Broadcom can heal Apple's relationship with Qualcomm
Qualcomm's legal battle culminates in 2017 when it faces fines in South Korea and Taiwan, the lawsuit comes from Apple and the US Trade Commission. Apple has paused paying royalties until the court ruled the suit Qualcomm took advantage of its position to get more money from hardware makers.
And with such a situation, Qualcomm revenue has dropped 60% while cash flow dropped 36% in 2017 compared to last year. The legal dispute also caused Qualcomm shares to fall 19% from the beginning of 2017 until there are signs of recovery before sources say Broadcom intends to buy the semiconductor maker.
Qualcomm has tried to reach an agreement with Apple by attempting to temporarily stop selling the iPhone in the United States and China but failed.
Qualcomm executives, at a meeting on earnings in the fourth quarter of 2017, said the lawsuit against Apple would continue in 2018, meaning it could drag on for another year with dismal earnings.
The legal battle could force Qualcomm to change the licensing practice. The company may be required to set a fixed price per device, or to rely on a royalty rate on the cost of components. In both cases, Qualcomm's revenue from licensing is negatively affected. Since more than 70% of the company's current revenue comes from the profitability of the licensing, the company's profits will suffer a great shock.
This compromises Qualcomm's financial fundamentals and the company becomes a prized target.
If Broadcomm acquired Qualcomm, the company's profit after merger would be higher because Qualcomm's operating margin of around 20% would be supported by Broadcom's 40% profit margin.
To stay in the legal battle with Qualcomm, Apple is looking for an alternative to Qualcomm's modems by sourcing from Intel and MediaTek or even designing its own chips.
Some reports suggest that Apple will be able to completely remove Qualcomm chips from its 2018 launch. Even if Apple is discontinuing its Qualcomm-based modem, it will likely return to the negotiating table with Qualcomm on its 5G technology - the near-monopoly power it holds.
So if Apple does not agree to pay royalties now, that will only increase the royalty fees that they pay to Qualcomm in the future, in the face of claims.
Apple could try and run out of Qualcomm in the short term, but they could not shake the semiconductor giant for long periods of time.
Legal troubles can negatively affect Qualcomm's earnings in the short term, but Broadcom claims that they can help make Qualcomm's legal battle easier, though they have not disclosed the deal. that's how.
