Apple demanded $1 billion for chance to win iPhone chip contract, Qualcomm CEO testifies

Sat, 2019-01-12 01:51

SAN JOSE, California: Qualcomm sought to become the sole
supplier of modem chips for Apple’s iPhone to recoup a $1-billion
“incentive payment” that Apple insisted on, not to block rivals
from the market, Qualcomm’s chief executive testified on
The payment from Qualcomm to Apple — part of a 2011 deal between
Apple and Qualcomm — was meant to ease the technical costs of
swapping out the iPhone’s then-current Infineon chip with
Qualcomm’s, CEO Steve Mollenkopf testified at a trial with the US
Federal Trade Commission.
While such a payment is common in the industry, the size of it was
not, Mollenkopf said.
Under the 2011 deal, Qualcomm was named Apple’s sole supplier of
modem chips, which help mobile phones connect to wireless data
networks, in exchange for which Qualcomm agreed to give Apple a
rebate — the exact nature of which has not been disclosed. Apple
could choose another supplier but it would lose the rebate,
effectively increasing the cost of its chips.
Antitrust regulators have argued the deal with Apple was part of a
pattern of anticompetitive conduct by Qualcomm to preserve its
dominance in modem chips and exclude players like Intel.
At a federal courthouse in San Jose, California, Mollenkopf
testified that Apple demanded the $1 billion without any assurance
of how many chips it would buy, which pushed the chip supplier to
pursue an exclusivity arrangement in order to ensure it sold enough
chips to recover the payment.
Qualcomm was not aiming to block rivals like Intel, he said.
“The risk was, what would the volume be? Would we get everything
we wanted, given that we paid so much in incentive?” Mollenkopf
Earlier in the day, Apple supply chain executive Tony Blevins
testified that it was Apple’s practice to pursue at least two
suppliers and as many as six for each of the more than 1,000
components in the iPhone.
The company stopped trying to place an Intel modem chip in the iPad
Mini 2 because losing the rebates on Qualcomm’s chips would have
made the overall cost too high, he said.
“They made it very unattractive for us to use another chip
supplier,” Blevins said of the rebates. “These rebates were
very, very large.”

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Source: FS – All-News-Economy
Apple demanded billion for chance to win iPhone chip contract, Qualcomm CEO testifies