Apple wanted to use Qualcomm’s LTE modems in the iPhone XS and iPhone XR this year, but according to Apple COO Jeff Williams, Qualcomm refused to sell Apple its chips due to their current legal disputes.
After using both Intel and Qualcomm modems in the 2017 iPhone lineup, Apple says it planned to use chips from both companies again on the 2018 iPhones. Qualcomm’s refusal to sell Apple chips forced Intel to scramble to make up for the extra production.
Williams testified in the US Federal Trade Commission’s trial against Qualcomm this morning. The FTC accused Qualcomm of running a monopoly on wireless chips and forcing companies like Apple to use it exclusively while charging excessive licensing fees. A live feed of the trial isn’t available but CNET sent reporters to witness the proceedings.
Apple vs Qualcomm
“The strategy was to dual source in 2018 as well,” Williams said at the trial. “We were working toward doing that with Qualcomm, but in the end, they would not support us or sell us chips.”
Qualcomm charges Apple $7.50 per iPhone to use its patents. Williams said that he thinks the rate is too high. Even though the two companies have been fighting in courts the last few years, Williams said Apple would have loved to have access to Qualcomm’s technology.
During its negotiations with Qualcomm, Apple was forced to sign exclusivity agreements that it would only use Qualcomm chips. The company also kept trying to raise its $7.50 per device fee if Apple didn’t agree to its terms.
“We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head,” Williams said. “The alternative was if you don’t accept it, it just defaults to the contract manufacturer rate of $18, $17. We needed their chip supply. If we tried to pursue them legally, we wouldn’t have access to the chips. We didn’t have a lot of options.”
Apple’s fight with Qualcomm could make it a latecomer to the 5G. Most Android smartphone makers are expected to launch a 5G phone in 2019. Because Apple is completely reliant on Intel for its modems, it’s not expected to have a 5G iPhone until 2020, which is the first year Intel’s chips are expected to be ready.
Instead of waiting for Intel to catch up, Apple is also working on its own modems. The company has started hiring engineers in Qualcomm’s backyard, San Diego California. After smoking Android makers with its custom A-series processors, Apple’s foray into custom wireless chips could leave both Intel and Qualcomm wishing to have Apple’s business back.