Without Apple buying its 5G modems in annual volumes greater than 200M units, Intel had little chance of staying afloat in competition with Qualcomm. However, the Open Handset Alliance of Android phone makers are a bigger casualty of the deal, because they're losing the strongest marketing point they've had to rival iPhones in ten years: exclusive access to Qualcomm's leading 5G modem chips.
For Intel, relief
After Apple and Qualcomm announced their surprise settlement, it may have appeared that Intel would suffer most from the deal.
Intel immediately bowed out of the 5G modem business, effectively giving up on mobile Baseband wireless chips the same way that it had been forced out of any realistic position in selling mobile Application Processors in a market dominated by Apple, Qualcomm and the other phone makers building their own Application Processors, including Samsung's Xynos and Huawei's Kirin.
But Intel was certainly already aware that there was some risk of Apple and Qualcomm settling. There was also perhaps an even greater risk in Intel being lined up to continue as Apple's exclusive modem supplier despite serious doubts that it could deliver a 5G solution on schedule. Additionally, there was also strong evidence that within a couple years, Apple would eventually develop its own modems—an internal Apple modem effort has been no secret for years.
Intel's concerns about sinking substantial capital into a business that the bottom could fall out of at any moment likely means that the finality of the deal between Apple and Qualcomm came as a relief. Intel can now immediately pivot to other opportunities that aren't dependent upon the whims of an external decision, whether by Apple or from the court reshaping the 5G chip licensing business. In fact, Intel has no other option. And there's no decision that easier to make than one where you don't have any other viable alternative. Intel leaving modems is like Microsoft leaving Windows Mobile or Google leaving Android tablets and Chrome OS Pixel notebooks.
For Android makers, panic
On the other hand, Android makers have been collectively promoting Qualcomm's marketing that has portrayed Apple as being behind and mired in uncertainty, not only with future chips supporting 5G connectivity, but also with today's modems. Apple currently sells 1 Gigabit modems in a world where Qualcomm markets 1.2 Gb at the top of the line.
Qualcomm has claimed an edge in transmission speeds and general sophistication over the Intel chips Apple has been limited to using in its top of the line iPhones, thanks to the legal squabbles that have built between Apple and Qualcomm over the past couple years.
Suddenly, the one or two years of 5G exclusivity--and Qualcomm exclusivity—that Android makers and their media promoters have been trying to turn into a major issue—has vanished into nothing. Even analysts including UBS will need to find another reason to stoke fears about Apple's future. All those months of safely being able to trumpet the news that Apple's best iPhones have some easy-to-point-at disadvantage have vaporized.
The idea that every Android flagship by the end of 2019 will be outfitted with 5G chips isn't much of a selling point, given that there are currently no usable 5G networks anywhere that matters. But the idea that Apple was stuck at a disadvantage and would continue to be mired in uncertainty for an unknown number of years was the best possible marketing line Android enthusiasts could have hoped for—and now its gone.
Just as 5G was becoming an ever larger subject of discussion, Apple's deal with Qualcomm means that there isn't any credible fear, uncertainty or doubts that anyone can raise about whether Intel—or Apple itself—can ever catch up to Qualcomm. That FUD was critical in erecting a tower of legitimacy for Android as being exclusively advantaged in neatly packaged marketing that was created and distributed by Qualcomm itself. Android vendors didn't even have to pay for it.
Now that Qualcomm is back to supplying Apple its modems in a completed deal, the conversation turns back to issues like data privacy, security, usability, enterprise adoption, exclusive iOS software and games—including Apple Arcade—and a series of other factors that firmly return Android to looking like its just that hobbyist platform that serves little purpose outside of producing massive numbers of low-end devices for poor people in developing nations.
That's an absolutely terrible position for Android makers desperately trying to look like they have credible luxury class products, even if those are simply there to cast a halo over their middle tier of phones that exist to up-sell buyers away from the super cheap devices that don't make any money at all.
For Samsung and Huawei, a massive deflation
For Samsung, the idea that its premium, iPhone-priced Galaxy S models could claim a years-long edge in having superior modems—either from Qualcomm or 5G components of its own internal design—was pretty much the only good card it was holding. Everyone—even Galaxy proponents—were ignoring Samsung's exclusive Galaxy Apps and hating on its Bixby voice assistant, while its Application Processors were continuing to linger solidly behind Apple's latest A12 Bionic in performance and sophistication.
Sure, Samsung has lined up a series of Instagram shills to fawn over the Galaxy Fold, but there is no serious chance that any significant number of buyers are going to pay twice the price of an iPhone XS Max to get a super thick phone that transforms into a creased Android tablet, given that Samsung can't even give away its Android tablets today. The hype surrounding 5G was supposed to differentiate Samsung in a valuable way. Not anymore.
For Huawei, the idea that its own 5G chips were so good it could dangle them above Apple's head as it condescendingly smirked that "if Apple desperately wanted to buy them, it would be a really great friend and offer them for sale" is now a PR turd that no longer floats.
There's no way on earth that Apple would have ever incinerated its reputation for privacy and data security by obtaining radio chips from a Chinese company that is legally obligated by 2017's PRC statues to support that nation's globally ambitious intelligence operations—with the clearly stated goal of helping China to gain global supremacy.
There's also no chance that Apple would ever consider turning to a supplier like Huawei that is notorious for churning out wireless equipment so incompetently designed that their flagrant security flaws can't even be assumed to be malicious. The UK's scathing report on how consistently terrible Huawei was in designing and implementing basic security on its products made Huawei's sarcastic offer a particular embarrassment for Apple—like the skinny kid on the playground being bullied for not also having a PRC ankle bracelet.
But no more! Apple is now back to having access to Qualcomm's chips, which aren't regarded by the intelligence community as being legally obligated to support spying nor the subject of reports taking it to task for being egregiously incompetent. Qualcomm is regarded as having the best chips with the best technology available, at least for now.
This all happened before
There have been several times before where Apple was claimed to stuck in the present while Android or other rivals were clearly pulling ahead with superior technology. Before Android was even significant, the webOS-based Palm Pre was hailed has having access to "multiple core" chips in the months before iPhone 4 shipped. Once Apple shipped its own superior processors, Palm's entire marketing holding up its fledgling effort to retake ground in the smartphone race collapsed entirely.
Remember, too, the supposed superiority of Texas Instruments's OMAP5 chips and the persistent hype of Nvidia's Tegra mobile processors over several generations, both now lost entirely in the history of some technology museum. Both companies exited smartphone chips entirely—just like Intel in modems—after it became clear that there were no premium makers who could make any money selling their mobile gear and therefore fund the future advancement of mobile chips at TI or Nvidia.
Apple has ruled smartphone Application Processors for years, only to find itself in 2018 with a legal quandary that was forcing it to find some alternative for Qualcomm's modems at a point in time where the weak promise of "1.2 Gigabit mobile data" was being rebranded into the far larger and more critical sounding need to have "5G," regardless of whether it would actually offer users any tangible advantage in the near term.
Don't celebrate too hard, Qualcomm
And while the deal also erases any threat for Qualcomm that Apple might either deploy a good-enough modem built by Intel—or develop its own—things aren't all rosy for the San Diego IP licensing company.
Its near term competitive risks are minimized and its need to harass Apple in various jurisdictions globally is gone. It's no longer stuck in a vicious legal and marketing war with Apple that requires the two companies to destroy each in the court of public opinion as if they are candidates in a U.S. Primary, with no potential for anything other than a Pyrrhic victory.
However, Qualcomm is also well aware that Apple continues to work on its own internal modems. It's hired away Qualcomm employees and even set up R&D operations in San Diego, the same sort of braintrust raid Apple earlier established in the home towns of Blackberry, or IBM, or TI, or Amazon. Apple pretty clearly needs Qualcomm over the short term, after which Qualcomm faces the same fate as Imagination Technologies, the GPU IP vendor Apple worked with exclusively before cutting it loose and going solo with its own Apple GPU.
Qualcomm investors might take solace in the fact that Apple's licensing deal with the chipmaker extends for six years—with an option to extend even further. However, Apple also had a licensing deal with Imagination that was abandoned early—much to the surprise of the graphics IP vendor's investors. Apple similarly had a year left in its deal with Google Maps, but also pulled the plug early—leaving Google to scramble to get its own mapping app working on iOS while the installed base migrated to Apple Maps by default. This is not uncharted territory.
The biggest problem for Qualcomm is there simply isn't any sustainable market for premium smartphones modems outside of Apple's 200 million iPhones that sell each year at an Average Selling Price above $750. In the Android world, $400 is the threshold of "premium." Samsung and Huawei sell devices at an ASP of around $250. All of their phones selling above $600 are a drop in the iPhone bucket.
That's important to Qualcomm because the company isn't a Chinese corporation supported by the PRC. It has to make money. Qualcomm earns revenues by licensing its technology. That involves expensive R&D, which in turn it has to needle Chinese firms to pay for. If the only devices using its mobile chips are huge volumes of low-end phones being shipped to rural China and off to India, it's not going to recoup much of its investment.
Like Intel, Qualcomm needs first class customers who pay a significant premium for its very best chips. And in Androidland, both Samsung and Huawei—the only makers producing any volume of high end phones at all—already make their own 5G chips. So Qualcomm quite desperately needs Apple to buy its chips at a premium price. It has locked down a deal to do that for a few years. But once that deal is over—and it's over as soon as Apple develops its own technology, just like Samsung and Huawei already have—Qualcomm is going to be out of a premium-price paying vendor selling in significant volumes once again.
A Qualcomm modem deal is also a win for Apple's Application Processors
While Qualcomm has gained a temporary ally with Apple as a modem buyer, it has lost its ability to denigrate Apple to the support of its other Application Processor customers--the Android makers it sells its modems to as part of its Snapdragon chip. Apple has its own A12 Bionic, which will work with Qualcomm's modem; most Android customers are buying Snapdragon chips that bundle Qualcomm's integrated modem.
When Qualcomm launched its latest Snapdragon 855 last December, it took some potshots at Apple related to the modem component while flat out bamboozling members of the media with purely false claims about Snapdragon's graphics and ISP features. With Apple back as its most valuable customer, it can't keep flatly lying about the supposed advantages of its less sophisticated components outside of the modems it's selling to Apple.
So while pundits are falling all over themselves to portray this deal as a "cave" by Apple, it's really a short term fix that erases all of the doubts that Apple's rivals have been percolating, while granting Apple a reprieve it can use to double down on its own internal modem work, without having to also work with Intel on an interim solution that critics will tenaciously seek to discredit regardless of how serviceable it is or not. And on the side, it removes Qualcomm as a litigious nag and a malicious marketing liar.
Effectively, Apple is going back to buying Qualcomm chips at a contract price we currently know nothing about. It could be that Apple is paying Qualcomm everything it previously demanded for now, just to remove all that uncertainty. Or it could be that Qualcomm offered Apple a much better deal to align its brand with the best smartphones, rather than being associated with a variety of Android also-rans and tasked with picking petty legal fights with the only phone maker that's making massive billions in profits.
We do know that Qualcomm recently lost its multiple billion dollar leverage in trying to force Apple to pay back clawback provisions after it cooperated with governments investigating Qualcomm. Apple didn't rack up any material losses in the variety of nuisance claims Qualcomm had made, even if members of the tech media loved falsely floating out relatively minor infringement cases in Germany and elsewhere as being material to anything. So it was Qualcomm that had lots to lose and little to gain by continuing to play hardball in court. For Apple, it was just an annoyance.
We'd all love to know the details of this deal, and Apple isn't saying what they are. But Apple doesn't have to tell us anything about the deal for us to know who is coming out on top and who is going to suffer from it. No desperate pundit spin changes those facts.