Apple has informed Qualcomm it will withhold any royalty payments it owes the company until their ongoing legal battle is resolved.
According to Fortune, Qualcomm depends on royalties for 80 percent of its pre-tax profit. As a result of Apple’s escalation, Qualcomm has been forced to cut its Q2 revenue forecast by $500 million USD. The company has told shareholders it now expects quarterly revenue to land between $4.8 billion and $5.6 billion.
Apple does not pay Qualcomm royalties directly; instead, with licensing agreements related to the iPhone and iPad, Qualcomm charges the company’s manufacturing partners, who then pass the bill to Apple. Qualcomm revealed those manufacturers had started withholding payments earlier this month. However, the company did not provide specific financial guidance at the time.
“Qualcomm’s demands are unreasonable and they have been charging higher rates based on our innovation, not their own.”
Apple says it has spent the past five years unsuccessfully attempting to negotiate a direct licensing agreement with Qualcomm. “They have refused to negotiate fair terms,” the tech giant said in a statement. “Without an agreed-upon rate to determine how much is owed, we have suspended payments until the correct amount can be determined by the court. As we’ve said before, Qualcomm’s demands are unreasonable and they have been charging higher rates based on our innovation, not their own.”
Qualcomm, meanwhile, said, “Apple’s continued interference with Qualcomm’s agreements to which Apple is not a party is wrongful and the latest step in Apple’s global attack on Qualcomm. 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.”
In January, Apple filed a $1 billion lawsuit against Qualcomm, accusing the company of abusing its position as market leader to force unfair licensing agreements upon its customers. Qualcomm responded with a countersuit in which it argued Apple broke contract and said the company was unwilling to pay fair market value for its patents.
Qualcomm has been the subject of multiple anti-trust investigations involving regulators in the U.S., E.U. and South Korea. Since the start of the year, the company’s stock has shed 20 percent of its value. Qualcomm was recently forced to pay BlackBerry $814 million in overpaid royalties.