to other vendors beyond its own devices, with some Chinese vendors being name-checked as possible users. MediaTek is also pushing forward with its 5G plans with its Helio M70 5G modem, as is UNISOC, a core subsidiary of Unigroup (previously known as Spreadtrum), with its own 5G multimode modem IVY510. Both UNISOC and MediaTek are sure to carve out shares in 5G low-end and mid-range devices for China and emerging markets over the coming years as 5G matures and filters down to lower price tiers.

This dramatic turnaround deal is good news for mobile technology innovation, and the announcement brings welcome relief to the smartphone market as the era of 5G quickly approaches. Despite its dalliance with Intel, the settlement is a clear admission by Apple that Qualcomm will be its unavoidable partner when it comes to 5G mobile innovation, and joins a whole roster of smartphone vendors who have already committed to support its chipset, including HMD Global (Nokia), LG, OnePlus, OPPO, Sony Mobile, vivo, Xiaomi, and ZTE. It is entirely feasible that Qualcomm could be the sole modem supplier for iPhones, although such a decision flies in the face of Apple’s strategy of using more than one supplier per component. This is, of course, unless Apple does start to build its own modems or else begins to use those from a second supplier (perhaps Samsung?).

Apple already uses its own application processors for the iPhone, so it remains to be seen if the company will use just the 5G modem from Qualcomm or if it will also take advantage of Qualcomm’s RFFE solution, which together can provide an integrated system design to meet the challenges of implementing 5G. Such a move may call Apple’s relationship with current RFFE suppliers, such as Skyworks, Qorvo, and Avago into question, although it may continue to use these vendors across certain product segments in line with its multi-supplier strategy and their push to create more collaboration and targeted RF integration.

For Apple, the drive to settle with Qualcomm comes down to its need to get access to appropriate 5G technology, acknowledging that it would have to leverage Qualcomm’s leadership in 5G wireless technologies. In doing so, Apple can now move toward a respectable market launch date for its 5G iPhones, which it would probably not have achieved if it were still working with Intel. With large U.S. operators Verizon and AT&T, and other wireless operators globally, already rolling out 5G networks, Apple could ill afford to launch 5G devices in its key markets too much later, and no doubt saw that, for all the wrangling over the past two years, Qualcomm was key to making this happen in 2020.

Even so, with a 5G iPhone likely to appear in September 2020, there had been some speculation that this date would still be too late to market and that its competitors would have carved out a significant share by this stage. It must be said, however, that Apple has not been one to keep up with current trends. It was a late adopter of both 3G and 4G technologies, though there was neither particular damage to its brand image nor a detrimental impact on volume sales in either case. It would be difficult to assume, therefore, that being late to adopt 5G would be any different for the company.

It could also be argued that an end-2020 launch would have near-perfect market timing, assuming Qualcomm can help achieve this objective. By this date, Apple would have learned much about the market from other early 5G smartphone implementations, and the 5G ecosystem would have gained some level of maturity on which the company could base more sound decision making. Indeed, it would not be the first time that Apple has observed and waited for a market sector or notable smartphone feature to gain traction and settle down before it then perfects and launches its own product offerings. With around 30 5G smartphone models ear-marked for launch in 2019 with Qualcomm’s solution on board, Apple will need to hit the ground running when its iPhone is finally let loose on the market. It needs to create a differentiated offering that can compete effectively against this initial phase of 5G smartphone deployments while also providing an incremental boost to global 5G shipments as the migration to next generation networks creates a much-needed market boost to stimulate upgrade and replacement cycles.