Qualcomm signed a six-year deal with Apple to end the lawsuits between the companies and supply 5G modems for the iPhone.
Xin Yue—Huanqiu.com/VCG via Getty Images
By Aaron Pressman
April 17, 2019

More than two years after the two titans of the smartphone era, Apple and Qualcomm, went to war, peace broke out suddenly and surprisingly on Tuesday.

Apple and Qualcomm announced that they had settled all of the patent and royalty lawsuits they had filed against each other. They also said they had agreed to a six-year deal for Qualcomm to supply Apple with chips for its mobile devices and for the associated licensing rights.

At issue were some of the most important features of smartphones. Qualcomm has been a pioneer in making the modem chips that allow the devices to connect to 3G and 4G wireless networks. But Apple, along with some other phone makers and antitrust regulators around the world, accused Qualcomm of abusing its dominant position to thwart competition and charge excessive royalties.

In 2017, Apple sued Qualcomm and a few months later stopped its contract manufacturers from paying the billions of dollars a year it owed Qualcomm for the modem chips in iPhones and iPads. Apple then started dropping Qualcomm’s chips from its devices, relying increasingly on Intel for mobile modem features. Now, Qualcomm is back in Apple’s supply chain. And Intel says it’s quitting the mobile modem business altogether.

Here are some of the winners and losers of the settlement:

The biggest winner: Qualcomm

Qualcomm’s stock was headed for $70 a share in the fall of 2016, but then a series of antitrust lawsuits filed by regulators and Apple pushed it below $50 within a year. Shareholders got a brief reprieve when the low price attracted bargain hunter Hock Tan, CEO of rival chipmaker Broadcom, who attempted a takeover of Qualcomm while it was wounded in the Apple battle. But when Tan’s bid ultimately was blocked by the Trump Administration on national security grounds, Qualcomm’s stock again dropped below $50 and had since bounced around in the mid-50s.

As soon as the settlement was announced on Tuesday, Qualcomm shares shot up more than 20% and rose even further on Wednesday to $80, their highest price since 2014, the year smartphone sales were near their peak.

The reasons are straightforward. Apple had supplied $2 billion or more annually in revenue–revenue with big profit margins, since most of the money was for royalties on patents. Now Apple has agreed to pay back royalties it withheld over the past two years, plus it will pay future royalties and again buy modem chips from Qualcomm. In a brief note to investors on Tuesday, Qualcomm said its earnings per share, which amounted to $3.69 last year on an adjusted basis, could increase $2 annually under the deal.

“The resolution will likely go a long way toward assuaging investors who have been terrified of the potential for negative legal and regulatory outcomes,” Bernstein Research analyst Stacy Rasgon noted. Still, details of the settlement have yet to be disclosed and the legal case filed by the Federal Trade Commission is still pending, he added.

Also winners: Verizon, AT&T, T-Mobile, and Sprint

The four major wireless carriers are spending billions of dollars to build 5G networks, but about half of U.S. wireless customers use an iPhone. With Intel’s 5G efforts lagging, the carriers were looking at a possible two-year delay before Apple could sell a 5G-compatible iPhone. Now that concern should be resolved and Apple will be able to offer devices that can run on all four carrier’s 5G networks.

The carriers may even have been pressuring Apple behind the scenes to settle. Ronan Dunne, president of Verizon’s (vz) consumer group, in February told Fortune he was planning to get his customers “massively excited” about 5G. “We have a great relationship with Tim and I’m his biggest customer in the U.S.,” Dunne said. “I’m doing my bit.”

Another winner: iPhone users

As noted, Intel’s efforts on 5G modems were falling far behind Qualcomm’s. Samsung and some other Android phonemakers are starting to sell 5G-compatible phones as soon as next month, while Apple’s 5G phone lagged.

The settlement means a 5G iPhone is likely coming next year.

But even customers with no interest in 5G should benefit from the return of Qualcomm chips to the iPhone. Long before 5G arrived on the scene, 2017 iPhones with Intel’s current 4G modems lagged the performance of similar iPhones with Qualcomm chips. And Qualcomm said that the gap would have been even bigger had the iPhone maker not throttled some of the features of its 4G chips. The 2018 iPhones used only Intel 4G modems and, again, some tests showed the devices performed worse than 2018 Android phones with the latest Qualcomm 4G chips.

Kind of a winner: Apple

Apple was involved at the early stages of the antitrust investigations of Qualcomm because it felt cornered by the mobile chipmaker’s dominance. If anything, that domination is now reinforced, as Qualcomm will likely be the sole supplier of 5G modems in the iPhone next year. Of course, Apple is rumored to be working on making its own modem chips, perhaps in time for the iPhones of 2021.

Apple’s stock price barely budged on news of the settlement, but some analysts said Apple was a winner because it has at least removed the uncertainty and possible delay of 5G- compatible iPhones. “Apple is better positioned for the upcoming push to 5G,” Morgan Stanley’s Katy Huberty wrote in a report on the deal. The settlement itself will have a “relatively insignificant impact” on Apple’s balance sheet, she added.

Probably a loser: Intel

Intel, the dominant player of the PC era, has struggled to profit from the rise of mobile devices. It lost billions of dollars in a failed effort to sell mobile processors for phones. So in the past few years, Intel focused just on competing in mobile modem chips, though attracting just one significant customer: Apple.

Now, not only is Apple (aapl) apparently going back to Qualcomm (qcom) for modem chips, but Intel (intc) said on Tuesday it would shutter its modem effort completely. That leaves it even further out of the mobile market, though some investors were obviously relieved that the likely money-losing effort to compete with Qualcomm is over. Intel shares gained 4% on Wednesday.

Another loser: MediaTek

The Taiwanese mobile chip maker MediaTek also saw its stock fall after the Apple-Qualcomm settlement. The company could have been a beneficiary of Apple’s need for 5G modem chips if Intel had faltered. At a trial in January weighing the Federal Trade Commission’s antitrust case against Qualcomm, an Apple executive said the iPhone maker was considering MediaTek as a supplier.

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