After years of litigation involving a number of countries and myriad disputes, Qualcomm and Apple agreed to put aside their differences and settle. As part of their accord, the two U.S. tech giants have also agreed to a new six-year supply agreement for Apple to buy Qualcomm chips, including its 5G modems. However, while the agreement may have freed Apple to develop 5G-capable iPhones using Qualcomm's chips, Qualcomm is still fending off other legal challenges from global regulators that could place the United States' current tech dominance in peril.
The United States' long-held place at the forefront of developing emerging technologies is largely owed to the influence that U.S. companies, such as Apple and Qualcomm, wield in global markets. However, sweeping court decisions and anti-trust lawsuits now risk breaking up some of these large tech companies, and by proxy, their power. As a result, the United States may find that amid its ongoing tech war with China, the biggest risk to maintaining its dominance may come not from Beijing, but rather Washington.
The Lesser of Three Evils
To keep pace with the high-stakes, highly competitive 5G race in the smartphone sector, Apple had little choice but to make amends with Qualcomm. Qualcomm is one of only four companies in the world that currently have the capacity to develop of 5G modems for high-end smartphones, along with China's Huawei, South Korea's Samsung and the United States' Intel.
In 2016, Apple had stopped purchasing Qualcomm's modems for its smartphones because of the alleged overcharging of excessive royalties for use of chip patents. In doing so, Apple had counted on Intel developing a 5G modem in time for the 2020 iPhone model. But engineering challenges have bogged down Intel's 5G development since then, fueling concern that the company wouldn't be able to release a commercial modem until 2021 — two full years after Apple's biggest global rivals, Samsung and Huawei, were slated to release their line of 5G smartphones.
Such a delay was surely unacceptable for Apple, but so was the idea of having to partner with its two biggest global rivals, Samsung or Huawei, for a 5G modem. Huawei was reportedly open to working with Apple, but doing so would be a political impossibility thanks to the United States' increasingly heated campaign against the Chinese tech giant. Thus, in order to keep on schedule with its release of a 5G iPhone by 2020, the only feasible option Apple was left with was to resolve its disputes with Qualcomm.
Qualcomm's Legal Woes Are Far From Over
But while the agreement may have settled its legal disputes with Apple, Qualcomm is still facing other significant legal challenges from global regulators over its business model, which could place the United States' tech dominance in peril. Then is especially apparent when considering an antitrust lawsuit levied by the U.S. Federal Trade Commission (FTC). The FTC has accused Qualcomm of leveraging its monopoly over patents for certain designs (such as modems for smartphones) to force its customers into unfair licensing agreements. The trial wrapped up earlier this year, and is currently awaiting a decision from a federal district court judge in California. However, should a court decision result in an FTC victory, it could force Qualcomm to break up its monopoly and thus, its influence in the market — opening the door for Chinese Huawei to swoop in and take its spot.
Becoming a leader in chip manufacturing is an expensive and difficult process, which is why the sector is dominated by so few companies. Qualcomm has earned its current place at the top by investing across a wide spectrum of technologies — arming it with the kind of comprehensive end-to-end capabilities that allow Qualcomm to have such a key role in the global standardization, interoperability and development of telecommunications networks. While other large U.S. tech companies (such as Apple and Intel) share some narrow overlap with Qualcomm's business capabilities, their scope is nowhere near what's needed to lead the global debate on setting standards anytime soon. Shortly following Apple and Qualcomm's statement, Intel also announced that it was stopping its development of 5G modems for smartphones altogether.
A legally mandated breakup of Qualcomm could inadvertently pave the way to Chinese dominance in the tech sector, despite the United States' best efforts to maintain an edge.
The only other companies with the capabilities and influence to quickly replace Qualcomm are Samsung and Huawei — neither or which face realistic antitrust threats. In its effort to become a more significant player in global regulations on communications technology, China-based Huawei has been focusing on developing end-to-end expertise that goes beyond even Qualcomm's capabilities.
Without a viable U.S. alternative to take Qualcomm's place, the United States risks losing its place at the negotiating table, and its ability to set global standards for the tech sector — particularly, on key decisions on telecommunications and interoperability of systems. Without Qualcomm, U.S. leadership when it comes to 5G developments — and future generations, including 6G technology — will erode more quickly. A legally mandated breakup of Qualcomm may, therefore, inadvertently give way to China's rise in the tech sector, despite the United States' best efforts to maintain its edge over its chief Eastern rival.