The Toyota Highlander seems destined to live forever. With solid reliability and a price tag that won't send families scurrying away, it's a very strong midsize family SUV, and its sales have reflected that. However, we always found its complement of tech to be a little lacking. Now, at the 2019 New York Auto Show, Toyota's rolled out the redesigned 2020 Highlander, and yes, there's some good tech in there.
Most of the Highlander's fancy new tech is possible because Toyota is moving the SUV to its TNGA-K platform. If TNGA is looking like a familiar set of letters to you, that's probably because Toyota has spent the last few years transitioning nearly its entire lineup of unibody vehicles to one flavor of it or another.
For 2020, the new Highlander will offer two powertrains. The first is a relatively standard 3.5-liter V6 gasoline engine that makes 295 horsepower and 263 foot-pounds of torque. This engine uses Toyota's D4 dual fuel injection system which utilizes both direct fuel injection and multiport fuel injection (and which we first saw on the Toyota 86 née Scion FR-S and Subaru BRZ twins). This engine, bolted to the standard eight-speed auto is good for 22 miles per gallon.
Where things get really interesting is with the optional hybrid drivetrain. Toyota remains the undisputed king of hybrid tech, and it's really flexing its muscles there with the new Highlander. Rather than the Hybrid Synergy Drive that we're all used to, Toyota is debuting a next-generation system that it calls Predictive Efficient Drive.
Predictive Efficient Drive is a smart hybrid system in that it monitors and learns driver habits and compares that with GPS data for upcoming roads to decide when to best utilize the electric portion of the drivetrain for maximum efficiency. It's pretty cool, but what's cooler is that Toyota is claiming that the hybrid Highlander will offer its owners 34 miles per gallon combined. That's unreal in a big SUV and a 17% increase over the previous-generation hybrid.
The new Highlander pulls some of its styling cues from the recently refreshed RAV4 -- and that's not a bad thing.
Toyota
Outside, the new Highlander grows a little bit (2.36 inches in length, to be precise) but manages to look slimmer than the car it replaces. This is mostly down to the new, more aggressive styling, which we like. We also like that Toyota has worked to make this new design functional, tuning the side mirrors and even the taillights to reduce wind noise at speed. For 2020, the Highlander can now be had with its first-ever 20-inch wheels. There is also a unique set only available as an option on the top-level Platinum trim level.
The Highlander hasn't given up any ground in the interior room category either. It's still cavernous enough to haul all your kids and their crap around or swallow up a full Ikea-shopping trip's worth of flat-pack furniture with no complaints.
The Highlander's L and LE trim levels feature a standard second-row bench seat which means that, in total, it'll seat eight people. The XLE and Limited trim come with captain's chairs in the second row for a total capacity of seven people, though you can swap them for a bench. The top-level Platinum trim comes with captain's chairs in row two, and you are unable to switch those for a bench because luxury.
It doesn't matter which trim level you choose, though, if what you care about is safety tech. All 2020 Highlander models come standard with Toyota's SafetySense 2.0 ADAS suite. SafetySense 2.0 includes features like automatic emergency braking, adaptive cruise control, lane departure alert with steering assist, automatic high beams, lane tracing assist and road sign assist. Other safety features that aren't part of SafetySense are optional depending on your desired trim level, and these include blind-spot monitoring, parking sonar, and something called parking support braking.
The interior on the top-tier Platinum trim benefits from a 12.3-inch touchscreen infotainment system, while lesser models get an eight-inch unit.
Toyota
Inside, things get better still. The Platinum trim level gets a 12.3-inch touchscreen in its center console -- one of the largest in the segment -- and all other models get an 8-inch unit. The latest version of Toyota's infotainment platform also supports Apple CarPlay, Android Auto and Amazon Alexa as standard. It's about time Toyota.
Toyota hasn't given us any information on expected pricing or a potential on-sale date, but we are betting that the former will be pretty reasonable and the latter will be sometime later this year.
The stock initially took a slight dip of 1% after hours Tuesday after providing light guidance for the second quarter of 2019. While Netflix reported earnings per share of 76 cents compared to the 57 cents analysts expected, according to the Refinitiv consensus estimate, it said it only expects EPS of 55 cents in the second quarter compared to the 99 cents analysts had forecast.
Netflix also reported revenue of $4.52 billion compared to $4.50 expected, per Refinitiv. The company added 1.74 million domestic paid subscribers in the quarter compared to the 1.61 million expected, and 7.86 million internationally, compared to the 7.31 million forecast by FactSet.
"NFLX's first quarter earnings may be controversial to some — mostly because of the light second quarter [subscription] outlook — but we think there's much more to like here than not," J.P. Morgan analyst Doug Anmuth wrote in a note following the report. "We continue to believe that Disney+ will not be a major threat to NFLX subscriber numbers given NFLX's quality & quantity of content, & that Netflix/Disney+ will not be an either/or decision."
"We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings," the company wrote.
During Netflix's live streamed earnings interview following the report, Chief Content Officer Ted Sarandos said the public will soon get more information about the company's viewership numbers.
"Over the next several months, we're going to be rolling out more specific granular reporting, first to our producers and then to our members and of course to the press over time," Sarandos said, adding that Netflix will "be more fully transparent about what people are watching on Netflix around the world."
Enlarge/ A 5G Intel logo is seen during the Mobile World Congress on February 26, 2019 in Barcelona.
Miquel Benitez/Getty Images
Intel says it is canceling a line of smartphone 5G chips that had been slated for 2020 launches. The announcement comes on the same day Apple announced a wide-ranging settlement with Qualcomm over patent issues.
Qualcomm has long been a dominant player in the wireless chip business for smartphones. Apple worries about becoming too dependent on a single supplier. So in recent years, Apple has encouraged Intel to expand its wireless chip offerings and offered Intel a significant share of its business for 4G chips in the iPhone.
Then last year, as Apple's legal battle with Qualcomm heated up, Intel became Apple's sole supplier for 4G wireless chips in the iPhone. Intel additionally was working to develop 5G chips for Apple to use in future versions of the iPhone. But recent reports have indicated that Intel was "missing deadlines" for the wireless chip that was slated to go into the 2020 model of the iPhone.
Fast Company reported earlier this month that "in order to deliver big numbers of those modems in time for a September 2020 iPhone launch, Intel needs to deliver sample parts to Apple by early summer of this year, and then deliver a finished modem design in early 2020."
If Intel had failed to provide Apple with 5G chips in a timely manner, that would have put Apple in an untenable position. The iPhone's competitors would be able to offer 5G capabilities using Qualcomm chips, while Qualcomm could have denied Apple access to 5G chips as long as the patent battle continued.
A bit of column A, a bit of column B...
Still, it's not clear whether Apple's settlement with Qualcomm forced Intel to leave the 5G market or whether Intel's impending exit from the 5G market forced Apple to settle with Qualcomm. It's likely that the causation ran a bit in both directions.
As long as Apple was battling Qualcomm, Intel could expect to supply chips for all of Apple's iPhones, providing enough scale to justify Intel's hefty investment in developing the technology. But now that Apple and Qualcomm are once again able to work together, Intel can expect Qualcomm to supply at least some of the 5G chips in the 2020 iPhone—and Apple would have had more leverage to negotiate better pricing.
"In the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns," Intel CEO Bob Swan said in yesterday's press release.
Intel says that it will honor existing contracts for 4G chips and is re-assessing "opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices." The company will continue investing in 5G chips for network infrastructure.
Shares of the streaming giant plunged 9 percent in extended hours trading after the report but by Wednesday morning had pared those losses to just over 1 percent.
Worries about churn are overblown according to analysts at UBS. "Chill about Netflix churn fears," analyst Eric Sheridan said.
"We see NFLX as a top pick as it capitalizes on the opportunity to be the global leader in streaming media & the competitive moat around its business widens (via a mix of content spend, marketing, & scale)," Sheridan added.
"NFLX's first quarter earnings may be controversial to some — mostly because of the light second quarter [subscription] outlook — but we think there's much more to like here than not," J.P. Morgan analyst Doug Anmuth said in a note to clients after the report. "We continue to believe that Disney+ will not be a major threat to NFLX subscriber numbers given NFLX's quality & quantity of content, & that Netflix/Disney+ will not be an either/or decision."
There's still room for shares to go higher, Goldman Sachs analyst Heath Terry said.
"As Netflix's content investments, distribution partnerships and marketing spend drive subscriber growth significantly above consensus expectations and the company approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform," he said.
The reaction from analysts at Credit Suisse was a bit more subdued.
"Overall, while not the net add beat many were hoping for, we believe outlook commentary was quite bullish, especially record first half paid net additions in the face of record price increases, revenue growth accelerating the next few quarters., and a very strong second half content slate," analyst Doug Mitchelson said.
Here's what else analysts think of Netflix's earnings report:
"Chill about Netflix churn fears. Pricing Moves On Full Display & Remains Key Positive Driver. Both for the Q1 EPS report and mgmt Q2 guide, the impact of recent pricing moves in a handful of countries was on full display. In particular, better revenue forecast and weaker sub guide (though we view this as a conservative framing by mgmt) will likely dominate the ST debate. Moving beyond that, we would focus investor attention on NFLX's key attributes: a) pricing power in developed mkts; b) potential for pricing tiers in developing economies to open up greater scale; c) compound revs at a 20%+ CAGR; d) expand OI margins; e) lessen its dependence on capital market fundraising; & f) has low/no regulatory headwinds. As a result, over the LT, we see NFLX as a top pick as it capitalizes on the oppty to be the global leader in streaming media & the competitive moat around its business widens (via a mix of content spend, marketing, & scale)."
"NFLX's 1Q19 earnings may be controversial to some—mostly because of the light 2Q sub outlook—but we think there's much more to like here than not. Key positives that stand out to us: 1) 1Q paid net adds of 9.6M, above expectations of ~9.5M, led by Int'l upside to the guide of 560k; 2) 1Q operating margin of 10.2% was well ahead of our & consensus 8.9% on lower than expected marketing, & even w/some spend shifting later in the year NFLX's margins should still move sequentially higher through '19; 3) 1H19 paid net adds are guided up 7% Y/Y—even w/2Q down Y/Y on price increases during a seasonally softer quarter—and NFLX expects 2019 paid net adds to be greater than in 2018. Pushback will come from: 1) a lighter 2Q sub guide, w/paid net adds of 5M below our/consensus 5.4M-5.5M, driven mostly by US, but NFLX is factoring in price increase impact related to the US, LatAm incl Brazil & Mexico, & parts of Europe; 2) Larger 2019 FCF burn at ($3.5B) on higher cash taxes, but NFLX reiterated improvements in 2020 (we think meaningful) & its push to become self-funding."
"Domestic growth concerns validated: We had highlighted (in an earlier report) the risk to Q2 sub guidance due to recent price increases over a compressed time line, in a seasonally weaker quarter. Q2 US guidance therefore came in lower at 300k vs our and consensus estimates. This guide is comparable to Q2-16 when NFLX's price increase resulted in higher churn. However, at that point, NFLX's US penetration rate was 46% compared to 60% today and the price increase was $1 vs $2 this year. Therefore, while the guidance does highlight higher churn, the implicit increase in churn is actually lower vs 2016, normalized for the degree of price increase, penetration rates and absolute price. This points to the fact that underlying US business trends continue to improve despite the headline. This impact should be further muted in 2H'19 given the new seasons of some of the most popular shows (Stranger Things, 13 Reasons Why, Crown) and movies."
"Netflix paid net add guidance missed Street estimates as price hikes both in the U.S. and in key international markets create a drag on subscriber gains. Guidance for negative free cash flow in 2019 was increased to -$3.5 billion from -$3 billion on higher cash taxes and investment in real estate and production facilities. Netflix guidance for a 13% 2019 operating margin remained constant. Average revenue per user is set to accelerate on price hikes globally, though FX remains a headwind."
"As Netflix's content investments, distribution partnerships and marketing spend drive subscriber growth significantly above consensus expectations and the company approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform. We remain Buy rated (on CL) and raise our 12-month price target to $460 from $450 to reflect faster subscriber growth expectations, particularly in international markets."
"We reiterate our Outperform rating and $480 price target in the wake of solid Q1 results. Global Paid Sub Growth is still on track to accelerate Y/Y. Management remains confident in recent U.S. pricing increase. AND NFLX still has premium Revenue growth and Operating Margin expansion. Long-Term Buy thesis FULLY intact"
"We expect HSD global organic ARPU growth in '19, and Netflix expects another year of record net adds. This pricing power is the result of years of investment in content, marketing and technology and speaks to Netflix's scale. It is also the key to driving improved FCF trends and ultimately shares."
"Netflix's 1Q19 revenues came in-line with forecasts, while 2Q guidance was softer than expected. As expected, both domestic (1.74mn) and int'l (7.8mn) paid sub net adds were above consensus, while adj. EBITDA margin of 12.9% was also above est. of 11-12%. Also as expected, 2Q19 total revenue guidance of $4.93bn is slightly below cons. forecast of $4.96bn, partially driven by the slowdown in 2Q domestic and intl paid sub net adds guidance (0.3mn and 4.7mn respectively), likely reflecting seasonality and the timing of price increases. Mgmt also reiterated its commitment to operating income margin expansion to reach a 13% target in 2019. With implied global penetration of only 23%, meaningful pricing power, and content expense leverage, we forecast ~$42bn in revenue and $18 in GAAP EPS in 5 years. We believe this continues to support a 12-month target price of $420 and, as a result, we maintain our Buy rating."
"Overall, while not the net add beat many were hoping for, we believe outlook commentary was quite bullish, especially record 1H paid net additions in the face of record price increases, revenue growth accelerating the next few qtrs., and a very strong 2H content slate – mgmt indicated they are "not seeing anything inhibiting a long run-way of growth". Investor consternation will now shift from price increase churn to competition, but Disney+ concerns are misplaced, in our view. Due to near-term tax structure changes, we lowered 2019 EPS $0.90y to $3.28 and 2020 $0.29 to $6.00."
"All said, 1Q19 results do little change our view on the trajectory of Netflix's fundamentals. We reiterate our In Line rating /$350PT and continue to view the risk / reward balance at these levels as fair (shares trade at 30x our 2022 EPS forecast, and we project three more years before the company becomes FCF-breakeven)."
"Netflix reported upside for Q1'19 and provided a mixed Q2 outlook. Most importantly, int'l sub adds were ahead of expectations for the quarter and essentially in-line for the Q2 guide. Q1'19 domestic subs were also ahead of consensus, but Q2 domestic sub guidance is below the Street. Q1'19 domestic and int'l contribution profit were each ahead of the Street driving EPS upside. The revenue outlook for Q2 is in-line, while the EPS outlook is below consensus estimates, but EPS is impacted by a change in accounting that results in a higher tax rate for the quarter. Despite an onslaught of new streaming services, we expect Netflix to continue to capture a significant portion of traditional content dollars as they migrate to streaming."
"Netflix's quarterly results read largely as expected, with upside to 1Q U.S. and Int'l Paid Net adds, and a soft 2Q guide for U.S. (~300k, roughly in line with us but below Street's 650k). While bears may nitpick that Int'l Paid Net add guidance was below at 4.7M, it misses the bigger picture. 1H19 Int'l Paid Net dds are projected to increase +19% y/y and tracking ~435k (4%) ahead of Street expectations. 2019E continues to shape up to be a record Paid Net dd year for Netflix. Reiterate Outperform."
"Lowering target to $410 from $425 on modestly weaker FY19/20 subscriber outlook, partially offset by higher APRU, but maintaining Outperform rating. 1Q global paid subs +25% y/y, modesty slower than +26% in 4Q, with streaming revenue +29% ex. FX, vs. 35% in 1Q, as global ARPU increased 3% ex. FX vs. +7% in 4Q. Higher US price causing modest churn. Margins exceeded guidance, but company maintained prior FY19E margin outlook. Despite new competitive entrants (AAPL and DIS), NFLX cites potential for further upside with only 2% of global downstream mobile internet traffic vs. 10% peak viewing share in US. Product bundles have helped mobile adoption and shown solid traction thus far. Testing various plan prices in India."
More store closures have already been announced in 2019 than in the entirety of 2018, according to new research.
A report from Coresight Research shows that the retail apocalypse is continuing, with 5,994 store closures announced so far in the US this year, compared to 5,864 store closures in all of 2018.
Some retailers including Fred's and Family Dollar are closing select stores in a bid to stay profitable while chains like Payless have announced that they are shuttering all of their stores.
One report predicted that 75,000 stores will have to close across North America by 2026 as reliance on e-commerce rises.
The retail apocalypse is raging on with almost 6,000 store closures announced so far in 2019 — more than the entirety of last year.
According to a new report from Coresight Research, US retailers have announced 5,994 store closures so far this year, compared to 5,864 store closures in all of 2018.
Pharmacy retailer Fred's recent announcement that it will close more than 150 underperforming stores sees it join a growing list of retailers that are shuttering bricks and mortar stores in a bid to save money during the rise of e-commerce.
And some brands are closing all of their stores completely. Payless announced in February that it was closing all of its 2,500 stores in North America.
Coresight Research CEO Deborah Weinswig predicted that this trend will continue. "The flood of store closures will likely continue for quite some time," she said.
An April UBS report predicted that 75,000 stores will have to close across North America by 2026 as e-commerce presentation is set to rise by 25%.
Coresight also noted, however, that some retailers are announcing new store openings. After going public earlier this year, Levi's announced plans to open 100 stores in its fiscal year, which ends in November.
There have been 2,641 store openings announced this year, Coresight said, compared to 3,239 openings in all of 2018.
UBS predicted that clothing stores would take the biggest impact, facing an estimated 21,000 store closures — 71% of all clothing shops across the US.
Apple and Qualcomm settled a two-year-old battle over patent licensing on Tuesday, a reconciliation that ended a trial that had started just a day earlier. The companies, which had been fighting in courts in China, Germany and other countries, in addition to the US, will end all worldwide litigation.
Cupertino, California-based Apple will make an unspecified payment to Qualcomm, according to a joint statement. The companies have also reached a six-year licensing agreement that includes a two-year option to extend and a multiyear chipset supply agreement. The agreement went into effect on April 1, the companies said.
The companies didn't say what prompted the change of heart. As recently as January, Apple CEO Tim Cook said the iPhone maker wasn't in talks with Qualcomm. Analysts speculated that Apple's need for 5G chips might have spurred the iPhone maker to negotiate, a view backed up by a Nikkei report that said the company had tested Qualcomm 5G chips as the companies explored a settlement.
Neither Apple not Qualcomm commented beyond their statement.
The decision set the San Diego courtroom the companies were appearing in abuzz. Apple and its contract manufacturers had presented their opening arguments and a lawyer for Qualcomm had nearly finished when the announcement was made. A day earlier, the sides had selected a jury that included a pilot, a retired nurse and a former pitcher for the Kansas City Royals.
The settlement is the latest twist in a fight that could put your iPhone at risk. San Diego-based Qualcomm supplies network connectivity chips for Apple's iPhones and is the world's biggest provider of mobile chips. Its technology is essential for connecting phones to cellular networks. The company derives a significant portion of its revenue from licensing its inventions to hundreds of device makers, with the fee based on the value of the phone, not the components. Qualcomm owns patents related to 3G, 4G and 5G phones -- as well as other features like software -- so any handset makers building a device that connects to the networks has to pay it a licensing fee, even if they don't use Qualcomm's chips.
Qualcomm and Apple are fighting over patents and licensing fees.
That includes Apple. The company makes its own applications processor -- the brains of the iPhone -- but it relies on third-party chips for network connectivity. From the iPhone 4S in 2011 to the iPhone 6S and 6S Plus in 2015, the sole supplier for those chips was Qualcomm. The following year, Apple started using Intel modems in some models of the iPhone 7 and 7 Plus, but it still used Qualcomm in versions for Verizon and Sprint.
It continued that trend in 2017, but Apple's latest phones -- the iPhone XS, XS Max and XR, now only use Intel 4G chips. Apple blamed Qualcomm, though Qualcomm said it would like to supply to Apple. Still, Apple's move to 5G could be held up by not working with Qualcomm.
Apple thinks it should pay a royalty fee based only on the value of Qualcomm's connectivity chips, not the entire device. It says Qualcomm is "effectively taxing Apple's innovation" and that Apple "shouldn't have to pay them for technology breakthroughs they have nothing to do with." Its manufacturing partners, like Foxconn, agree.
Qualcomm says its technology is much more than just connectivity. It's also multimedia, imaging, GPS and countless other inventions that make a phone a phone. Qualcomm even filed for a patent in 2000, seven years before Apple introduced the iPhone, that is one of the first smartphone descriptions and that describes how to conserve power in a smartphone. Without its technology, Qualcomm says, the iPhone wouldn't be possible.
Two years ago, the US Federal Trade Commission sided with Apple and filed an antitrust lawsuit against Qualcomm. It accused the company of operating a monopoly in wireless chips, forcing customers like Apple to work with it exclusively and charging excessive licensing fees for its technology. The two met in a San Jose, California, court in January to argue their case before a judge, and Apple provided some of the FTC's key witnesses and evidence. Qualcomm is awaiting a verdict in that case. It's unclear at this point if the settlement could affect the San Jose decision.
You may not know the Qualcomm name (unless you live in its hometown of San Diego and frequent Qualcomm Stadium), but the odds are pretty high you've used a device with its technology. Qualcomm is best known for its chips that connect phones to cellular networks, as well as its Snapdragon processors that act as the brains of mobile devices.
Qualcomm is one of the key component suppliers to Samsung and other phone makers (including Apple, until 2018). Without a modem in your device, you wouldn't be able to hail a Lyft to take you home or check Facebook while you're waiting in line at a food truck.
What technology does Qualcomm make?
Along with its processors, Qualcomm invents a lot of technology that's used in mobile devices. The company says it's invested more than $40 billion in research and development over the past three decades, and its patent portfolio contains more than 130,000 issued patents and patent applications worldwide.
The technology is centered on cellular communications and includes both standard essential patents and nonessential patents. (Standard essential patents are technologies that are vital to a device. They have to be licensed at fair and reasonable terms. Nonessential patents don't have those requirements.)
Some Qualcomm patents relate to multimedia standards, mobile operating systems, user interfaces, displays, power management, Wi-Fi, Bluetooth and even airplane mode. The company is also the pioneer of CDMA, the 3G mobile network standard used by Verizon and Sprint, and it's innovated in 4G and 5G network connectivity.
"Qualcomm's inventions are necessary for the entire cellular network to function -- they are not limited to technologies in modem chipsets or even cell phones," Qualcomm said in a filing.
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Apple, Qualcomm go head-to-head -- with billions at stake
3:14
What prompted the fight between Apple and Qualcomm?
It all came down to money. Apple said Qualcomm charges too much in licensing fees for its mobile technology. Qualcomm said the iPhone (and other mobile devices) wouldn't be possible without its technology. Qualcomm also accused Apple of infringing its patents for technology like power management.
What did Apple say in its complaints?
In part: "For many years, Qualcomm has unfairly insisted on charging royalties for technologies they have nothing to do with. The more Apple innovates with unique features such as TouchID, advanced displays, and cameras, to name just a few, the more money Qualcomm collects for no reason and the more expensive it becomes for Apple to fund these innovations."
What did Qualcomm say?
In part: "Apple's goal is clear -- to leverage its immense power to force Qualcomm into accepting less than fair value for the patented technologies that have led innovation in cellular technology and helped Apple generate more than $760 billion in iPhone sales."
How did the legal battle start?
There's been a lot of legal back and forth, but here are the basics. Apple initially filed suit against Qualcomm in January 2017 in the US, saying the company didn't offer fair licensing terms for its mobile technology. Qualcomm fired back in April of that year, denying all Apple's allegations and accusing Apple of breach of contract and of interfering with agreements and relationships Qualcomm has with contract manufacturers.
Qualcomm also filed a complaint with the US International Trade Commission in July 2017, asking that some iPhones that used Intel chips be banned from import and sale in the US because Apple allegedly infringed six of Qualcomm's patents. It also filed suit against Apple in the Southern District of California.
Technology companies in recent years have increasingly turned to the ITC to settle their disputes. Companies can pursue an ITC case in parallel with civil lawsuits.
"Apple continues to use our technology and not pay for it," Don Rosenberg, Qualcomm's general counsel, said in an interview after filing its lawsuits. "They've really left us no choice but to say, 'You've got to stop this.'"
In January 2018, the US Patent and Trademark Office's Patent Trial and Appeal Board said it would review three Qualcomm patents at issue in its ITC cases against Apple. Such a review can result in the patents being invalidated. One of the patents, No. 9,535,490, is the key patent asserted by Qualcomm in its lawsuit suit against Apple. It covers "power saving techniques in computing devices" that help reduce the electricity consumption by phones.
About 64 percent of the time following an IPR review, all patent claims are invalidated, according to a trial statistics report by the USPTO. And 17 percent of the time, some claims are invalidated.
In one case, a judge said Apple'siPhones have infringed a Qualcomm patent and should be banned from sale. But a full commission review in a second, separate case said Apple didn't infringe Qualcomm patents and dismissed that suit. It also said it found that Qualcomm's patents aren't valid.
Meeting in court
What happened in the March trial?
The first trial between Apple and Qualcomm was all about patents. Qualcomm in July 2017 accused Apple of infringing six non-standard-essential patents, but only three ended up making it to court. One patent allows a smartphone to quickly connect to the internet once the device is turned on. Another deals with graphics processing and battery life. The third lets apps on your phone download data more easily by directing traffic between the apps processor and the modem.
A jury ultimately decided that Apple violated all three of Qualcomm's patents and said it should pay the chipmaker $31 million -- or $1.41 per iPhone -- for infringing on its technology. The jury awarded Qualcomm the full amount it had requested at the start of the two-week trial, which took place in San Diego.
What about the April trial?
The April trial that was just settled was supposed to be the big one. It relates to Apple's initial complaint, in which it sued Qualcomm for allegedly unfair licensing terms. Apple also said Qualcomm sought to punish it for cooperating in a South Korean investigation into Qualcomm's licensing practices by withholding a $1 billion rebate.
Apple wants a court to lower the amount it pays Qualcomm in licensing fees, as well as order the return of the $1 billion.
Qualcomm maintains that no modern handset -- including the iPhone -- would have been possible "without relying upon Qualcomm's fundamental cellular technologies." In its response to Apple's filing, the company made its own counterclaims, including breach of contract and unfair competition. It also asked for an unspecified amount in damages and said Apple had interfered with its relationship with contract manufacturers.
In July 2017, those four iPhone makers joined Apple by filing a suit against Qualcomm, alleging it used its market position to charge excessive royalties. The four companies are Foxconn parent Hon Hai Precision Industry, Wistron, Compal Electronics and Pegatron. They're seeking at least $9 billion in damages, which could be tripled to $27 billion under antitrust law.
Patents and more patents
How does Qualcomm's licensing business work?
Some companies license patents on an individual basis; Qualcomm licenses all its patents as a group. For a set fee -- based on the selling price of the end device, typically a phone -- the device maker gets to use all of Qualcomm's technology.
It's been the norm in the mobile industry for patent holders to base their licensing fees on the total value of a handset, so Qualcomm isn't alone there. Ericsson, Huawei, Nokia, Samsung and ZTE also charge licensing fees based on the total device. Any company that makes a device that connects to a mobile network has to pay Qualcomm a licensing fee, even if it doesn't use Qualcomm chips.
Part of the dispute between Apple and Qualcomm is that Apple believes its licensing fee should be based on the Qualcomm chip used in the device, not the entire phone.
"They do some really great work around standards-essential patents, but it's one small part of what an iPhone is," Apple CEO Tim Cook said in May 2017. "It has nothing do with the display or the Touch ID or a gazillion other innovations that Apple has done. And so we don't think that's right, and so we're taking a principled stand on it."
Who licenses Qualcomm's technology?
Qualcomm licenses its technology to more than 340 companies, particularly phone vendors. It doesn't license its patents to chipmakers, though, which is something governments and Apple have taken issue with. Qualcomm argues that chipmakers don't need licenses because the handset makers already cover the cost of using its technology.
Apple licenses Qualcomm's technology through its manufacturers, like Foxconn, instead of having a license of its own. Apple said during the January trial that it's been trying for five years to negotiate a direct license with Qualcomm but that the terms offered -- like cross-licensing Apple's technology -- weren't fair. Apple's manufacturing partners are also involved in the legal disputes.
In April 2017, Apple said it stopped paying Qualcomm royalties for devices sold during the March quarter. Qualcomm accused the manufacturers of breach of contract. Qualcomm in October said that Apple owes it $7 billion in patent licensing fees.
So what's Qualcomm's licensing fee?
Qualcomm's licensing fees are based on the total value of a device ($999 in the case of the iPhone XS) versus the value of a chip (closer to $20), but they're also capped at a certain level. The FTC-Qualcomm battle revealed specific details about Qualcomm's licensing fees, including the rate Apple paid.
Apple partners paid Qualcomm a licensing fee five times higher than it thought was fair, Apple COO Jeff Williams testified during the FTC trial. Apple wanted to pay $1.50 per device in royalties to Qualcomm, based on a 5 percent fee for the cost of each $30 modem connecting iPhones to mobile networks. Instead, it ended up paying $7.50 per phone, he said.
"The whole idea of a percentage of the cost of the phone didn't make sense to us," Williams said. "It struck at our very core of fairness. At the time we were making something really, really different."
Still, Apple agreed to the rate since it was lower than what Qualcomm wanted to charge the contract manufacturers -- a 5 percent fee for every iPhone sold, which would equate to about $12 to $20 per device, Williams said. A rebate agreement dropped that to $7.50 per iPhone, and the level stayed steady over the years.
In November 2017, Chinese handset makers started paying Qualcomm royalties for its 3G and 4G patents at 3.25 percent of the selling price of every phone sold in that country. Qualcomm later rolled that rate out across its licensing base. It also capped the value of handsets, which its royalty is based on, at $400, even if a device sold for triple that. And Qualcomm's cap for a full portfolio license is $20 per device and $13 for only Qualcomm's essential patents.
By comparison, in one of its patent battles with Samsung, Apple argued it deserved $40 per device for Samsung's infringement of five patents, as well as lost profits, for a total of $2.19 billion. A jury ultimately ordered Samsung to pay $119.6 million for infringing three of Apple's five patents that related to software features like "quick links" and "slide to unlock." And in the March patent trial between Apple and Qualcomm, a jury decided that three non-essential patents from Qualcomm were worth $1.41 per iPhone.
Does Intel factor into this?
When Apple first launched the iPhone a decade ago, it used modems from Germany's Infineon. That went on for the next three years until Apple switched to Qualcomm in 2011.
Intel bought Infineon in 2011, but its chips didn't appear in the iPhone again until 2016's iPhone 7 and 7 Plus. At that time, US models running on networks from AT&T and T-Mobile started using Intel processors, while Verizon and Sprint versions used Qualcomm. Intel is now the sole supplier of iPhone modems.
Qualcomm has accused Apple of giving trade secrets to Intel. In September, it said in a lawsuit that Apple gave Intel engineers confidential information, including Qualcomm source code and log files, to overcome flaws in their company's chips used in iPhones. Qualcomm said in a complaint that Apple uses this "second source of chipsets" to pressure it in business negotiations.
The new complaint from Qualcomm is an amendment to the November 2017 suit filed against Apple. Qualcomm said newly uncovered facts have given rise to additional charges against the iPhone maker, including trade secret appropriation and breach of agreement.
Other legal battles
What's going on between Apple and Qualcomm outside the US?
Apple has filed lawsuits against Qualcomm in China and the UK, while Qualcomm has responded with countersuits in China and Germany.
In early December 2018, a Chinese court ordered four of Apple's Chinese subsidiaries to stop importing or selling iPhones because of patent infringement. The patents involve technology that lets iPhone users adjust and reformat the size and appearance of photographs, and manage applications using a touchscreen when viewing, navigating and dismissing applications.
Later that same month, a court in Munich found that Apple infringed Qualcomm's technology for power savings in smartphones and ruled that the iPhone maker must halt sales of the device in Germany. Apple in February resumed selling its iPhone 7 and iPhone 8 in Germany again, but it only offered models with Qualcomm chips. Apple stopped using chips from Intel in the older devices in order to comply with the German court decision.
In January, a different German court, in Mannheim, dismissed Qualcomm's latest claims against Apple, calling them unfounded. The second German case is related to something called "bulk tension," or voltage, in iPhones. The ruling from a regional court said Apple didn't infringe Qualcomm's patents because voltage in smartphones isn't constant. It dismissed the claim, but Qualcomm is appealing.
What other legal issues are facing Qualcomm?
Qualcomm has come under a lot of regulatory scrutiny in recent years for alleged monopolistic practices.
Meanwhile, in March 2019, the Japan Fair Trade Commission decided that Qualcomm wasn't a monopoly after all, reversing its decision from about a decade ago.
The FTC sued Qualcomm in 2017, and the case went to trial in San Jose two years later. The US government has accused Qualcomm of operating a monopoly in wireless chips, forcing customers like Apple to work with Qualcomm exclusively and charging "excessive" licensing fees for its technology, in part by wielding its "no license, no chips" policy. Qualcomm's practices prevented rivals from entering the market, drove up the cost of phones and in turn hurt consumers, who faced higher handset prices, the FTC said.
The FTC argued that Qualcomm used its power in the 3G and 4G chip market to force handset makers into the unfair licensing deals. If Qualcomm isn't stopped, the FTC said, it'll do the same thing in the 5G market.
Qualcomm said the FTC's lawsuit is based on "flawed legal theory." It's also said customers choose its chips because they're the best and that it's never stopped providing processors to customers, even when they're battling over licenses.
It also said its royalty practices didn't hurt competitors. Intel now supplies all modems for Apple's iPhones, MediaTek is the world's second-biggest wireless chipmaker, and Samsung and Huawei have developed their own modems.
Executives from tech's biggest companies testified about Qualcomm's licensing practices during January's trial, revealing the inner workings of the smartphone industry. The FTC and Qualcomm presented their closing arguments Jan. 29, and it's now up to Judge Lucy Koh to decide the verdict. At the same time, the two sides continue to negotiate a possible settlement.
How did Apple factor into that case?
The FTC complaint specifically related to how Qualcomm dealt with Apple. The US government said that Qualcomm forced Apple to pay licensing fees for its technology in exchange for using its chips in iPhones. It also argued that Qualcomm used its position to demand unreasonably high licensing fees and hurt competition by refusing to license its technology to chip rivals.
"Qualcomm recognized that any competitor that won Apple's business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm's competitors," the FTC said in a statement at the time it filed its lawsuit.
During the trial, the FTC called Apple COO Jeff Williams and VP of Procurement Tony Blevins to the stand. Williams testified that that Qualcomm refused to sell modems to Apple for 2018 iPhones because of the companies' licensing dispute. And Blevins said Apple wanted to build an Intel communication chip into its iPad Mini 2, released in fall 2013, but Qualcomm's hardball business methods crushed the plan.
Matthias Sauer, an Apple executive and a witness called by Qualcomm, testified that Intel's modems didn't meet the technical standards required for the company's iPhones in 2014. Though Intel also couldn't meet Apple's chip requirements for the iPad, it would've used them anyway, he said, had Qualcomm not offered incentives to stay with its chips.
The next iPhone
What does this mean for my next iPhone?
Most people don't really care about what chips are inside their devices, but Qualcomm has a big advantage over Intel: speed.
In mid-February 2019, Qualcomm unveiled the X55 processor, the first modem capable of running on everything from 2G to 5G networks. It's capable of 7.5 Gbps download speeds and will be in devices in late 2019. Qualcomm's previous modem, the X50, will be in devices released over the coming months. That includes the 5G Moto Mod, which is now on sale alongside the Moto Z3 for Verizon's 5G networks.
Most carriers are just starting to turn on their 5G networks, and smartphone companies are still prepping their first 5G devices. Many major Android vendors -- including Samsung, Huawei and LG -- unveiled 5G phones at or just ahead of MWC 2019 in February. The initial 5G phones will use the X50 modem, which can deliver download speeds up of 5 Gbps.
Intel doesn't yet have a 5G chip on the market, but it said its 5G modem will be ready for commercial devices in the second half of 2019, with broader deployment in 2020. There are some concerns, though, that the modem could be delayed.
What about a 5G iPhone?
5G is expected to be 100 times faster than our current 4G LTE wireless technology and 10 times speedier than what Google Fiber offers through a physical connection to the home. Experts say it should enable uses like virtual reality and augmented reality, as well as things we can't even think of today.
Qualcomm continues to provide Apple with chips for its older iPhones, including the iPhone 7 and 7 Plus, he said. But it wouldn't provide Apple with processors for the newest iPhones for 2018, designed since the two began fighting over patents, he said.
"The strategy was to dual-source in 2018 as well," Williams in January. "We were working toward doing that with Qualcomm, but in the end they would not support us or sell us chips."
Williams' comments appeared to contradict testimony from Qualcomm CEO Steve Mollenkopf from earlier in the FTC trial. He said on the stand that as of spring 2018, Qualcomm still was trying to win a contract supplying chips for iPhones but that it hadn't "had any new business" from Apple since its previous contracts expired. Because of the trial's evidence date limitations, he wasn't allowed to discuss the current state of Qualcomm's business with Apple.
Other Qualcomm executives have made comments in recent months about their willingness to supply processors to Apple.
During an earnings call in July 2018, Cristiano Amon, the head of Qualcomm's chip business, said that "if the opportunity present itself, I think we will be a supplier of Apple." And in September, financial chief George Davis said during a Citi conference, "we would welcome the engagement with Apple on 5G."
While many market watchers expect Apple to release a 5G iPhone in 2020, there are some concerns Intel's chip may not be ready until Apple's 2021 lineup. That would put Apple about two years behind the Android vendors.
If Apple gets a lower licensing fee, would we pay less for iPhones?
That's likely a big fat no. Apple has more leverage over pricing when it has two suppliers to play off each other. It's highly unlikely that it will pass along any of those savings to all of us.
When Apple launched its iPhone X in late 2017, some wondered if the $999 price tag would scare away consumers. Instead, the iPhone X became the best-selling device from the time it hit stores through the end of the June quarter, even though it was the most expensive phone Apple had ever sold.
The 5.8-inch device was $300 more than the 4.7-inch iPhone 8 and $200 more than the 5.5-inch iPhone 8 Plus. Apple followed up this year with the iPhone XS and the bigger and even pricier XS Max, which starts at $1,099.
Apple, facing a slowdown in iPhone sales, needs to generate more money from each device it sells. The company in early January 2019 issued a rare warning -- its first in 16 years -- that it would fall short of its financial projections in the December quarter. Later that month, it said its sales in the March quarter also would be lower than analysts expected. It pointed to an economic slowdown in China and the country's "rising trade tensions with the United States" as the main culprits.
Even if Apple pays less for patents, that doesn't mean we'll see any benefit from those savings. Its higher prices are likely here to stay.
First published July 9, 2017. Update, March 1, 2019, at 5:30 a.m. PT: Adds details of recent developments, including the FTC-Qualcomm trial, and notes the impending trial dates in March and April. Update, April 11, 2019, at 5 a.m. PT: Adds details of recent developments, including the patent trial from March and the licensing trial in April and May. Update, April 16, 2019, at 2:46 p.m. PT: Adds news of settlement, tweaks throughout. Update, April 16, 2019, at 3:46 p.m. PT: Adds news of Apple testing Qualcomm chips.
T-Mobile US CEO John Legere, left, and Sprint Executive Chairman Marcelo Claure, right, speaking with one another before testifying at a House hearing in Washington on March 12.
Photo:
michael reynolds/epa/Shutterstock
Justice Department antitrust enforcement staff have told
T-Mobile US Inc.
TMUS 0.42%
and
Sprint Corp.
S 2.21%
that their planned merger is unlikely to be approved as currently structured, according to people familiar with the matter, casting doubt on the fate of the $26 billion deal.
The nation’s third- and fourth-biggest carriers by subscribers are facing challenges on several fronts, but their most immediate hurdle comes from the Justice Department’s antitrust division, which is considering whether the deal would present an unacceptable threat to competition.
In a meeting earlier this month, Justice Department staff members laid out their concerns with the all-stock deal and questioned the companies’ arguments that the combination would produce important efficiencies for the merged firm, the people said.
Reservations voiced by Justice Department staff workers aren’t necessarily the last word on a merger, as department leadership also will have an opportunity to weigh in and make the final decision.
T-Mobile’s proposal to Sprint was the culmination of years of on-again, off-again talks between the rivals, which are seeking scale in a mature U.S. market dominated by
Verizon Communications Inc.
and
AT&T Inc.
The smaller companies tried more than once to strike a deal only to see the agreement fall apart over terms or fears that the Justice Department would object.
Wireless operators have tried different combinations to shrink the number of national U.S. players from four providers down to three, but so far they have all been foiled. The Obama administration blocked AT&T’s 2011 bid for T-Mobile, saying the market was too concentrated.
T-Mobile and Sprint executives last year decided to make their case to the Trump administration, saying that without a merger they risked falling behind Verizon and AT&T as the industry upgrades to fifth-generation networks. Combining the smaller companies would arm them with a swath of wireless-spectrum licenses considered ideal for 5G.
T-Mobile Chief Executive John Legere responded to The Wall Street article in a tweet, saying “The premise of this story, as summarized in the first paragraph, is simply untrue. Out of respect for the process, we have no further comment.”
A Sprint spokesman had no immediate comment and a Justice Department spokesman didn’t respond to requests for comment.
Several state attorneys general also are reviewing the deal. Some state antitrust officials have expressed concerns similar to those from the Justice Department and have prepared to sue the companies independently if federal officials don’t join them in challenging the merger, according to a person familiar with the matter.
Public filings show the Federal Communications Commission is also prodding the companies for more data about several elements of their proposed combination, including the calculated cost savings and how they would use wireless infrastructure to provide home broadband service.
The different groups of government officials are operating on similar timelines and a final decision is still likely several weeks away, people familiar with the matter said.
Discussions between the companies and government officials are continuing. T-Mobile and Sprint could offer concessions, such as assets sales, to try to address the government’s concerns.
T-Mobile and Sprint unveiled their merger plans nearly a year ago. Their chiefs have said the move will give the combined firm the heft and resources needed to compete with Verizon and AT&T and build 5G networks faster than the bigger players.
T-Mobile’s executives have said they are still on schedule to close the deal before July. The target date has slipped since late last year, when they privately planned for a decision as soon as April, according to people familiar with the matter.
Shares of Sprint are trading at a roughly 20% discount to the price implied by the all-stock deal, signaling Wall Street doubts about the combination’s chances. Shares of T-Mobile closed Tuesday at $74.10, while Sprint closed at $6.01.
The deal cleared an important hurdle in December by winning approval from the Committee on Foreign Investment in the U.S. and from Team Telecom, two national-security groups that review transactions involving foreign owners. T-Mobile is mostly owned by Germany’s biggest carrier, Deutsche Telekom AG. Sprint is mostly owned by SoftBank Group Corp. of Japan. The review slowed down this year during a federal government shutdown. U.S. officials also sought more information from the companies about details of their combination strategy, adding several months to the process.
T-Mobile Technology Chief Neville Ray addressed an industry conference said after the company’s April meeting at the Justice Department that executives remained “very optimistic” they would win government approval. “We are in deep and strong and positive negotiation and discussion,” Mr. Ray said at the time. “We will answer every question that is put in front of us.”
While T-Mobile has continued to add subscribers at a healthy clip, Sprint has added fewer customers and struggled with heavy debt.
The company said in a Monday FCC filing that its current performance would be unsustainable without the merger due to weak network infrastructure and a customer base prone to leave in search of better deals.
“Sprint is in a very difficult situation that is only getting worse,” the company said.
