PR disaster for QCOM this week. Your explanation is ok (help out PR!), but sound bite is QCOM so greedy. It’s hard to defend with PR because not easily explained to average Joe’s like me and wall street.
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Unfortunately, most people who haven’t worked in the business don’t really see how this industry really works. In many ways, it’s very sleazy, specifically what OEMs do to their suppliers.
I’m the last one to defend QCOM because I’ve been at some companies that have been at the receiving end of QCOM’s dominance of the market. But in this particular case, I think Apple is strongarming Qualcomm during the FTC lawsuit to do maximum damage to QC’s reputation to try to win concessions with QC.
Apple is no where near the “victim” that it paints itself to be, in fact in many ways, Apple as a customer, has been nothing more than ruthless in many cases.
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QCOM should spend more time selling Snapdragon 625 used in moto z play. 2-3 day battery life, outside of games this is phone for half the crowd. 625 should win an Emmy, but it is buried. Help moto put a better camera sensor and it would be kicking it. I see people at airport standing next to odd closet in corner because they found an outlet to charge their iPhone. 625 solves that, sell it.
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Actually, if Qualcomm were to do this, Qualcomm would not last very long. Although in many ways, Qualcomm’s chip part of the business is fairly strong in some areas (Snapdragon app processor, LTE modem), in other areas such as connectivity it’s not so great stand alone. (It’s getting better). At once upon a time, there was only 1 game in town in the modem/app processor business…Qualcomm, and at that time connectivity typically went to someone else (Broadcom, and to a lesser extent TI)…. But the industry is maturing and there are plenty of low cost players that can offer, in many ways “similar solutions” at a significant price discount ala MediaTek, Spreadtrum, and even Samsung itself which, although uses Qualcomm’s high end app processor, LTE modem (and Broadcom’s connectivity and NXP’s secure element/NFC solution) for it’s top of the line galaxy products, uses its own homemade LTE modem (yes they also make their own modem) and it’s own Exynos app processor, and own connectivity+NFC solution for a lot of it’s korean and lower cost phone modems…Not only that, Samsung sells it’s own modem, connectivity, app processor to a lot of cheap Chinese phone OEMs that you never heard of here in the states, in direct competition with Qualcomm.
On top of that, you have a bunch of cheap players in China itself which is also going after those lower tier OEM’s with their ridiculous $1 total solution system on a chip, or 1/10 the cost of what a US player can do… So that’s why QC typically goes after the high end phone customers, because if it were to go after the lower end tiers all the time, it would either lose, or the margins would be so razor thin that they wouldn’t be profitable in it. But even going after the high end customers, that window of opportunity is slowly closing, because things are maturing and all the low cost domestic chinese/MediaTek/Samsung are all catching up….
Now, while we are at it, let’s talk about Intel. Intel, everyone knows has a significantly inferior LTE modem (one of the many obvious examples of this) is that Apple had to slow down the modem for the iPhone 7 (cripple it) that is sold to Verizon and Sprint, because the phones sold to Verizon/Sprint had the QC modem that if uncrippled would have had a significant performance advantage over the iPhone 7’s sold to ATT and Tmobile, etc that had the intel modem in it.
How did this happen? Well, Apple sort of used Intel to strongarm QC at a threat they would be second sourcing their supplier. And we can guess how much money Intel is making off of Apple by Apple allowing Intel to name Apple as a customer…
Hint: as of 2016 intel lost about $10billion in the mobile business, something that would have sunk any other company. Intel isn’t making squat on it’s modem for apple. In the very likely scenario, Intel offered Apple it’s modem for near at cost or maybe even below cost (IE paid Apple) to use the its modem, for braging rights and perhaps other concessions so to guarantee Apple doesn’t use something else other than x86 in their other product lines that their desktop computers. These sort of behind the door deals is often called “vendor locking” in which you tie up and bundle your offerings across the board such that you lock other suppliers out of the business (in the case in China, it might cost $5 to buy 10 integrated components but cost you $10 if you want to only buy 5 of those components…which would be legal in China)….Every supplier tries to vendor lock OEMs, because OEMs do everything they can to try to strongarm suppliers by threatening to switch suppliers and/or second source suppliers. So when you have companies complain about another company in the way it’s vendor locking OEMS, it’s laughable because if those complaining companies were in the same situation, they would do the exact same thing.
So again, I find Apple suing QC as just comical…Like i said, if anyone has been a strongarm bully time and time again, it’s Apple. Apple might make products that look nice and work nice that a lot of people like, but as a customer they are a prick to deal with. No different from any other monopolistic company like Samsung.
So where does this leave Qualcomm? In a very interesting pickle… In a cut-throat market like China, where the bulk of the growth is, you have a huge saturation of competitors in the chip-only business crushing margins… mostly from domestic chinese players but to a lesser extent (MediaTek and Samsung)… (Intel not a real threat, Broadcom out, TI out, Marvel out after not surviving)
The only way Qualcomm can do well there is going high end (for the short period solution) AND licensing it’s huge IP portfolio that spans across the mobile industry….In fact, unlike most other U.S. companies that doesn’t have this patent arsenal, QC unique business model does allow it to stay competitive in China when just about every other US company has pulled out from not being able to compete with low cost domestic Chinese competitors.
It can survive in China by doing some sort of deal with IP + chip bundling that no other US player can do. And QC can create a join venture R&D in China with an OEM to share their IP in exchange for short term sales goals, although albeit it’s just a matter of time before that IP exchange results in those “partners” end up turning into “competitors” once those partners start learning how to do things. In fact, that’s how Samsung came to power.
And that’s exactly why every OEM have this love/hate relationship with QC and why every other chip company has a huge vested interest to see QC’s existing business model fail…..Call it OEM envy…
And it’s also why many other foreign governments (China, Korea, etc) have a vested interest in seeing this model fail…So they can cut QC and american companies out of the markets, finally, once they stop having to cut the royalty checks to QC..Because they know once that licensing model stops, competing against QC on chip business alone would be easy to defeat, as was the case for every other US chip company that pulled out already..Compete on cost alone and flood the market with low cost solutions …. And everyone knows that any american company that tries to compete against asian companies on cost and cost alone will always lose in the long run..
So imho, in a lot of ways this lawsuit both from the FTC and Apple, has implications not only at Apple, but exactly how foreign governments are going to try to squeeze QC out of the market. And exactly why, QC will fight to death to keep this business model.
Welcome to the wonderful world of the mobile chip business. (hence why I got out)
If you want to take a gamble on chip business, QC would probably be a decent gamble since if history is a repeat of itself, QC always manages to navigate out of these patent/royalty squabbles. Imho, QC would also keep its patent business intact if it meant spinning off/divesting its chip business. Plus QC currently has the 5G leadership too.
Personally, I’m more inclined to gamble on AMD and their new Ryzen/Vega architecture. I mean, things are so bad at AMD that any market share taken from Intel and Nvidia, no matter how small, probably would be viewed as positive. And from what the reviews of Ryzen has been so far, it seems like AMD might have a shot at that soon….i hope….So hopefully, their Q4 wasn’t a total disaster, and in Q1 they’ll begin shipping Ryzen and the market reception will be decent. I’ll find out next week….Like I said, AMD is like a lottery ticket.
