Apple INC. (NASDAQ:AAPL ), the maker of the stylish, expensive, and perhaps world’s most popular phone brand iPhone might be in trouble as Qualcomm INC.(NASDAQ: QCOM), a renowned chipmaker drags the company to the court in China over patent issues.
The chipmaker filed a litigation process against its client Apple in China in order to stop the sales of iPhone in the country. The suit demands a ban on both the manufacturing as well as the sales of iPhones in their second largest market in the world.
Qualcomm aims to inflict serious damage Apple’s brand
It is somewhat hard to understand why Qualcomm is at loggerheads with Apple because both companies have enjoyed a long and profitable business relationship. In a legal fight against Apple, Qualcomm has accused the iPhone maker of unethical business practices. According to a spokesperson for Qualcomm, Trimble, “Apple employs technologies invented by Qualcomm without paying for them.” Hence, the lawsuit is a thinly-veiled attempt to force Apple to the use of Qualcomm’s technology and intellectual property.
Most of Apple iPhones are made in China and China is the largest market in the world for the smartphones. Apple derives two-third of its revenue from the sales of iPhones, with a large chunk of those iPhones being sold in China. The lawsuit, if successful will cause a major setback to iPhone sales in China and it could hurt Apple’s brand in the rest of Asia.
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The move by Qualcomm is strategic to the legal feud that it currently has with Apple in order to get a positive ruling or at least get better negotiating terms on IP rights. Nonetheless, the odds are high that the lawsuit will compel Apple back to renegotiate with Qualcomm; but experts opine that it will lead to an irreparable relationship between the two former partners.
China accounts for 22.5% in Apple’s sales in the last financial year
Apple is currently trying to reaffirm its leadership in China against local Smartphone makers who are fast improving on the quality of their products. Hence, the time of Qualcomm’s legal battle is strategically aimed to collide with the introduction of its new set of iPhones; iPhone X, iPhone 8 and iPhone 8 plus products in the market.
Sales in China accounted for 22.5% of the total sales of Apple’s $215.6 billion in 2016, which is $48.51 billion. Let’s put this in perspective, if Qualcomm wins in court, Apple can’t afford to lose $48.51 billion in sales to competitors, who are gearing to enter the market of the most populous nation in world.
Apple is till trying to expand its make share in Asia and China in particular; therefore, the suit is a strike that may undermine the company’s growth in Asia. Apple will not risk altering its business model because of this lawsuit; therefore, it is expected that the firm will settle out of court with Qualcomm in order to avoid being caught in a disadvantaged market position.
China might be hesitant to rule against Apple
There is no precedence in China regarding an American company seeking legal action in a Chinese court to ban the operations of another American company. Chinese regulators will be worried about the effect of such action on the nation’s labor force. Should the courts rule against Apple in favor of Qualcomm, many Chinese workers would lose their jobs and local partners with Apple in China may also suffer loss of contracts.