Both Intel and a bunch of professors connected to Apple and the FTC last week came out in support of the Judge Koh verdict against Qualcomm, even though it had been shown that the foundational evidence was manufactured contrary to the wishes of the DoJ, DoD and other major government agencies.
That was well after Qualcomm was identified as a national treasure and a critical part of the U.S. defense against Huawei’s dominance of 5G.
It is my view that when tricked, a prosecutor should admit gullibility and then move to make sure a similar thing doesn’t happen again. Apparently we don’t live in that world, however, and instead live in a world where it is more important to win than it is to protect your country or the rule of law. Then again, I’m kind of disgusted with government in general now, so maybe this shouldn’t have been as big a surprise as it was.
The working theory was that Apple was using its typical strategy of breaking a supplier in order to acquire its technology for pennies on the dollar and improve its own bottom line. That isn’t particularly ethical, but I must admit it has worked incredibly well so far.
However, unlike its prior attempts, Apple’s efforts against Qualcomm have failed so far, and that raises the possibility of another strategy.
While Apple is focused on Qualcomm, Amazon and Microsoft are changing the market around them — and I expect the result will be poetic justice, doing to Apple what Apple is attempting to do to Qualcomm. We seem to live in an ironic world, and that outcome would be incredibly ironic.
I’ll close with my product of the week: the new Qualcomm 865 solution, which should make your existing smartphone suddenly feel very, very, very old.
Tim Cook’s Apple
As most know, there is a big difference in the skills of Tim Cook, compared to Steve Jobs. Jobs was a product/marketing CEO, and he drove a model in which the firm offered few products with a massive marketing effort that convinced people that one size fit all of them.
That approach was layered on a lock-in model so that once customers were drawn into the Apple ecosystem, the firm mined them for money, so it had a reliable way to increase revenues even during challenging times — like now, when its market share is declining.
Tim Cook clearly doesn’t understand Jobs’ model and has been increasing the number of products while reducing marketing, forcing him to increase prices and come up with new services to charge for at an increasing rate, as his approach is contributing to the market share decline. The current cost delta is becoming so high, and the actual innovation so low, that Apple appears to be losing customers faster than it can acquire them.
Apple historically has been hard on suppliers, and one of the first things I was told about the company from a supplier was that no one does business with the firm twice — largely because they lose their shirt (or company) the first time.
Apple initially gives its suppliers a ton of business so they ramp up and become dependent. Then it dictates ever-lower prices for their products until they can’t sustain the business, and eventually buys their assets for pennies on the dollar. As the logistics expert, Cook apparently was the architect of that part of the strategy, and it should be in the dictionary as a leading example of abuse of power.
When Apple tried to dictate pricing to Qualcomm, it said no. Then Apple built a false story of Qualcomm overcharging (admittedly, it was a brilliant piece of b.s.), which did the firm a ton of damage until the correspondence defining that strategy came to light in the San Diego trial, and Apple’s legal effort collapsed with a settlement.
However, that was after the FTC case had ended and, the FTC apparently is more interested in winning than in serving justice. This happens too often with prosecutors, as they are measured on their wins. As a result, there are way too many innocent people in jails today. It isn’t right, either in criminal or civil court.
We aren’t even talking about US$7.50 per phone really, but $1.50 for licensing the technology that allows the phone to function. So, given the cost and embarrassment of the discovery, you’d think Apple would move on — particularly given that it will be dependent on Qualcomm to meet its 100 million stated forecast for mostly 5G phones next year.
At the very least, working with a company whose employees must resent Apple’s attempt to make them jobless should put them at a disadvantage.
What if we got the strategy wrong, though? What if Apple has realized that the only way it can stay in business is to eliminate the competitors that depend on Qualcomm for their phones?
The Possible Scary Apple Strategy
In the value space there are other vendors that provide a decent solution, like MediaTek, but in the premium space Qualcomm largely stands alone. It prices relatively low for the value it supplies, and a company can license everything it needs to make a top end smartphone work as well or better than any other premium phone.
The R&D Qualcomm does is spread across vendors, providing a rich competitive ecosystem. The result is there are lot of phones that have premium features at a fraction of the price Apple charges.
If Apple could cripple Qualcomm’s revenue model, its R&D would have to be cut massively, and the firm even might fail. The smaller vendors that depend on Qualcomm likely would fail as well, removing much of the competition in the segment, and allowing Apple to face only a few vendors — like Huawei and Samsung, both of which both provide chips and phones.
Now some of those vendors might have to use Huawei’s solution, but given the concerns surrounding that company they would have to give up large segments of the market to do so, vastly reducing their threat to Apple even if they didn’t fail outright.
Given the earlier discovery of the prior strategy of manufacturing evidence, I have doubts this one would remain secret for long, and I expect the antitrust repercussions would be severe. However, Apple likely could delay that outcome until Tim Cook retired, and then his successor would be blamed for destroying Apple — not Cook. (It kind of makes be feel sorry for whoever that poor sap is going to be.)
What Apple Could Be Missing
However, while Apple is focusing on Qualcomm, Amazon and Microsoft have come up with a different plan that could render Apple’s entire model obsolete.
Coming from the cloud — Azure from Microsoft and AWS from Amazon — both firms are beginning to integrate vertically, emulating IBM’s old model that once defined the industry.
AWS Outposts represent Amazon’s move into the server space with an Amazon-built hardware solution that will, if successful, make third-party servers and storage obsolete. Microsoft’s Surface X is its initial effort to have a defined client, network, cloud solution.
Each likely will emulate the other eventually, and then move on phones with a cloud-driven solution and innovation on the phone client that Apple won’t see coming, any more than the companies that once led the smartphone space — Palm, Nokia and Research In Motion — saw the iPhone coming.
It is ironic, because Jobs initially seemed to get this — his initial iPhone effort was to be cloud-based — but his team just couldn’t execute.
Wrapping Up: The Ironic Outcome
Qualcomm vs. Apple reminds me of the Spartans vs. the Persians. Qualcomm is massively overmatched by Apple, which has reserves that exceed the valuation of the company. Yet Qualcomm has a fighting spirit and not only is holding the line but continuing to advance its technology aggressively in the face of unfair aggression from Apple.
By focusing on that little dragon of a company (I’m a BIG dragon fan) Apple is missing a huge industry pivot that could do to it what it did to Palm and Research In Motion (BlackBerry), making the saying “what goes around comes around” meaningful again, and could make “irony” its new middle name.
On a national scale we are seeing why abuse of power isn’t a good tactic, but Apple is too locked in to step back and realize that winning at any cost is often a losing strategy. The next few years should be interesting for the company.
I’m writing this at the Qualcomm Snapdragon 865 5G launch in Hawaii.
Saying this is a big launch would be an understatement. This solution promises to improve the performance of a smartphone massively, to a point where it rivals mid-range PCs. That means this Qualcomm-based Microsoft Surface X I’m using is likely to improve a lot next year — and it is already impressive when it comes to connectivity, weight and battery life.
Phones based on this chipset will have vastly better sound, be able to record 8K HDR video, connect at wired Ethernet speeds in massively higher numbers without degradation, be more secure, and have better battery life.
The internal artificial intelligence is improved massively, leading to far better real-time translation, auto-editing for pictures, and things app developers just now are wrapping their heads around, like rendered avatars that could make dressing for video conferences obsolete.
Even when they aren’t connected to 5G networks, which are expected to start reaching critical mass in the U.S. by the end of next year, most of the improvements will be evident, and the phone manufacturers, including Apple, now are basing their premium phone futures largely on this part.
That said, the real reason that the Qualcomm 865 is my product of the week is that it showcases that even when overmatched, like the Spartans, a smaller company with the heart of a Snapdragon not only can hold the line but also advance and change a market.
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