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Qualcomm’s hardball tactics squeezed Intel chips out of Apple’s 2014 iPad

(Source: cnet.com)

Qualcomm and the FTC are facing off in the US District Court in San Jose.

Stephen Shankland/CNET

Apple wanted to build an Intel communication chip into its iPad Mini 2, released in fall 2013, but Qualcomm’s hardball business methods crushed the plan, an Apple executive testified Friday in a US government case targeting Qualcomm’s power in the mobile market.

Apple didn’t like relying solely on Qualcomm for modem chips, which connect devices to mobile networks, said Tony Blevins, Apple’s vice president of procurement and a witness for the US Federal Trade Commission. In exchange for exclusive use of its chips, Qualcomm offered Apple rebates that reduced costs so they were no longer “exorbitant,” a deal that pushed Intel out of the iPad Mini 2, Blevins said in US District Court in San Jose, California. 

Blevins thought the Qualcomm deal for the iPad Mini 2, which Apple codenamed J86, would be a good first step in a longer-term relationship. He found out otherwise in a 2013 meeting with Qualcomm President Christiano Amon, he said. Amon bluntly told Blevins, “I’m your only choice, and I know Apple can afford to pay it,” Blevins recounted. That ultimatum led Blevins to clear his calendar and immediately start Project Antique to find a second modem chip supplier and “reduce the stranglehold Qualcomm had on us… It was no longer a level playing field as it was before.”

The case, filed in January 2017, pits Qualcomm not only against the FTC but against several FTC allies, including Apple, Intel, Huawei and Lenovo. The outcome could either hobble or cement Qualcomm’s business methods and how phone companies buy crucial components. But it remains to be seen whether it’ll have much effect on factors consumers might notice, like smartphone prices or how soon they connect to next-gen 5G networks.

The FTC is trying to show that Qualcomm harmed competition by using its dominance to keep competitors out of the market. One practice the FTC has raised is a “no license, no chips” policy that demands companies pay for expensive patent licensing deals before being able to buy and use Qualcomm chips.

Qualcomm employed tough tactics, yes. But in the 2-year-old case, the FTC must show Qualcomm has harmed competition not just in the past but in the future, hurting progress in things like 5G network speeds and chipset prices, said Creative Strategies analyst Ben Bajarin. Making that case will be “very difficult,” he said.

Qualcomm didn’t immediately respond to a request for comment. It’s not scheduled to present its defense until the second half of the trial.

‘No license, no chips’

Apple saw the “no license, no chips” policy firsthand in 2005 when lining up suppliers for the 1,000 or so components that make up each iPhone, Blevins testified.

“We would go out to potential suppliers and ask for samples and technical specifications to do value analysis,” Blevins said. With Qualcomm, “we were surprised. Instead of offering samples and specifications, we got a letter indicating they had a license agreement that had to be completed prior to getting any samples.”

Worse, Qualcomm demanded Apple cross-license its own intellectual property, giving Qualcomm rights to use it, Blevins said.

“We don’t understand why in order to buy a component from them we have to enter into a license agreement that requires Apple to license all its IP back to them. We don’t understand why that would be in anyone’s best interest other than Qualcomm’s,” Blevins said.

Apple clearly didn’t like being over a barrel. It relies on Intel modem processors, but the company also has discussed modem chip deals with MediaTek and Samsung, Blevins said.

Other Qualcomm critics

Huawei also said Qualcomm made chip access conditional to intellectual property licensing.

“Qualcomm refused to provide those chipsets until we signed a license agreement,” said Nanfren Yu, senior legal counsel for Huawei, in video testimony earlier this week.

A similar situation confronted Mark Davis, chief technology officer of Via Telecom, who appeared in video testimony Friday. Qualcomm dictated terms more than it negotiated, he said.

“We had the option of living in the box defined by Qualcomm or going to war. As a small company that’s just not practical,” he said. Qualcomm licensing agreements were “considered very onerous and unfair, but it was like a ticket. If you wanted to be in this walled garden, it was the only option available.”

Intel’s Aichatou “Aicha” Evans, questioned by Qualcomm at the trial, acknowledged respect for her modem rival — but only its technical prowess, not its business model.

“They are excellent technical engineers,” Evans said. “That doesn’t give them the God-given right to be using unfair business practices.”

The FTC has plenty of allies helping it make its case. But even if it ultimately prevails, don’t expect Apple or any other phone maker to pass along any cost savings to you.

“Apple isn’t going to lower the price of their phone,” Bajarin said.

More Info: cnet.com

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