Personal Finance

Qualcomm Messed With the Wrong Customer

QCOM Revenue (Quarterly) Chart
QCOM Revenue (Quarterly) Chart

QCOM Revenue (Quarterly) data by YCharts .

Broader smartphone adoption was the main factor, but the iPhone pulled an awful lot of that weight, too -- both directly and indirectly (Android was created largely in response to the iPhone). More specifically, from 2011 to late 2016, Qualcomm had extracted both exclusivity in supplying Apple with cellular baseband modems as well as its silence. You may note in the chart above how much sales increased during this time period. Apple was restricted from actively complaining to law enforcement and regulators, although it was allowed to respond if asked. So long as Qualcomm maintained its lock on baseband chipsets, it had incredible leverage and there wasn't a whole lot Apple could do.

Enter Intel (NASDAQ: INTC) . Intel had been trying to crack the baseband market for years with little to no success. Even today, Intel's modems are technologically inferior to Qualcomm's, but they're good enough and much cheaper, and Intel expects to catch up within a few generations. The combination of Qualcomm's exclusivity ending combined with Intel's ability to supply a sufficiently competitive modem is the perfect storm for Apple to unleash its pent-up discontent in court. The $1 billion that Qualcomm is withholding was just the final straw.

Now that Apple has a path to an alternative supplier (even though the majority of its basebands still come from Qualcomm) and is no longer contractually obligated to keep quiet, Apple is bringing a brutal suit against Qualcomm that threatens Qualcomm's very business model . You know it's serious when Apple is litigating, given CEO Tim Cook's hatred of litigation . Did Qualcomm really think that Apple would never retaliate?

The moral of the story: Don't extort Apple, and don't blackmail Batman.

10 stocks we like better than Qualcomm

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Qualcomm wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

INTC QCOM AAPL

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More