Does Apple’s Move Away from Intel as Chip Supplier Signal Future Infringement Battles?

On Monday, April 2nd, business news outlet Bloomberg reported that Cupertino, CA-based consumer tech giant Apple Inc. (NASDAQ:AAPL) was working towards developing in-house processor chips, which could be used in its Mac computers as early as 2020. The chip development project, reportedly codenamed Kalamata, is expected to take a major chunk out of the fortunes of Santa Clara, CA-based chipmaker Intel Corporation (NASDAQ:INTC); according to Bloomberg, sales of Intel chips to Apple for use in Mac computers and other devices accounts for 5 percent of Intel’s annual revenues.

Analysis of the reports on Apple’s move away from Intel chips has so far focused on Apple’s goals for achieving a faster upgrade cycle for its electronic devices than can be supported by Intel’s incremental improvements to its own chip technology. Apple has been designing its own chips for its handled electronic devices, including the iPhone and iPod, for more than a decade now. By some accounts, these mobile computing chips have exhibited better performance than mobile processors developed by tech rivals Samsung Electronics (KRX:005930) and Qualcomm Inc. (NASDAQ:QCOM)

Intel is not the only chipmaker feeling the pinch from Apple’s decision to move away from third-party vendors for its device components. Reports from last November indicated that Apple was also planning on developing its own power management chips for use in its iPhone products. Shares of UK-based Dialog Semiconductor (ETR:DLG), which reportedly derives nearly 75 percent of its annual revenues for providing power management chips for Apple’s mobile devices, sank nearly 20 percent in trading after that news. The more recent news about Intel’s chips also hurt stock prices for other European suppliers of accelerometers, gyroscopes and other sensors used in Apple products.

Obviously, there’s nothing wrong with Apple moving chip design in-house instead of relying on third-party providers, especially if it’s able to reproduce the superior performance it has shown elsewhere in mobile chip design. But at least in terms of Intel, is this any way to treat old friends, especially when that friend has intervened in legal matters in the recent past on Apple’s own behalf? Last July, Intel filed a public comment with the Federal Trade Commission (FTC) in a Section 337 investigation filed by Qualcomm regarding the alleged infringement of patented processor technologies committed by Apple. Intel’s comment charged that Qualcomm was trying to perpetuate an unlawful monopoly and that Qualcomm’s main objective was not to uphold its patent rights but rather to exclude Intel modems from the U.S. market. Intel’s allegations in that public comment follow similar arguments in lawsuits filed by both Apple and the FTC against Qualcomm last January, both of which alleged that Qualcomm’s licensing practices had violated its fair, reasonable and non-discriminatory (FRAND) obligations for licensing standard-essential patents (SEPs) in the wireless communication space.

Intel also factors into another interesting angle in the Apple-Qualcomm dispute, which has played out for more than a year. Early last April, Qualcomm responded to Apple’s allegations of unfair licensing practices by filing a lawsuit alleging that Apple engaged in tortious business interference in order to encourage foreign fair trade regulators to levy fines against Qualcomm. This includes allegations that Apple misrepresented devices with Intel chips as having Qualcomm chips to South Korean regulators, thus providing false information on both the performance of Qualcomm chips as well as withholding information on Intel as a second chip provider. If true, Apple may have engaged in this misrepresentation on its own but, in light of Intel’s actions against Qualcomm at the FTC, there was a real sense that Intel was in Apple’s corner in this legal fight.

Indeed, the further one looks into Apple’s activities to reduce its chip supplier costs, it’s entirely possible that this tech giant, backed by massive financial resources, is engaging in at least some efficient infringement in the chip space. Last April, news reports indicated that Apple was planning to move away from graphic processing units (GPUs) developed by UK-based Imagination Technologies in favor of its own in-house design. In response, the CEO of Imagination noted that it would be very difficult for Apple to design its own GPU architecture without infringing on the UK company’s patents. Imagination hasn’t filed a patent suit against Apple in U.S. district court but the loss of the company’s largest customer in Apple was part of the lead up to the acquisition of Imagination by Chinese equity firm Canyon Bridge Capital Partners last fall.

Perhaps if U.S. patents were the stable property right that they’re supposed to be, chip suppliers like Imagination could adequately defend their intellectual property and not face the prospect of being squeezed out of its market by its largest customer. News reports have indicated that Apple has poached engineering talent from firms like Imagination and Qualcomm, including the former head of Qualcomm’s core communications chip business, in recent years. While many will tout the superior nature of Apple’s computing chip products, there will likely be few who point out the damage wrecked on the company’s suppliers and the potential of intellectual property theft which might be enabling the consumer tech giant’s attempts to further consolidate the personal computing market into its own hands.


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One comment so far.

  • [Avatar for Valuationguy]
    April 4, 2018 08:54 am


    I had to laugh when I read this passage about Apple’s efficient infringment from your article since I’ve been close follower of Apple’s efficient infringement of Virnetx’s patents for over a decade (though techically, Virnextx isn’t a chipmaker)…where they have so far avoided paying upwards of $1B in expected damages via the courts and PTAB. The FOURTH trial between those two started on Monday (with Virnetx proving infringement and damages before each of the three previous juries that have heard the case….even though the first two judgments were vacated and remanded various appellate reasons…the third trial is currently under appeal again by Apple as it tries to string out judgment in federal court so that the PTAB can finish trying to invalidate and cancel all claims which where already PROVEN they infringed in federal court).