By Stephen Nellis
(Reuters) - Qualcomm Inc on Tuesday won a major victory with a surprise settlement of its wide-ranging legal dispute with Apple Inc that includes a supply agreement paving the way for the iPhone to once again use Qualcomm modem chips including potentially for new 5G capability.
The settlement also includes a six-year patent license and a payment from Apple to Qualcomm, but the companies did not disclose the amount.
“This is a big win" for Qualcomm, said Christopher Rolland, an analyst at Susquehanna Financial Group. Shares of Qualcomm jumped 23 percent to $70.45, their biggest gain in more than 19 years.
As their conflict intensified, Apple had relied exclusively on Intel Corp chips since last year. Apple stock rose marginally, gaining two cents to $199.25. Shares of Intel, Qualcomm's main competitor for supplying modem chips to Apple, rose 43 cents to $56.71.
The settlement followed two years of increasingly bitter legal conflict between the two companies and came as a opening arguments took place at a trial in federal court in San Diego.
The deal restores Qualcomm to Apple's stable of suppliers and could help it return to the preeminent position it held in the early 2010s. Qualcomm dominated the transition to 4G mobile networks and expanded revenues dramatically.
Apple had accused Qualcomm of using illegal patent practices to keep a monopoly on modem chips that connect phones to mobile data networks. Qualcomm had said Apple was using its technology without paying for it.
Apple began using Intel modem chips in some iPhones in 2016. Apple later stopped paying license fees to Qualcomm and completely stopped using its chips in iPhones in 2018.
Qualcomm and Apple did not say when their new supply agreement would start, but Qualcomm has released 5G chips for the next generation of wireless networks, while current iPhone supplier Intel has said it does not expect to have a 5G chip ready for phones until next year.
Bernstein analyst Stacy Rasgon said that most likely means that Apple is tapping Qualcomm for a 5G chip. Apple did not say whether it would keep Intel aboard as a supplier, but the company's executives testified in January at a trial between the U.S. Federal Trade Commission and Qualcomm that Apple's policy is always seek several suppliers.
BOOST TO EARNINGS
Qualcomm said the arrangements are expected to generate $2 per share in additional earnings, though analysts cautioned it was not clear how much of that was coming from the license deal versus the supply agreement.
Analysts were also unsure whether Apple's a onetime payment under the deal represented unpaid royalties from the past two years or a down payment on future royalties.
The impact of the settlement on China's Huawei Technologies Co Ltd, which is also in a licensing dispute with Qualcomm. Analysts widely believe that Huawei was watching the outcome of the Apple case to gauge its bargaining position.
Finally, a U.S. FTC case against Qualcomm that makes many of the same claims of anticompetitive behavior remains unresolved, with a decision expected at any time.
A jury of six men and three women was in the process of hearing opening arguments from Apple and Qualcomm when news of the settlement broke.
ADVERTISEMENTJudge Gonzalo Curiel briefly dismissed the jury as reporters in the courtroom rushed to confirm the news. Apple's litigation chief Noreen Krall chatted privately with Qualcomm attorney Mark Snyder before Judge Curiel called the jurors back into the courtroom.
Apple filed a $1 billion lawsuit against Qualcomm in January 2017, accusing the chipmaker of overcharging for chips and refusing to pay some $1 billion in promised rebates.
Later Qualcomm hit back with its own lawsuit, alleging that Apple used its heft in the electronics business to wrongly order contract factories such as Hon Hai Precision Co Ltd's Foxconn to withhold royalty payments from Qualcomm that Apple had historically reimbursed to the factories.
As part of the settlement, Qualcomm will also end litigation with Apple's contract manufacturers.
Intel did not immediately respond to Reuters request for comment.
ADVERTISEMENT(Reporting by Vibhuti Sharma in Bengaluru and Stephen Nellis in San Diego; Additional reporting by Shanti Nair; Editing by Arun Koyyur and Cynthia Osterman)
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