Apple and Qualcomm announced a surprise settlement yesterday just as their trial was starting in a San Diego federal court. Now, Qualcomm CEO Steve Mollenkopf has offered up a bit more detail on the newfound partnership with Apple.
Speaking to CNBC, Mollenkopf said that Apple and Qualcomm are two “great product companies” and it’s a “natural position” for them to work together. Going forward, Mollenkopf says Apple and Qualcomm are putting the legal battle behind them and focusing on ramping up their partnership:
As part of the agreement between Apple and Qualcomm, Apple will make a one-time payment to the chipmaker. This is likely related to Apple withholding royalty payments for the duration of the legal battle. Mollenkopf told CNBC, however, that it will not disclose the value of the settlement.
Qualcomm does expect that its earnings per share will increase by $2 due to its deal with Apple. The chipmaker is expected to supply 5G modems for the iPhone starting in 2020. Intel was originally expected to supply Apple with 5G chips, but it abruptly left the smartphone modem business yesterday.
Read the full transcript below and watch the interview here.
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STEVE MOLLENKOPF: Look, I think a deal like this, it doesn’t come together overnight. You know, it takes a lot of talking between the teams. A lot of talking. Tim and I had a lot of talking together. And you know, we ended up in a deal that both companies like. And really, if you look at the focus of that energy now, it’s very much on, ‘Let’s get these products out.’ You know, it really clears the way for, I think, a much more natural relationship between the two companies. One that we certainly enjoy working on products together. And that’s what we’re doing now.
DAVID FABER: Yeah, now to the extent that obviously you come in with a certain ask, and they come with theirs. And we kind of all know where they were, and it seemed to be far apart. What was your leverage in these settlement talks? Was it the coming of 5G and perhaps Apple’s inability to have a phone on the market with the right chip set that gave you the leverage to get the settlement?
STEVE MOLLENKOPF: No, I think, look, it’s a mix of things. Very broad deal, as you know. It’s a license deal across all of our technologies. It’s a long-term license deal with an option to extend. It’s the first direct license that we have had to together.
DAVID FABER: And not with a contract manufacture—
STEVE MOLLENKOPF: Correct.
DAVID FABER: –but with Apple itself, right?
STEVE MOLLENKOPF: Correct. In and of itself, that’s a huge milestone to get to, and difficult – and a lot of issues to get through that. We obviously want to work together on products. We have a multiyear product deal. So, you know, each side found something that was useful. There was a payment that also went back to Qualcomm, as you might expect given the history. And —
DAVID FABER: Well they owe you billions of dollars under the — in unpaid royalties.
STEVE MOLLENKOPF: Right.
DAVID FABER: Now, of course, those were from contract manufactures, technically speaking.
DAVID FABER: Did you get billions in a payment to you?
STEVE MOLLENKOPF: Well, we didn’t disclose the size of the payment. And you know, really, I would say today, we look at all of that as in the past. You know, we’re now focused on products, moving forward and doing everything we’ve got to do.
DAVID FABER: And we want to talk to you about the future. But I’ve just got to, for one minute, I mean, this was a two-year battle. There were some fairly nasty things said on both sides. I guess, how did you bridge that cap — gap personally with Mr. Cook, in terms of your talks? You know, again, just trying to understand how it is that we got to what some would have thought was an unexpected resolution, as opening arguments began in Judge Curiel’s court yesterday.
STEVE MOLLENKOPF: Yeah, I think, you know, look, we’ve always talked about the timing. I’ve talked about the timing. It turned out to be pretty similar to that. You know, we were probably a couple of steps up the court room steps in this case. But, you know, companies can find a way to work together. The reality is: two great product companies, it’s a natural position for them to work together and want to work together. We have in the past and found out a way to do that in the future. And I’m happy that’s the situation.
DAVID FABER: We’ve got a lot more questions here for you, but back to the deal itself, if I can. You won’t tell us how much the payment was from Apple to Qualcomm. You also, I assume, won’t tell us how much you’re getting a phone, either. I mean, yesterday in court, Evan Chesler, your Lawyer, seem to indicate you’re getting $13 a phone. He said that in open court, I think, I’ve seen the transcript. I would assume it’s less than that. Some were said you had offered 7.50 a phone and they didn’t accept that. Are you going to ever tell us what you’re getting a phone?
STEVE MOLLENKOPF: We won’t. No, we won’t.
DAVID FABER: You won’t?
STEVE MOLLENKOPF: No, we won’t tell.
DAVID FABER: And it won’t be on your conference call as well or anything like that? When you report your numbers, we’re not going to know either?
STEVE MOLLENKOPF: Correct. We–
DAVID FABER: Why not?
STEVE MOLLENKOPF: Well, a deal like this, there’s a lot of value back and forth, and it’s just best to keep it confidential.
DAVID FABER: Okay.
STEVE MOLLENKOPF: We did try to give some indication as to what it means at least to our business. And so, we gave, you know, something on the website. We did an 8k which basically said there’s about $2 of additional earnings as a result of this deal broadly when the products begin to shift, which is very significant obviously for us. But remember, they’re a big customer. And we’re very happy to have an ability to move forward. By the way, we wouldn’t sign a deal if we didn’t think it was good for us. And I’m sure it’s the same way on their side. That’s how deals come together. And, you know, we’re just happy about it.
JIM CRAMER: You know, Steve, I want to clear something up. It’s a big deal, but you said Tim and I had had a lot of talks. I spoke to Tim Cook in January and he indicated there really weren’t a lot of talks. Like none. I mean, was it subsequent?
STEVE MOLLENKOPF: You know, Jim, I’ll tell you, getting back to the deal, how it came together, I’ll just tell you: these things don’t come together without the senior people in the companies talking a lot and it doesn’t come together without the CEOs talking a lot. We actually have a lot of discussions. You’re obviously not going to put that together on the morning of opening arguments. And we’re happy to have it together.
JIM CRAMER: Right.
STEVE MOLLENKOPF: I’m sure it’s the same on the Apple side. But I can tell you the focus, the clear focus is let’s get the products together. We have a long history of working together on products and we’re excited to do it again.
JIM CRAMER: Are you going to do anything special, because it seems like it’s a very special relationship now, that makes it so Apple’s 5G phone is better than everyone else?
STEVE MOLLENKOPF: You know, we have a lot of customers we deal with.
JIM CRAMER: Oh, come on.
STEVE MOLLENKOPF: And we give them—
JIM CRAMER: You’re just neutral? I mean, this calls you the Treaty of Versailles, this deal. That’s what this — Bernstein calls it the Treaty of Versailles and I have to believe that Apple gets something special from you, Steve?
STEVE MOLLENKOPF: You know, we give everybody the best support that we possibly can. And you didn’t expect us to say anything differently.
JIM CRAMER: –you’ve got. Alright. Is there anything that makes it so that Apple can get this faster? When can this be? Because a lot of people feel Apple is behind. You’re Mr. 5G. Is Apple behind?
STEVE MOLLENKOPF: You know, I’ll be honest, I will never talk about a person’s product plans. But I will tell you that Qualcomm is excited and we’ve got the entire team working to support them.
CARL QUINTANILLA: It does feel like, and one of the things that you did well, in this, case is in the midst of all the back and forth, the heated arguments, you went pedal to the medal on R&D and innovation. And in the end, from an outsider’s view, that scared them into the idea of what might happen as Samsung gets a lot of these things instead.
STEVE MOLLENKOPF: Well, I don’t want to characterize why they did things. I will tell you that we did put the pedal to the medal on 5G. I think it’s the right thing to do for this company, independent to this relationship and I’m sure it was important to this relationship, as well. It’s a lot. You know, the impact of 5G is just going to be tremendous. Not only in the handset space but outside of the handset space. We think we’re the clear leader and I think that’s going to be a good thing not only for our customers but for our shareholders.
CARL QUINTANILLA: Is there a good timetable now for products to hit shelves? Or is that for Apple to say?
STEVE MOLLENKOPF: Well, we won’t talk about Apple’s product plans. There’s obviously the beginning ramp of 5G broadly. I think we launched a phone about two weeks ago on the Verizon network. The first of many worldwide and we’re excited about it.
JIM CRAMER: Steve, you have a history of buying back stock – passed buybacks pretty pressured– as a matter of fact. You’ve got a lot of money. What are you going to do?
STEVE MOLLENKOPF: You know, we’re just going to process this deal right now.
JIM CRAMER: No, you see, I’m trying to get you to say something that is – that we all say, ‘Hey, Steve really broke some news on CNBC.’ We’re not really getting there yet so far, so I’m going to just try to get – do you like dividend boosts? Do you like buyback? You know, what’s the process?
STEVE MOLLENKOPF: So, I would say, if you extended your timeframe, yesterday was probably a pretty interesting news day. You know, we don’t have to do two things in two days or something.
JIM CRAMER: I don’t know.
DAVID FABER: Steve, does this take it all off the table in terms of those who accuse the company of overcharging and linking chip sets to intellectual property in a way that was inappropriate?
STEVE MOLLENKOPF: Well, you know, our perspective on that, and I would just back through the history of it, if you go back over the last 15 months, we signed major agreements, or an extension of an agreement with Samsung last January. We just did a big deal with Apple. We had an issue still with one large OEM which is Huawei, which we did an interim agreement with them, as you know, back on our last earnings call we disclosed it. So, but, when we look at the history, we’re actually getting things knocked off the list with big customers that have a lot of leverage. We have a lot of value and we’re able to show that we think in the history.
DAVID FABER: The FTC case concluded sometime back but have yet to hear from the judge. Is that still a risk for you or for Qualcomm and its business model?
STEVE MOLLENKOPF: It is. I think, you know, we did finish that trial at the end of January. We’re waiting for the judge to rule. I think, hard for me to talk a lot about that, but, you know, we’ll deal with that when the judge makes her decision.
DAVID FABER: Do the settlements though, including the one with Apple yesterday, impact that ruling in some way regardless of what it may be?
STEVE MOLLENKOPF: I don’t think so. I think when we look at this deal, we’re just happy to be able to do it. The environment with which we were able to put the deal together is obviously right in the middle of a trial. But, you know, the court is going to make its decision. And–
DAVID FABER: Because there had been some concern, given the comments from the judge during the course of the trial itself, that perhaps things did not look like they were going your way.
STEVE MOLLENKOPF: I think we were quite happy with the way the trial progressed.
DAVID FABER: You were?
STEVE MOLLENKOPF: If you look at the record, what we argued, we had a very strong and put on a very strong case. But again, it’s in the hands of the judge and we’ll await her decision.
DAVID FABER: I want to go back, Carl mentioned your R&D spend. I mean, you chose to increase in the midst of this fight when you were under a lot of pressure in terms of cost. I think even it was back when you were sought by Broadcom. And you made that decision. Why did you do that?
STEVE MOLLENKOPF: It was actually a little bit earlier than that, believe it or not. So—
DAVID FABER: Yeah.
STEVE MOLLENKOPF: Because what happens in this industry, you do not want to miss the transitions. The transitions, 3G to 4G, 4G to 5G, are very important in order to maintain your leadership position. And also, it enables you to really open up and expand your business into new areas. More so true on 5G than any other G transition. And we wanted to make sure that we were able to position the company to do that. We did that at the same time we brought a lot of other cost discipline within the envelope. So, we’re very pleased to have been able to do that. It was a good call to make, and I’ll be honest, I’m very proud of the team to be able to execute on that in the midst of what probably looked like a lot of distractions from the outside.
CARL QUINTANILLA: What’s special about the 5?
STEVE MOLLENKOPF: 5 is really designed so that other industries: so, automotives, self-driving cars, connected education, connection infrastructure really set up to use cellulars for the first time at massive scale. So, our problem today is not ‘Do we have a great technology lead?’ it is ‘How do we scale that across new industries?’ Good problem to have. Looking forward to tackling it with all of my energy.
JIM CRAMER: You know, Steve, I know you’re going to say, ‘Jim, why do you keep going over this?’ but I’m going to play it what’s known as a SOT, it’s a little clip of an interview I have with Tim Cook. We’re going to get this whole thing cleared up and we’re never going to have to speak of it again after this. So let’s run that please so you can – and you have a thing in your ear so you can hear what I heard.
STEVE MOLLENKOPF: Yep.
TIM COOK [JANUARY 8]: The issue that we have at Qualcomm is that they have a policy of no license, no chips. This is in our view illegal and so many regulators in many different countries agree with this. And then secondly, they have an obligation to offer their patent portfolio on a fair, reasonable and nondiscriminatory basis and they don’t do that. They charge exorbitant prices and they have a lot of different tactics they use to do that.
JIM CRAMER: And just one more – it says, Cook said, when I asked him about what you were doing to them, he goes, ‘Look, the truth is we haven’t been in any settlement discussions with them since the third calendar quarter of last year. That is the truth. So, I’m not sure where that thinking coming from.’ So, to me, that was war. And he actually points out that there were no talks. So, I know you can say it’s the past. But we have to unravel the past so it doesn’t happen in the future. Right? We have to learn the past. So, what really happened here?
STEVE MOLLENKOPF: You know, Jim, really, talking about the past and some of the he said, he said, really is not that helpful. I can tell you, where is the energy of the companies right now? The energy of the companies right now is let’s figure out how to ramp up as quickly as possible. I can tell you, the relationship is focused on that issue. I’ve had a lot of discussions not only within my team but also with the Apple team. That’s the focus.
DAVID FABER: We can all assume you don’t get to a settlement without talking.
STEVE MOLLENKOPF: Yes.
DAVID FABER: Can we at least assume that?
DAVID FABER: It doesn’t happen with mind meld or some sort of other communication device somehow that doesn’t involve actual speaking.
STEVE MOLLENKOPF: No, we talk all the time. Come on, the companies, to get to an agreement as complex as this, you’ve got to talk. But I can tell you, companies like this, they move on, and they move on to the things that are natural to work together, which is products. We’re all excited about doing that.
JIM CRAMER: You’re saying all that name calling is behind you. I mean–you’re a pirate basically.
STEVE MOLLENKOPF: Come on.
JIM CRAMER: No?
STEVE MOLLENKOPF: No.
JIM CRAMER: Alright, so now, tell us now that everything is great you guys love each other.
STEVE MOLLENKOPF: Jim, I have a dog, I have children, I have all of these things that people love, all the time. I can tell you, we are two product focused organizations. We’re working on products. We have done it in the past. We love doing it. We’re good at doing it. And I can tell you, that’s where the focus is. That’s what we’re excited about.
JIM CRAMER: Is the 5G so great that my phone, which is a good one, do you think that I’ll go buy a new one when 5G comes out?
STEVE MOLLENKOPF: I always think people should buy new phones. And I’m looking forward to you buying new phones as quickly as possible.
JIM CRAMER: How’s the dog? Maybe I can get something about the dog.
STEVE MOLLENKOPF: The dogs are great.
DAVID FABER: You know, Steve, you have been available to us through thick and thin which we appreciate. And there’s been plenty of tough times over these – I mean, my—and it’s hard to actually imagine the CEO in some ways who has faced down more potential crisis. Whether it was in China originally when you took the job and settling there, South Korea, hostile bid from Broadcom and the nastiness that followed there, potentially losing a lot of board members and somehow managing to avoid getting taken over as a result of the U.S. authorities kind of stepping in. The NXPI deal, you had that on the plate, it went on and on and then you walked away. And of course, over all of it, this dispute with Apple. Are we done with the drama at Qualcomm?
STEVE MOLLENKOPF: Well, I hope so. But the reality is when you’re working on technologies that are meaningful and are relevant to many industries worldwide, you’re going to grab attention. And as long as you have a technology lead, you can work your way through that. We were able to do that in the past– certainly able to do that over the last five plus years. I’m sure it’s going to be more calm. But I can tell you, I’m very happy to have that technology position.
CARL QUINTANILLA: What do you tell other leaders about dealing with big political scenarios, big legal scenarios, and not taking your eye off the engineering ball?
STEVE MOLLENKOPF: Look, I have the benefit of having a tremendous team. They are excited about technology. When you look at what happens in Qualcomm, there’s probably 30 people that worry about all the drama that effects this set. The entire rest of the organization is focused on making great products. And if they continue doing that, it’s easy to work through these things, even though it looks like a lot of drama.
DAVID FABER: Alright, so let’s just think about the future a bit. Or—you know, here is Qualcomm now with so much behind it conceivably. But you didn’t acquire NXPI. You didn’t get acquired. You’ve got peace with Apple. You’ve got peace with governments more or less around the world at this point, although we don’t know the FTC outcome yet. What do you do now? Do you think about another large deal, for example? Do you revisit the idea that obviously wanted to in terms of NXP and getting bigger even in the Internet of Things or more connected into automotive?
STEVE MOLLENKOPF: Well, I think we have options, which is great. We’re going to process this. We’re going to work on 5G. The 5G ramp that’s ahead of us, the story that we’ve been talking about and leading and in many respects creating in the industry. There’s a lot of opportunity for us to go after that. And we hope to have the ability to do that even more and hopefully have even more options to do some of the things that you mentioned.
JIM CRAMER: Look, back in December, President Trump said that China is now open to a Qualcomm NXPI deal. You guys immediately came out with a statement that said, ‘We’re grateful to learn of it, but the time has passed. The clock has run out.’ Steve, you need to be more the cellphone. NXP is a great company. I know there was a breakup fee and whatever. They’re fabulous. They still don’t have a guy I think as the heir. I want to broker that deal because that would make it so that you would have a much higher price to earnings multiple. Why not? It was genius. Why did you close the door? Why did the clock run out? President Trump got this for you. Why not meet them and get this done?
STEVE MOLLENKOPF: Jim, it’s a – the industrial logic makes a lot of sense.
JIM CRAMER: Yes! There we go.
STEVE MOLLENKOPF: But I think the ship may have sailed on that one. But I tell you, Rick and his team, wonderful company, great position. We really missed having the opportunity to do that earlier.
JIM CRAMER: We can get that – it doesn’t — the door has not closed. The train hasn’t left the station.
DAVID FABER: He doesn’t even get paid a fee.
CARL QUINTANILLA: There’s no fee.
DAVID FABER: He just likes action.
CARL QUINTANILLA: It’s the best deal in M&A.
JIM CRAMER: I want the stock to be at 100. If you say, ‘Listen, you know what, we’re open to all possibilities,’ we get it to 100.
STEVE MOLLENKOPF: I appreciate the suggestion. It’s a good one but we’re really focused on working through the details and supporting our new big customer.
DAVID FABER: Alright, well let’s end on that note, if we can, Steve. In terms of the future with 5G, Verizon has lit up a couple of cities at least early on. But it seems very uncertain exactly when really this is going to be something that is ubiquitous. You and I have talked about it, on-air, off-air. Where are we on the time line?
STEVE MOLLENKOPF: Okay, we are at the beginning of the 5G launch. I would make sure — take a look at how many networks worldwide and how many phones are launching in the first year of the ramp of 5G versus the ramp of 4G. You’re going to see a faster ramp on 5G than you saw 4G and you’re going to–
DAVID FABER: Why?
STEVE MOLLENKOPF: Well, a couple of reasons. One is the cost per bit of providing it. Because the spectrum that you open up is so high. So, the economics to the operator for launching this actually is quite attractive. Particularly at a time when there’s so much demand for streaming video. So, you’re seeing the business models, you know, move around a lot. And we’re excited to do that – to you know, help enable that. done. The other thing that’s interesting about the 5G launch is that it’s happening worldwide. It’s happening in Europe, it’s happening in China, in the same year that it’s happening in the United States and in Korea and in Japan. Next year we have the Japanese Olympics, for example. A lot of events that are going to force this to drive quickly. I can tell you for the people that are in the 5G roll outs, the problem is, ‘How do we do this faster?’ not, ‘Boy is this going to happen?’ It’s all about how do we get this faster and faster and faster. People that come on your show, they are calling me up all the time: ‘Let’s get it faster. Let’s get it faster.’ And that’s a good place to be.
DAVID FABER: So, there is the ability to deploy it fairly quickly. I mean, you’re not giving me a specific timeline here, and obviously, you’re referring to the CEOs of whether it be Verizon, AT&T or even Sprint and T-Mobile, but they all want to move as fast possible.
STEVE MOLLENKOPF: There’s a real desire to get this rolled out and a lot of momentum and a lot of activity going on in the industry and we’re happy to be a part of it.
JIM CRAMER: Christmastime 2020, for Apple? Can you get it? What do you think?
STEVE MOLLENKOPF: I’m not going to talk about Apple’s product portfolio.
JIM CRAMER: okay.
DAVID FABER: Well, we appreciate you’re talking about some things with us. We very much appreciate you’re being here and look forward to talking about 5G with you in the future, Steve.
JIM CRAMER: Yeah.
DAVID FABER: We didn’t find out what you’re getting per phone. We didn’t find out how much they’re paying — how the deal came together —
JIM CRAMER: –Tim Cook. We didn’t find out the dog’s name.
DAVID FABER: No. What’s the dog’s name?
STEVE MOLLENKOPF: We have two, actually. But I’m going to keep that confidential for now.
JIM CRAMER: Steve, I have never failed this bad in my life except for when I interviewed Jerry Brown in 1979 and he told me that I was a space cadet. I loved him too.
DAVID FABER: Steve Mollenkopf thank you very much for being here today.
STEVE MOLLENKOPF: Thank you guys.
DAVID FABER: Steve Mollenkopf is the CEO of Qualcomm.
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