Qualcomm lives to fight another day

[Jay Goldberg]

About a month ago, Qualcomm put out a barebones press release – just three sentences – announcing that they had reached an agreement to continue to selling modems to Apple. This hits pause on the doom narrative running around Qualcomm lately based on the pending loss of their largest customer, representing 20% of revenue.

Some background: Apple and Qualcomm do not get along well.

Apple avoided using Qualcomm modems from the earliest days of the iPhone. They only switched to Qualcomm in 2019, after settling a multi-billion dollar lawsuit. It is clear Apple would have been perfectly happy spending more billions on legal fees, but was forced to settle when their incumbent modem supplier – Intel – told them they would not have a 5G modem ready in time for the next iPhone.

Editor's Note:
Guest author Jonathan Goldberg is the founder of D2D Advisory, a multi-functional consulting firm. Jonathan has developed growth strategies and alliances for companies in the mobile, networking, gaming, and software industries.

At the time, there were widespread rumors that Apple viewed the supply arrangement as temporary and planned to build their own modem. Apple then confirmed those rumors when they purchased Intel's modem business in 2019 for almost $1 billion. Qualcomm management went on to warn that they had built their long-term plan around the assumption that they would lose the Apple business starting with the 2024 iPhone.

Since then, everyone has been waiting to see what Apple's modem would look like. And waiting. There have been reports of setbacks along the way. We wrote back in a mid-2022 piece titled "Is Apple Failing at Modems?":

So it is very possible that Apple just did not have sufficient design experience to build the chip. If we had to guess, maybe they completed a design but found that its power performance did not meet expectations. It is important to remember that Apple has failed at building networking chips before. Ten years ago they acquired a Wi-Fi/Bluetooth team from Texas Instruments, but today Apple is still buying those chips from Broadcom.

Put simply, building modems is hard, and very different from building the purely digital processors at which Apple excels.

So what does this mean now? For starters, Qualcomm gets some breathing room. As we noted last quarter:

Ultimately, Qualcomm's story remains unchanged. They have made some smart strategic bets in areas like RF, automotive and IoT, but these all have long design cycles and it will be several years before they (especially automotive) become material to earnings. At the same time, the loss of Apple looms. So their numbers are a race between the sunset of the Apple business and the ramp of those businesses. This quarter despite all its pitfalls does not change that outlook.

It now seems that Qualcomm does not expect Apple to have its own modem until the 2027 iPhone at the earliest. By then, Qualcomm should be showing significant automotive revenue and probably (hopefully?) have a very strong story around the growth of that opportunity.

There is also the potential for Apple and Qualcomm to mend fences. In the future, we can write about what we think lies at the heart of the bad blood between the two companies, but at this point we have to think that both companies have to be getting tired of this.

Tim Cook strikes us as ultimately pragmatic, we question how wed he really is to an internal modem. And Qualcomm's CEO built his career negotiating some of the biggest companies of the day (I.e. the telecom operators). So maybe there is room for more a amicable relationship. Maybe.

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https://www.techspot.com/news/100420-qualcomm-lives-fight-another-day.html

 

[d5aqoep]

Qualcomm’s Wifi7 platform found in latest beta Wifi7 routers is a mess. They better get their game together if they want to diversify. Their products cost waayyy too much. Look at Wifi7 routers pricess. Those things will not see mass adoption when a wifi router costs $700-$800. Qualcomm needs to release cheap and reliable products to stay relevant.

 

[rmcrys]

I think Apple has more to be afraid in general than Qualcomm.

After the big and fantastic Apple M1 and M2 chips, we saw that neither newer or stronger Macs or mobile devices like the iPhone or iPad are getting interesting, on the contrary:

- iPadOS limits a lot the iPad Pro interest
- the iPhone format reached their limit, the hardware is clearly overpowered for the format
- MacBooks are already very powerful for the apps that exist for MacOS.

So, Apple is getting at a point where their hardware is clearly more capable than what the software / philosophy is capable. Where are the foldables? Where is the hybrid between an iPad and MBA? Where is the AAA gaming? (No, a couple of games are not the huge windows / Linux library. I mean to play around 80% of my games on a high end Mac)

I have myself a Mac Mini M1 and I see no point on buying a new Mac. If my Mac is limited somehow, I will sell it an buy a windows machine, most newer AMD and Intel chips are not worse.

 

[redgarl]

Like I was mentioning on the IFS article, Intel ventures funded on revenues from their monopoly on CPUs for many years, have not paid out.

5G modems, 3Dxpoint, GPUs, Optane, Foundries... name them all.

Even Apple was not able to make their own 5G modem.

As for QCOM, until their snapdragon still beat the competition, it will be hard for anyone to discard them. They still have long years ahead until proven otherwise.

 

[hwertz]

Yeah, it's hard to avoid Qualcomm. They actually developed the CDMA system from scratch (and GSM-track 3G -- WCDMA -- was essentially a CDMA system that attempted to avoid patents. Unsucessfully, I think every 3G device ended up paying royalties to Qualcomm.) They offered several companies the chance to buy them out when CDMA was under development, said companies saw a description of how CDMA worked and first thought it was physically impossible.. then when they saw a large prototype in the back of a vehicle, thought they would be unable to get it down to fit in a phone. Then they had prototype phones, they thought (by then rather illogically, since Moore's law could take care of things by then) that "OK, it fits in this phone, but the phone is thick and the battery life poor, they can't fix that." They of course did.

Essentially, at that point, they had at least a 5 year head start on these chips compared to anyone else. It's a natural monopoly. There's nothing technically stopping other companies from making their own RF chips but Qualcomm has all that knowledge on RF design and excellent engineers. So, Intel did, and Samsung did as well -- I had a Samsung Stratosphere with a Mediatek 2G/3G chip and a Samung 4G chip. But, Qualcomm prices their chips just low enough that most companies that could develop chips run the numbers and decide it costs less to continue buying Qualcomm chips than spending billions of dollars developing their own. The few that have tried, they end up with a working chip, but by then Qualcomm has released several newer generations of chips with even better RF performance, both Intel and Samsung realized they would basically be stuck spending 100 millions a year just to play catch up with what Qualcomm was coming out with each year, with likely low sales (since, after all, why would you as a phone or tablet manufacturer buy a chip that is "catching up" when you can buy the Qualcomm chips?) At that point they decide "forget it" and leave the market to Qualcomm.

 

[Ben Myers]

Qualcomm’s Wifi7 platform found in latest beta Wifi7 routers is a mess. They better get their game together if they want to diversify. Their products cost waayyy too much. Look at Wifi7 routers pricess. Those things will not see mass adoption when a wifi router costs $700-$800. Qualcomm needs to release cheap and reliable products to stay relevant.

New tech always has high prices for early adopters, and then prices come down as volume ramps up.

 

[d5aqoep]

New tech always has high prices for early adopters, and then prices come down as volume ramps up.

This doesn’t happen these days. Manufacturers introduce new products at higher price points and keep prices of old products unchanged

 

[Shirley Dulcey]

They better get their game together if they want to diversify. Their products cost waayyy too much. Look at Wifi7 routers prices.

First generation devices from Qualcomm are always expensive. That's how they recoup their R&D expenses; by gouging the early adopters who have to have the next new thing right now. The company's track record in RF is excellent, so there is no reason to believe they will not be able to produce cost effective WiFi 7 chips in the future.

 

[isomage]

Qualcomm’s Wifi7 platform found in latest beta Wifi7 routers is a mess. They better get their game together if they want to diversify. Their products cost waayyy too much. Look at Wifi7 routers pricess. Those things will not see mass adoption when a wifi router costs $700-$800. Qualcomm needs to release cheap and reliable products to stay relevant.

Qualcomm's future hardly rests on the prospects of it's Atheros acquired technologies penetrating the ridiculously low margin and honestly immaterial retail and soho networking segment.

 

[isomage]

(That being said the company absolutely has what it takes to succeed on it's own terms in this space)

 

[isomage]

Yeah, it's hard to avoid Qualcomm. They actually developed the CDMA system from scratch (and GSM-track 3G -- WCDMA -- was essentially a CDMA system that attempted to avoid patents. Unsucessfully, I think every 3G device ended up paying royalties to Qualcomm.) They offered several companies the chance to buy them out when CDMA was under development, said companies saw a description of how CDMA worked and first thought it was physically impossible.. then when they saw a large prototype in the back of a vehicle, thought they would be unable to get it down to fit in a phone. Then they had prototype phones, they thought (by then rather illogically, since Moore's law could take care of things by then) that "OK, it fits in this phone, but the phone is thick and the battery life poor, they can't fix that." They of course did.

Essentially, at that point, they had at least a 5 year head start on these chips compared to anyone else. It's a natural monopoly. There's nothing technically stopping other companies from making their own RF chips but Qualcomm has all that knowledge on RF design and excellent engineers. So, Intel did, and Samsung did as well -- I had a Samsung Stratosphere with a Mediatek 2G/3G chip and a Samung 4G chip. But, Qualcomm prices their chips just low enough that most companies that could develop chips run the numbers and decide it costs less to continue buying Qualcomm chips than spending billions of dollars developing their own. The few that have tried, they end up with a working chip, but by then Qualcomm has released several newer generations of chips with even better RF performance, both Intel and Samsung realized they would basically be stuck spending 100 millions a year just to play catch up with what Qualcomm was coming out with each year, with likely low sales (since, after all, why would you as a phone or tablet manufacturer buy a chip that is "catching up" when you can buy the Qualcomm chips?) At that point they decide "forget it" and leave the market to Qualcomm.

Everyone who does RF Analog Modem Design at Qualcomm was chuckling to themselves when it became apparent that Apple believed they could replicated their success at Digital CPU design. It's a whole 'nother ballgame...almost an art even.