Apple ceases iPhone payments to Qualcomm, escalating feud

SAN FRANCISCO — Apple is refusing to pay any royalties owed to mobile chip maker Qualcomm for some of the features in the iPhone, escalating a patent feud that has turned the former business partners into bitter adversaries.

The latest twist in the dispute represents a major blow for Qualcomm, which depends on licensing fees for a large portion of its revenue.

Apple’s decision to withhold royalties will cost Qualcomm up to $500 million in the current quarter alone, based on revised revenue estimates that Qualcomm released Friday.

“This is getting ugly, the level of hostility just went up another notch,” said technology analyst Patrick Moorhead of Moor Insights and Strategy.

As retaliation, Qualcomm could seek a court order halting iPhone sales until Apple pays the royalties that Qualcomm contends it’s owed, Moorhead said.

Qualcomm hasn’t threatened to go to that extreme yet, but its top lawyer made it clear on Friday that the San Diego company is girding for a fierce fight with its Cupertino, California-based Apple, the world’s most valuable company.

“We will continue vigorously to defend our business model, and pursue our right to protect and receive fair value for our technological contributions to the industry,” said Don Rosenberg, Qualcomm’s general counsel.

Apple concedes it and its suppliers owe Qualcomm some licensing fees on iPhone sales.

But Apple believes Qualcomm has been abusing its power in the mobile chip market to charge for royalties on features that aren’t covered by its patents.

Qualcomm, in turn, has accused Apple of breaking contracts in an attempt to lower its licensing fees and also interfering in deals negotiated with iPhone suppliers.

The stalemate prompted Apple to sue Qualcomm in January in a federal complaint. Qualcomm denied the allegations and fired back with its own lawsuit against Apple earlier this month.

In a Friday statement, Apple said it won’t pay Qualcomm any further royalties until the courts determine the amount, a process that could take several years.

“As we’ve said before, Qualcomm’s demands are unreasonable and they have been charging higher rates based on our innovation, not their own,” Apple said.

Rosenberg reiterated that Qualcomm holds “valid and enforceable” licensing agreements on various features in iPhones. Apple’s suspension of royalty payments marks “the latest step in Apple’s global attack on Qualcomm,” said Don Rosenberg, Qualcomm’s general counsel.

Apple isn’t alone in its accusations against Qualcomm. The U.S. Federal Trade Commission also has filed a lawsuit alleging that Qualcomm has been imposing unfair licensing terms on manufacturers.

With the loss of iPhone royalty payments, Qualcomm now expects its revenue for its April-June quarter to range from $4.8 billion and $5.6 billion, down from its previous forecast of $5.3 billion to $6.1 billion.

Qualcomm now expects its earnings for the period to range from 75 to 85 cents per share. That’s down from an earlier projection of 90 cents to $1.15 per share.

Investors shook off the shock of Qualcomm’s lowered guidance after initially driving down the company’s stock. Its stock rose 53 cents, or 1 per cent, to $53.74 on Friday. The stock has fallen by about 15 per cent since Apple filed its lawsuit.

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