Looking at how healthy and well-positioned Qualcomm is today, especially as a decade of R&D investments and fundamental technology bets are beginning to bear fruit with the commercialization of 5G, it would be easy to forget how many challenges the San Diego tech giant has managed to overcome over the course of the past seven years. The San Diego based chipmaker and innovation powerhouse somehow found the wherewithal to fight off three consecutive waves of billion-dollar sieges over the course of roughly five years, and inexplicably emerged in better shape from its extensive ordeal.
Who tried to take down Qualcomm? What were they after? Why didn’t they prevail? What does Qualcomm’s resilience mean for the future? These are the questions I am attempting to answer in this 3-part series.
Read Part 1: The Great Siege Of Qualcomm: How Three Waves Of Assaults On Qualcomm From 2013 To 2020 Helped Strengthen US Technology Leadership
Read Part 2: The Great Siege Of Qualcomm: How Three Waves Of Assaults On Qualcomm From 2013 To 2020 Helped Strengthen U.S. Technology Leadership
The Third Wave: China, Huawei, and the 5G Cold War
The third and final wave of sieges against Qualcomm has much more to do with the US-China rivalry than initially meets the eye, and can be broken down into two separate offensive actions against Qualcomm, both undertaken by China, and to some extent by Huawei, potentially working as a proxy for the Chinese government.
The first of these actions, which may not entirely qualify as a siege but still fits within a broader siege strategy, was China’s refusal to approve Qualcomm’s acquisition of Dutch chipmaker NXP. While China’s State Administration for Market Regulation (SAMR) did not provide a clear reason for letting the clock run out on the deal’s regulatory window, one can easily conclude that China meant to use the NXP deal either as a bargaining chip to pressure the US government to ease restrictions on Huawei and ZTE, or if that failed, as retaliation. Qualcomm may therefore not have been the intended target here, but rather got caught in the crossfire between US and China. I imagine that Huawei was nonetheless satisfied with the outcome, as a successful Qualcomm-NXP deal would have strengthened Qualcomm’s position in the automotive market, just as demand for connected and increasingly smart vehicles began to intersect with global 5G deployments.
The second of these actions was Huawei’s subtle but effective influence on the US Federal Trade Commission’s (FTC) antitrust case against Qualcomm. Although the FTC’s complaint, filed in US District Court a week before Apple’s own lawsuit against Qualcomm in early 2017, was presumably itself triggered by a complaint by Apple, Huawei quickly inserted itself into the action, going so far as providing their own expert witness to help FTC attorneys first craft, then argue their theory of the case in court. Echoing earlier regulatory actions taken against Qualcomm, the FTC’s suit alleged that Qualcomm had engaged in anticompetitive behaviors and abused its market leadership to stifle competition. Why would Huawei go to such lengths to weaponize the FTC against Qualcomm? I can think of three primary reasons:
First, China and the US are currently engaged in a fierce and multi-dimensional trade war that touches, as one might expect, on 5G leadership around the globe. As a proxy for the Chinese government, Huawei is uniquely positioned to help undermine Qualcomm’s 5G leadership, and both Apple’s lawsuit and the FTC’s eagerness to go after Qualcomm provided Huawei with a once-in-a-lifetime opportunity to weaken US 5G leadership by undermining its main 5G-centric technology company. Second, as Qualcomm’s principal 5G rival, any opportunity to undermine Qualcomm in some way benefits Huawei directly. Huawei and China are therefore completely aligned when it comes to undermining Qualcomm, and the FTC’s case provided the ideal platform for Huawei to attempt to do exactly that. Third, the desired outcome, it seemed, was once again to go after Qualcomm’s ability to properly monetize the value of its patent portfolio, and consequently to weaken its ability to invest at scale in the kinds of fundamental technologies that compete against Huawei’s own. If Huawei were to be successful in helping the FTC argue that Qualcomm’s licensing model were indeed anticompetitive, Qualcomm’s ability to fund fundamental innovation would be undermined, and Huawei, propped up by billions in quiet government subsidies, would be in a position to gain a significant new market advantage, particularly in 5G. This would effectively guarantee Chinese dominance in 5G technologies, with Huawei reaping the majority of the financial benefits.
Fortunately for the technology ecosystem at large, both the FTC’s arguments and Huawei’s star witness ultimately failed to produce the outcome that China, Huawei, and the FTC had hoped for: While the District Court was originally sympathetic to the FTC’s deeply flawed and fact-challenged arguments, a three-judge federal appeals panel in the 9th District unanimously vacated the District Court’s decision, and ruled in favor of Qualcomm, asserting that Qualcomm’s licensing model was indeed not anti-competitive at all, but rather, hypercompetitive. (Not only had Qualcomm’s licensing not stifled competition or caused consumers any harm, but had in fact produced the exact opposite effect: accelerated competition, and benefited consumers.) Additionally, the 9th Circuit argued that contract law and antitrust law are not interchangeable: Most of the disputes between Qualcomm and companies with which it has agreements are matters of contract law, not antitrust law. Qualcomm, like most other companies with large patent portfolios, has been sued by licensees before, and those disputes are generally matters of contract law. The Court made a point to clarify the difference as it vacated the district court case, and effectively rejected the FTC’s theory of the case. The FTC’s request for an en banc review of the appeal having been denied by the 9th Circuit, Qualcomm appears to have successfully beat back this third and final attempt at a siege.
In my opinion, Qualcomm prevailing against the FTC may be the company’s most significant victory yet: Validation by a federal appeals court that its licensing model is, in fact, ethical, legal, and not at all anticompetitive — as otherwise evidenced by the massive growth of the mobile industry and declining costs of smartphone functionality and broadband data in the last decade. After suffering years of dubious regulatory actions and onerous judgments at the hands of the NDRC, KFTC, TFTC, JFTC and EC, Qualcomm’s licensing business has been, at long last, exonerated in a US Federal Court of Appeals.
Conclusions, Lessons, and the Path Forward
Today, as this article goes to print, Qualcomm’s stock price sits comfortably somewhere north of $140 per share — a far cry from the $52 per share price that made the company vulnerable to a Broadcom acquisition in November of 2017. Qualcomm has signed 5G licensing agreements with every major handset manufacturer in the world, including Apple, Samsung, Xiaomi, Oppo, and Huawei. Apple’s first 5G iPhones are shipping with Qualcomm modems. Global 5G deployments have been accelerating despite the coronavirus pandemic. The fundamentals of Qualcomm’s businesses, which now include an expanded 5G Snapdragon mobile platform, 5G PCs, XR, smart speakers, mobile gaming, connected vehicles, and massive IoT solutions, are as solid as ever. Investor confidence is at an all-time high, and for all the right reasons. Despite having had every possible challenge thrown at it, Qualcomm has emerged not only victorious from three consecutive waves of sieges spanning over half a decade, but unscathed, thriving, and perhaps even better equipped to tackle the post-COVID world than it would have been had it not spent the last few years fighting for its survival while simultaneously accelerating bringing 5G to the world.
I attribute some of Qualcomm’s ability to weather multi-year sieges in great part to its long term vision: Because Qualcomm can take up to two decades to first develop, then implement every next generation of fundamental wireless communication technology (3G, 4G, 5G, 6G, etc.) its fundamental R&D investment timeframe is typically much longer than any single siege can last — comparatively, anywhere from only 6 months to 3 years. And because Qualcomm isn’t as reliant on a single product’s annual performance like handset OEMs are, it is better equipped to weather storms and adversity on a timescale that would not be as easy for companies like Apple or Samsung to manage. Outgoing CEO Steve Mollenkopf and his team also deserve to be recognized for having expertly and patiently navigated Qualcomm through impossibly dangerous waters that most companies would not have emerged from unscathed, let alone stronger than before, and better equipped to take on the next decade of geostrategic challenges.
In hindsight, while Qualcomm’s hypothetical acquisition of NXP might have provided the chipmaker with a more direct on-ramp to its automotive ambitions (connected vehicles first, then infotainment and ADAS), the deal falling through might yet prove to be a boon. Qualcomm seems more free to build the types or automotive platforms that it actually wants, as opposed to working to adapt NXP’s product roadmap to its needs. Because Qualcomm is very good at scaling, it might actually benefit from acquiring smaller startups with a deep focus on AI and inference, and building its own solutions roadmap from the ground up. Time will tell if I am right about this, but I suspect that I am.
All in all, Qualcomm has emerged so much stronger, wiser, and hungrier than it was from the crucible of the last seven+ years that it is difficult to wish that it hadn’t happened at all. One thing that doesn’t sit particularly well with me, however, is that most of the companies and regulators that laid siege to Qualcomm suffered no real consequences for their actions. No one was held accountable for the harm they caused. No one was slapped with financial or legal penalties for malicious suits and abuses of process. Those who tried to take the company down failed, and then they went home, and that was it. Having said that, taking inventory of where all of the besieging parties ended up having taken on Qualcomm, none have found either their competitive position or their reputations in any way advanced by the effort. Huawei in particular is still blacklisted, has lost or spun off part of its smartphone business, and may remain hobbled for some time. The rest have little more than wasted time and squandered resources to show for their misguided campaigns.
Qualcomm, on the other hand, has clearly moved on, and left the troubled waters of the last seven years behind: Its licensing model has already been vindicated in Japan and by the 9th Circuit Court of Appeals in the US, and will hopefully, in time, be better understood around the world. With new incoming CEO Cristiano Amon preparing to take the helm, the company is moving full speed ahead into the era of 5G with significant plays in mobile, RF, AI, connected PCs, XR, smart audio, the IoT and IIoT, and automotive markets, and an ever-expanding universe of smart acquisitions and exciting partnerships. This period of peace, growth, and regeneration for Qualcomm is as well deserved as it is overdue, but nothing lasts forever, and Qualcomm will surely have to face new waves of trouble in the future.
Internationally, China may decide to use instruments of state power to weaken US technology companies yet again, and European regulators continue to be hostile to US tech giants. As for the United States, with a new administration comes new sets of challenges. On the one hand, US lawmakers are already gearing up to break up and weaken “Big Tech” despite how vital the US technology sector is to US innovation, the US economy, US national security, and US infrastructure, to say nothing of helping solve the world’s biggest problems, from hunger to climate change. For instance, should the US Congress overshoot its goals of regulating companies like Facebook and Twitter, and end up weakening IP protections though ill-applied antitrust legislation, not only could titans of US innovation like Qualcomm, Google, Intel, Amazon, and Microsoft see their ability to continue to drive US technology leadership diminish, but the entire ecosystem of startups that thrives around them would find itself jeopardized as well. On the other hand, parallel overzealous agency action by the DOJ and FTC along faulty definitions of antitrust could once again attempt to weaken the very regime of patent rights that has made the US a technology and innovation powerhouse for the last four decades.
In other words, while the waters are swift, the skies clear, and tailwinds exceptionally strong for now, storm clouds are beginning to gather far in the distance above the horizon, and I feel that it is only a matter of time before new sieges, new challenges, and new regulatory battles will have to be fought. But when that time comes, given the trials that Qualcomm successfully navigated over the course of the past few years, how much the company has grown, and how talented, experienced, and battle-tested its leadership team is, I am confident that Qualcomm will be uniquely equipped to apply the hard-fought lessons learned during previous sieges to the next ones, and once again prevail.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Other insights from Futurum Research:
Recent Developments In The 5G And Edge Computing Market, Research From IBM, And Key MWC 2021 Announcements From Ericsson, Google Cloud, Qualcomm, Capgemini, Netcracker, NEC, And AWS – Futurum Tech Webcast
The original version of this article was first published on Futurum Research.