Qualcomm, Inc. (NASDAQ:QCOM) has been fighting Apple Inc. (NASDAQ:AAPL) for most of 2017, and the legal battle is rapidly escalating. At this point, the fight over smartphone modem chips has expanded to include a who’s who of the tech industry, with Apple rivals including Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google taking Apple’s side in the fight as part of the Computer and Communications Industry Association (CCIA).
QCOM stock has been hammered, dropping 18% since its legal woes began in January. That includes another 1% shaved off QCOM stock overnight after the company expanded its legal fight, to take on the CCIA as well.
In Latest Apple Lawsuit Development, Qualcomm Files Motion Against CCIA
According to Reuters, QCOM filed a motion on Monday, trying to make the case that an iPhone import ban would not hurt smartphone competition in the long term — as suggested by the CCIA last week.
That move saw a consortium that includes some of the biggest tech companies in the world, including Apple rivals like Google, Samsung Electronics Co Ltd (OTCMKTS:SSNLF) and Amazon.com, Inc. (NASDAQ:AMZN) enter the Qualcomm/Apple lawsuit. Despite the fact that Apple isn’t even a member of the organization, the CCIA blasted Qualcomm for its move to request an iPhone import ban for models that use an Intel Corporation (NASDAQ:INTC) smartphone modem instead of one made by QCOM.
The CCIA suggested the iPhone import ban would end up hurting consumers, cause a shortage of smartphone modem chips and would cement Qualcomm’s ability to control supply and pricing of this key component. The lobby group filed a motion with the U.S. Federal Trade Commission (FTC), saying:
“If the ITC were to grant this exclusion order, it would help Qualcomm use its monopoly power for further leverage against Apple and allow them to drive up prices on consumer devices. What’s at stake here is certainly the availability of iPhones and other smartphones at better prices.”
QCOM Stock Continues Its Fall
Qualcomm’s legal woes have rapidly escalated. In 2014, The Verge wrote, “This is Qualcomm’s world and we’re all just living in it.”
The company supplied the processors that ran almost every Android smartphone and supplied the smartphone modem chips for everyone, including Apple. QCOM stock was topping $81 at that point.
The U.S. Federal Trade Commission kicked off QCOM’s terrible year in January, charging the company with using anti-competitive tactics in its licensing. That news dropped QCOM stock 4% overnight. Days later, the Apple lawsuit was launched, with AAPL suing QCOM for $1 billion. Qualcomm counter-sued for damages in April.
In June, Apple expanded the scope of its original lawsuit, seeking to prevent QCOM from suing Apple suppliers — who were withholding royalty payments. Then in July, the situation went nuclear when Qualcomm filed for an iPhone import ban, seeking to prevent Apple from selling phones in the U.S. that had a competing Intel smartphone modem inside.
It’s not lost on QCOM or its investors that the company is highly reliant on Apple. Despite the fact that Apple uses its own mobile CPUs and started using Intel smartphone modems in some of its iPhones, AAPL and Samsung combined for 40% of QCOM’s total revenue last year. And now Samsung is joining the fight –through the CCIA– on Apple’s side.
During the seven months that the Apple lawsuit has been escalating, QCOM stock has been in a downward spiral. In its Q3 earnings, filed on July 19, the company reported GAAP revenue down 11% year-over-year, operating income down 51% and net income down by 40%. In the earnings report, QCOM noted:
“We believe that we hold the high ground with regard to the dispute with Apple, and we have initiated new actions to protect the well-established value of our technologies.”
The question is, will holding the high ground be enough for Qualcomm to win this fight? With QCOM stock down 18% since the start of this fight and AAPL stock up over 26%, the market seems a little less confident in the outcome than Qualcomm is.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.