Qualcomm CEO Says Apple Required a $1 Billion USD ‘Incentive Payment’ for iPhone Contract

Qualcomm CEO Steve Mollenkopf said that Apple charged $1 billion USD to the company for the work required to make modem chips work with Apple products, reads a new report from Reuters.

In testimony in a federal courthouse in San Jose, California, Mollenkopf said that Apple demanded a $1 billion USD ‘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.

The lawsuit, brought by the U.S. Federal Trade Commission against Qualcomm, offered a rare glimpse into the high-stakes negotiations over the iPhone, and Apple’s supply chain practices.

Apple‘s alleged reasoning was that swapping modems was expensive and the incentive would ‘ease the technical costs’. Apple was also free to pursue other suppliers but would lose the incentive in that case.

Qualcomm, on the other hand, wanted assurances that such an incentive would be worth it, so they demanded to be the sole supplier.

Mollenkopf claimed that the request wasn’t an anti-competitive measure but rather a way to ensure Qualcomm could recoup the costs of the initial payment from the Cupertino company.

“The risk was, what would the volume be? Would we get everything we wanted, given that we paid so much in incentive?” Mollenkopf testified.

The FTC’s lawsuit is separate from Apple’s ongoing lawsuit against Qualcomm. In early 2017, Apple sued San Diego-based Qualcomm, claiming the company was unfairly squeezing Apple in its latest negotiations, by requiring the company buy chips, and simultaneously pay licensing fees to use the technology inside the chips.