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Apple demanded $1 billion for the chance to win iPhone: Qualcomm CEO

SAN JOSE, California (Reuters) – Qualcomm sought to become the sole supplier of modem chips for Apple’s iPhone to earn a $1 billion “incentive payment” that Apple was, not to block rivals from the market, Qualcomm’s chief executive testified on Friday.

FILE PHOTO: A woman checks her phone at a flagship Apple store in Iconsiam shopping mall in Bangkok, Thailand, November 9, 2018. REUTERS/Soe Zeya Tun

The payment from Qualcomm to Apple – part of 2011, a deal between Apple and Qualcomm, was intended for the convenience of the technical costs of the swap from the iPhone to the then-current Infineon chip from Qualcomm CEO Steve Mollenkopf testified during a trial with the U.S. Federal Trade Commission.

Although such a payment is customary in the sector, the size of the not, Mollenkopf said.

Under the 2011 deal, Qualcomm was named Apple the only supplier of modem chips that help mobile phones connect to wireless data networks, in exchange for which Qualcomm agreed to give Apple a discount for the exact nature of which has not been disclosed. Apple would opt for a different supplier, but would lose the discount, effectively increasing the cost of the chips.

Antitrust regulators have argued that the deal with Apple was part of a pattern of anti-competitive behaviour by Qualcomm for the preservation of its dominance in the modem chips, and exclude players like Intel.

At a federal court in San Jose, California, Mollenkopf testified that Apple demanded $1 billion, without any certainty of how many chips would buy, which pushed the chip supplier to seek an exclusive arrangement to ensure sold enough chips to recover the payment.

Qualcomm was not aimed at blocking rivals, such as Intel, ” he said.

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

Earlier in the day, Apple’s supply chain executive Tony Blevins testified that the Apple has been the practice to pursue at least two suppliers and as many as six for each of the more than 1000 parts in the iPhone.

The company stopped trying to put an Intel modem chip in the iPad Mini 2, because the losses of the discounts on the Qualcomm chips would have made of the total costs are too high, ” he said.

“They made it very unattractive for us to use a different chip supplier,” Blevins said of the discounts. “These discounts are very, very large.”

Reporting by Stephen Nellis; Editing by Sandra Maler and Sonya Hepinstall

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