Qualcomm Surges After Settling Apple Royalty Dispute

Apple Inc. AAPL and QUALCOMM, Inc. QCOM said Tuesday they've reached an agreement in a royalty dispute over computer chips, avoiding a trial that began this week in California.

The agreement, which ends all litigation between the two tech companies, includes a payment of an undisclosed amount from Apple to Qualcomm. The companies said they also reached a six-year license agreement and a multiyear chip supply agreement.

Why It's Important

The companies were starting a battle with billions of dollars at stake this week in federal court over the royalties that Qualcomm charges Apple for its chips, which allow Apple's iPhone, and other smartphones, to connect to mobile networks.

Apple has accused the chipmaker of over-charging with its 5-percent royalty on iPhone sales saying Qualcomm is essentially profiting off Apple's innovation. Qualcomm counters that it holds the patents on the chips Apple needs.

The agreement announced Tuesday covers all litigation, including legal action involving Apple's contract manufacturers. The disagreement between the two companies threatened the move for both into the new world of 5G internet connectivity.

Price Action

Shares of Qualcomm were up 20 percent to $68.70 after the news. Shares of Apple traded around $198.89.

Meanwhile, Intel Corporation INTC dropped sharply, trading around $56.32 per share.

Related Links:

Apple, Qualcomm In Court: What You Need To Know

Sell-Side Stays On Sidelines With Qualcomm, Awaits Resolution Of Licensing Disputes

Photo credit: Kārlis Dambrāns, Flickr