Apple demanded $1 billion incentive payment from Qualcomm to supply iPhone modems

In the ongoing legal tussle between Qualcomm and Apple, Qualcomm CEO Steve Mollenkopf has testified at a federal courthouse in San Jose, California, that Apple demanded a $1 billion 'incentive payment' for a chance to supply the iPhone modems. The payment would ease the technical costs Apple would face switching from its then current supplier Infineon Technologies.

Mollenkopf stated that Apple provided no assurance as to the volume of chips it would be ordering and that while incentive payments are common practice, the amount Apple was demanding was not. This pushed Qualcomm to pursue an exclusivity agreement with Apple to ensure enough of its modems were sold to cover the cost of the incentive payment.

Qualcomm became the sole supplier of modems for Apple products in 2011, and in exchange, Qualcomm would offer a rebate, although it's unknown just how big the discount would be.. Under the terms of the deal, Apple could pursue other suppliers for its products, however, they would lose the rebate, essentially making Qualcomm's chips much more expensive if other suppliers were used.

Apple's supply chain executive, Tony Blevins, had also testified earlier, saying that Qualcomm "made it very unattractive for us to use another chip supplier" since “these rebates were very, very large.”

Antitrust regulators have said the deal Qualcomm struck with Apple was anti-competitive behavior on Qualcomm's part and designed to ensure its dominance in the modem supplier space and block rivals such as Intel.

Source: Reuters

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