Qualcomm (QCOM) Updates Lawsuit To Counter Attack Apple

Qualcomm Inc. (NASDAQ:QCOM) , the largest mobile chipset manufacturer using baseband technology globally, recently updated one of its lawsuits providing more evidences that Apple Inc. (NASDAQ:AAPL) is interfering with its existing arrangements with the contract manufacturing firms.

Notably, in Jan 2017, Qualcomm was slapped with a $1 billion lawsuit related to licensing royalty payments by tech giant Apple. In the suit filed in the U.S. District Court for the Southern District of California, Apple accused Qualcomm of overcharging for chips and refusing to pay some $1 billion in promised rebates.

It’s interesting to note that, just a couple of days before the filing, Qualcomm had faced an anti-trust lawsuit from the U.S. Federal Trade Commission (FTC). The regulator filed a case with the U.S. District Court for the Northern District of California claiming that the company has used anti-competitive measures to maintain a monopoly in the baseband chipset market.

The FTC said Qualcomm had established an exclusivity agreement with iPhone and iPAD maker Apple from 2011 to 2016. Through this deal, the San Diego-based chipmaker provided billions of dollars in license rebates to Apple, subject to the condition that Apple would not use the chipsets of Qualcomm’s rival companies. The company recognized that any competitor that won Apple’s business would become stronger, and used exclusivity of the deal to prevent the latter from working with its competitors.

In Apr 2017, Qualcomm counter attacked Apple mentioning the value of its invented technologies, their contribution and share in the industry through its licensing program. The filing also details Apple’s illegal and improper handling of agreements and negotiations with device manufacturers, misleading regulators to attack Qualcomm around the world and not utilizing the full performance of Qualcomm's modem chips in its iPhone7. Apple had even warned Qualcomm against publicizing the better performance of iPhones with Qualcomm chips.

Considering all the damages incurred, Qualcomm henceforth wants Apple not to further interfere with its agreements with the manufacturers of iPhones and iPads. The legal battle is basically centered on a high-stakes dispute between the two companies.

In its recent amendment of lawsuit, Qualcomm stated that Apple has been withholding payments to suppliers and encouraging them to similarly withhold those amounts from Qualcomm, all the while promising to indemnify the suppliers if Qualcomm takes legal action.

Intel Corp. (NASDAQ:INTC) and Media Tek are the closest competitors of Qualcomm in this field. In addition to iOS, Qualcomm chipsets are vastly used in Alphabet Inc.’s (NASDAQ:GOOGL) Google developed Android software and Microsoft Corp. (NASDAQ:MSFT) developed Windows operating system.

Price Performance of Qualcomm

Year to date, Qualcomm has reported a loss of 10.08% against the Zacks categorized Wireless Equipment industry’s gain of 8.21%. We believe that tough competition in the mobile phone chipset market, stringent regulatory norms along with anti-competitive and unfair business practices' charges have resulted in the company’s below-par performance.

However, Qualcomm’s Snapdragon processor is known for its Internet of Things (IoT) applications. Patent license deals entailing 3G and 4G networks, tie-up with large telecom operators to test 5G New Radio specification and the launch of China’s first end-to-end data call also bode well for Qualcomm. Moreover, the company is foraying into areas like automotive, networking and mobile computing. Qualcomm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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