AAPl Vs QCOM Who wins?

Things just got interesting in the iPhone supply chain with the $1B AAPL Vs QCOM legal action filed this week. For the life of me I could not understand why Apple second sourced the normally QCOM modem in the iPhone 7. It caused quite a stir in the technical community but we could only surmise that it was a price issue on the business side. Well, clearly it was more than just price.

AAPL:“For many years Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations. Qualcomm built its business on older, legacy, standards but reinforces its dominance through exclusionary tactics and excessive royalties. Despite being just one of over a dozen companies who contributed to basic cellular standards, Qualcomm insists on charging Apple at least five times more in payments than all the other cellular patent licensors we have agreements with combined.”

Apple seems to be piggy backing on the legal actions against QCOM from China, Korea, Taiwan, EU, and the USA. But Apple’s problems may have started when they used Intel modems and broke an exclusivity clause with QCOM. Either way this is a legal mess that may not be resolved for months or even years.

QCOM:Apple’s complaint contains a lot of assertions. But in the end, this is a commercial dispute over the price of intellectual property. They want to pay less than the fair value that QUALCOMM has established in the marketplace for our technology, even though Apple has generated billions in profits from using that technology

In the meantime let’s look at the modem issue and see who will ultimately profit. My bet is TSMC of course and here is why:

Remember, even though Intel supplies the XMM 7360 LTE modem used in the iPhone 7, TSMC manufactures it on their 28nm process. The next-in-line Intel modem is the XMM 7480 which was announced one year ago and is now being qualified by AT&T and other carriers. Intel has made statements in the past that they will move modem manufacturing from TSMC to Intel so the $1B question is: Who will manufacture the XMM 7480?

Here is the answer from the J.P. Morgan Tech Forum at CES 2017:

Q – Harlan Sur: So you guys recently got qualified with your next-gen XMM 7480 modem. Help us understand, first of all, is this product being manufactured by Intel internally or is it still being manufactured at TSMC?

A – Navin Shenoy: We’ll make decisions on where we manufacture the modem on a pragmatic basis. I’m not going to tell you right now yet where we’re going to manufacture XMM 7480 or the subsequent ones. But suffice it to say, we’re looking at both internal and external options.

Clearly that decision has already been made since the chip is in production. As you can tell Navin (Intel Client Computing Group VP) is a career Intel employee well versed in doublespeak. I was hoping Murthy Renduchintala (Navin’s boss) would rid Intel of double speakers but clearly that is not the case, yet.

If it was on an Intel process you can bet Navin would have proudly boasted, so my bet is that the XMM 7480 is already in high volume manufacturing using TSMC 28nm and it is highly unlikely it will be moved to Intel 14nm. In my opinion the first Intel modem to use an Intel process (14nm) is the 5G modem they announced this month. 4G modems are a price driven commodity and nobody does 28nm better than TSMC. I would also argue that the TSMC 16FFC process is better than Intel 14nm for price and power but Intel needs to prove their ability to manufacture mobile chips to justify the huge investment they have made so it will probably be Intel 14nm.

The other winner of course is one of my favorite IP companies (CEVA) as their IP is designed in the Intel 4G modem. Intel licensed CEVA-XC core for LTE chips back in 2010 at around the same time it acquired Infineon’s wireless business unit. Infineon is also a CEVA licensee for their ARM-based 3G and 4G LTE modems.

The Intel Corporate Earnings call is tonight so we can continue this discussion in the comments section…