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Apple's Looming Nightmare

By Rob Enderle TechNewsWorld ECT News Network
Apr 22, 2019 11:08 AM PT
the apple-qualcomm case is settled but fallout over apple's bad behavior may linger

The big news last week was that Apple finally agreed to settle its fight with Qualcomm. Kudos to Tim Cook, because I've known a lot of CEOs who rather would have fought to the death than admitted they were wrong -- and not only wrong but acting disingenuously the entire time. (Fighting this to the death would have been far worse.)

What spurred the settlement, given the timing, likely was the defense Qualcomm mounted in the latest San Diego court action. It showcased, with alleged Apple emails to back it up, that Apple had misrepresented to a lot of folks pretty much everything concerning the reasons behind its actions. Those folks would have included regulatory agencies, which typically don't have a sense of humor about this stuff.

This will have huge implications for Apple's future, and it interests me for a couple reasons. One is that I'm kind of tired of companies trying to use their success to bully smaller firms. I'm particularly tired of companies thinking they can misuse litigation as some kind of competitive tool. Both use a ton of resources, it almost never ends well, and it is abusive -- particularly in this case -- and abuse in any form shouldn't be tolerated.

I'll close with my product of the week, something I've been looking forward to for a long time: a virtual window that gives you the view you want, regardless of where you live.

The Dangers of Litigation

One of the biggest dangers with corporate litigation is that neither the plaintiff nor the defense initially knows all the facts. This is because corporations tend to have a lot of moving parts and a lot of people -- any one of whom could have behaved badly -- and discovery has a good chance of disclosing things the executives didn't know about. These disclosures not only can kill careers, but also can open up the firm up to subsequent litigation that it can ill afford -- not to mention transform what it thinks will be a winning case into a losing one.

In the Apple v. Qualcomm litigation, for instance, which was the most massive I've ever followed, I doubt Apple's senior leadership knew that Apple's engineers allegedly broke the law by giving Intel access to Qualcomm's highly proprietary and secret intellectual property on modems. That one thing alone removed Intel's ability to compete in the modem market and likely led to the cancellation of its effort -- an effort that was critical to Apple's long-term plan to take out Qualcomm.

Based on Qualcomm's latest opening arguments, discovery apparently also surfaced an Apple strategy to develop a complaint about a fictitious antitrust problem with Qualcomm's model, although it actually was focused sharply on a now-apparent effort to kill the company. That effort not only may have been illegal, but also countered the stated objectives of the U.S. administration. It would have resulted in direct benefits to China and damage to the U.S. had it been successful.

In this age, even the idea that you could cover up something like this in a corporation is insane, given how many people touch communications, how available social media is, and how easy it is to make confidential disclosures.

Apple's Bond Villain-Like Plan

I do have to be a little impressed with what appears to be an audacious plan on Apple's part. In a James Bond nove -- like Tomorrow Never Dies, which actually has a similar plot hinging on misdirection -- it would have fit right in. Apple's apparent goal, according to the Qualcomm opening remarks, was to reduce Qualcomm's value massively, drive a successful hostile takeover by Broadcom, gain near-free and exclusive access to Qualcomm's IP, effectively lock out the Android market players, and end up dominating a market in which it currently is overmatched. (It sure makes it look like Google was sleeping through all of this, given Android was at massive risk.)

If successful, Apple could have reversed its market slide and had an almost unstoppable path to charging whatever it wanted for a smartphone by eliminating almost all competition but Huawei. Apple seemed to be behind the U.S. effort to put Huawei out of business, at least partially, given it couldn't compete with Huawei in market, and that has had some success as well.

It was a world domination strategy but, just like a James Bond book, it would have ended badly for Apple, because it would have put it under a massive antitrust spotlight, likely either forcing it to break up the firm or, more likely, putting it under an abusive consent decree.

So, even if it had won, Apple likely would have been under massive antitrust pressure from the U.S., EU and China (which already has begun).

Apple's Future

No one likes to be lied to and manipulated, and regulatory agencies least of all. The revelations of deception should discredit a lot of Apple's witnesses and employees, if not all of them, and it even could make some of them vulnerable to charges of perjury (though this admittedly is an unlikely outcome).

However, it highlights Apple as an abusive partner, because Qualcomm was not a competitor. It was a supplier, and part of Apple's effort was to force Qualcomm to reduce its prices massively and unreasonably.

Apple already has one of the worst reputations when it comes to dealing with suppliers. The rule in Silicon Valley is that no one does business with Apple twice, and Intel just learned that lesson. It had to exit the modem market as a result of this thing, and Apple plans to discontinue the use of Intel parts in its PCs shortly (which does suggest that if you want an Apple PC, you likely should wait a bit).

Going forward, Apple's ability to use government agencies as its agents will be reduced substantially. Further, those agencies, which now will come under internal scrutiny for their own actions to ensure that bribes or other undue influences were not used, may want to punish Apple. Bureaucrats and politicians don't like being tricked; nor do they like to see inappropriate behavior surfaced (like even the appearance of taking a bribe) because such things are career-enders.

China, in particular, is not known for feeling warm and fuzzy about this stuff. Were I Tim Cook, I'd likely avoid China for a short while -- like the rest of his life.

Apple has a license with Qualcomm again, but I'll bet the relationship will define the word "strained," because, were I Qualcomm, I'd be anticipating Apple screwing me again, like it did Intel, making working together more than just problematic.

Wrapping Up: Lasting Lessons

About every decade or so, some large company thinks it can use litigation to change market dynamics when it is performing poorly. I've never seen this work out, and it generally just becomes a huge distraction when the firm needs instead to work on what really is hurting it -- an inability to execute in the market.

You can't cheat. If you can't compete, using litigation to cover that up -- even if the reason is unfair treatment by a competitor -- rarely works. Just look at Netscape. It was right about Microsoft abusing it, but what killed the firm was a team of managers who couldn't execute to save their lives.

Apple should learn from this. Otherwise, regardless of its massive reserves, it is likely to suffer the same fate. Its problem isn't a US$7.50 charge per phone to Qualcomm; it is an inability to follow Steve Jobs' model on how to bring out massively successful products.

I was trained that good suppliers should be treated like family. Qualcomm is one of the few that doesn't just sell technology -- it sends in engineers to help implement it, working hand-in-hand with your own people to ensure success. It is as much a part of your team as your own employees are.

Betraying this type of relationship this isn't just unethical. In my view, it's one of the most unethical and evil things I've ever seen a company do to a supplier. Qualcomm is far from the first. Andy Grove went from being a huge Apple supporter to being an Apple hater, based on how Apple betrayed him at Intel (which makes it really weird that Intel fell for this again).

The number of stories I've heard about how Apple abuses suppliers makes me wonder why it has any now. Folks, you have choices. I don't care how much money you think you will make -- taking abuse isn't worth it. It never is.

In the end, all three companies are better off with this settlement, but I expect it will be some time before Apple can emerge from the cloud it has created. It is financially successful, but I believe a truly great company is defined not by how much money it mines from its customers, but by how well it treats those customers, and its suppliers and employees. I believe Apple should take this as a warning. It really needs to get its priorities straight.

Rob Enderle's Product of the Week

I'm a big Indiegogo contributor, because it is often where I see some of the most interesting coming products and trends. One of the coming trends I called out some years back was the emergence of virtual windows, which basically are very high-resolution displays installed in a house like windows, to give you any view you want regardless of where you live.

I imagined views into real places like Hawaii, the top of Mount Everest, or the moon -- or imaginary places like Edgar Rice Burroughs' Mars, the settings in Game of Thrones (with dragons flying in the distance), or even a view into one of the Star Wars worlds. Just imagine -- you could have the greatest views in the world even if you lived in a bomb shelter, and I'm starting to think that might be a good place to live.

Year after year went by, and no one brought one of these to market, even as panel prices dropped into the high-end window range. Well, someone got the memo, and I found Atmoph Window 2, which now has 525 backers on Indiegogo (including me). This looks like it could be the beginning of the trend I foresaw so many years ago.


Atmoph Window 2 - Smart display with 1,000 views
Atmoph Window 2

If you could build a home without windows, you could make it more secure, and better able to resist weather events. You could reduce your heating and cooling costs, and you could reduce intrusion by insects while better ensuring the quality of your air (if you set up your heating and cooling system properly).

Personally, the idea of being able to hit a button to transport yourself to anyplace real or imagined would be amazing. Just think of having a view of Jules Verne's 20,000 Leagues world, from The Avengers' mansion, or the landscape of Wakanda while you are waking up or drifting off to sleep, working, or just sitting reading a book -- with the background noise adding to the experience.

You could look out from a cloud city at dragons flying by, or watch a distant battle between the humans of Westeros and the White Walkers. Your window could look at the real or imagined past or future. You could look at rendered views from your childhood or, after you passed, your kids could look out and see you working or enjoying the sun in your yard.

We do live in a hostile world -- one increasingly plagued by people behaving badly -- but we are close to at least creating the illusion that we live in a magical utopia. While the Atmoph Window 2 isn't all of that yet, I think its evolution eventually will take us there, and that makes it ideal for my product of the week.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.


Rob Enderle has been an ECT News Network columnist since 2003. His areas of interest include AI, autonomous driving, drones, personal technology, emerging technology, regulation, litigation, M&E, and technology in politics. He has an MBA in human resources, marketing and computer science. He is also a certified management accountant. Enderle currently is president and principal analyst of the Enderle Group, a consultancy that serves the technology industry. He formerly served as a senior research fellow at Giga Information Group and Forrester. Email Rob.


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