Apple (AAPL - Free Report) and Qualcomm (QCOM - Free Report) announced yesterday that they were settling their differences and withdrawing all litigation between each other, including all disputes between the chip maker and its customers supplying parts to Apple.
The iPhone maker will pay Qualcomm an undisclosed amount and a six-year licensing agreement between the two will commence that can extended for a period of up to two years. It also includes a multi-year agreement to supply chipsets, Apple said.
Soon after, Intel (INTC - Free Report) announced that it was discontinuing its 5G plans.
Take a look at the chart below to see how investors took the news-
While Apple and Intel barely moved (Apple because it was making a necessary concession and Intel because it makes perfect financial sense), Qualcomm jumped 25.9%.
What This Means
Qualcomm has always had superior technology for the mobile market that allowed it to effectively lock out all challenges, especially from Intel. So unlike other times, when it announced its 5G partners, Apple’s absence from the list was noticeable.
Apple uses tactics to make sure that its suppliers make very low margins while competing with each other for its volumes but Qualcomm has its own way of ensuring that it gets paid. In fact, it charged Apple for licensing its technology while charging suppliers for its chips (which Apple called double dipping). Now that they have settled their differences, Apple is likely paying up and speculations about other suppliers can be laid to rest.
This means that Apple will ship its 5G iPhone next year, exactly as planned. And it will learn from the mistakes that everyone else makes as they trip over each other to introduce their devices first. Apple’s 2020 phone should be the best of its time, enabling it to maintain its premium image and attracting rave reviews.
Apple shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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