Qualcomm Flexing Its Muscle>
Exclusive: Qualcomm yanks VLSI
license to block Philips from
CDMA-chipset market
By Mark LaPedus
Electronic Buyers' News
(09/10/99, 05:20:35 PM EDT)
Eliminating a competitor from the market, Qualcomm Inc.
has quietly barred VLSI Technology Inc. from selling its
chipsets used in CDMA-based digital cell phones, EBN has
learned.
According to several industry sources, Qualcomm recently
sent a letter to VLSI's new parent company, Philips
Electronics NV, stating that Philips has only 60 days left to
sell a CDMA-based chipset that was originally developed
and introduced last year by VLSI.
In the mid-1990s, VLSI obtained a license from Qualcomm
to make the chipset, which provides the critical
voice-processing functions in a CDMA handset. But in the
letter, according to the sources, Qualcomm has terminated
this licensing agreement, thereby barring Philips from selling
the chipset in the merchant market.
Qualcomm's action, which is expected to be imposed on
Philips in the next month or two, will leave the market with
fewer chipset sources in what has become a booming
CDMA segment. In total, the worldwide production of CDMA
handsets will grow from 8.7 million units in 1997 to 69 million
units in 2002, according to Dataquest Inc., San Jose.
Aside from Qualcomm, there is just one merchant supplier
of CDMA-based chipsets in the market today: DSP
Communications Inc. Two other potential players, LSI Logic
Corp., Milpitas, Calif., and PrairieComm Inc., Arlington
Heights, Ill., have yet to ship their chipsets, and the days
are apparently numbered for Philips/VLSI.
“We intend to be a strong alternative to Qualcomm,” said
Arnon Kohavi, senior vice president of strategic relations at
DSP Communications, a Cupertino, Calif.-based supplier of
cell-phone chipsets.
Still, there's a cause for concern for OEMs. With Qualcomm
dominating the market, it can continue to command a
premium on its IC products, said Bob Merritt, an analyst
with Semico Research Corp. in Redwood City, Calif.
Qualcomm wouldn't comment on pricing patterns, but it
confirmed that VLSI would no longer be a competitor.
“[Philips/VSLI] no longer has a license,” said a
spokeswoman for Qualcomm, San Diego. “Because VLSI
was acquired by Philips, VLSI is no longer granted a
license” for the chipset technology, she said.
The Qualcomm spokeswoman explained that the terms of
the original licensing deal changed after Philips acquired
VLSI last June for about $1 billion. She declined to say when
the agreement was terminated, but noted that Philips still
has the opportunity to participate in the CDMA-based
chipset market if and only if the Dutch-based company
renegotiates a new contract with Qualcomm.
Philips officials declined to comment.
Analysts, however, believe there were other motives behind
Qualcomm's sudden and surprising move. Clearly,
Qualcomm-the leading supplier of CDMA-based
chipsets-wants to continue its dominance of this growing
and highly profitable segment, said Semico's Merritt.
“However, I am a little surprised that Qualcomm knocked
Philips out of the market,” Merritt said.
“Qualcomm terminated the deal because of competitive
reasons,” said another analyst. “Qualcomm felt that Philips
would become a major threat.”
In fact, there was no indication that Qualcomm would pull
the plug on the Philips/VLSI tandem until now. In recent
weeks, VLSI/Philips officials insisted the company was still
moving ahead in the development and sale of its
CDMA-based chipset line-a highly integrated product based
on the ARM7 RISC chip from ARM Ltd.
Moreover, sources indicated that the VLSI-developed chipset
was in the sampling stage and being evaluated by several
major OEMs, including Ericsson and LG Electronics.
Cell-phone giant Ericsson-VLSI's largest customer in the
wireless-chip market before the acquisition-was a prime
candidate for the CDMA chip-set. The Swedish company
already uses VLSI's chipsets in its GSM and TDMA handset
lines, according to analysts.
With VLSI's strengths in the cell-phone chipset side of the
house, coupled with Philips' leadership position in RF-chip
products, the Philips/VLSI tandem posed a major threat to
other wireless-chip makers, including Qualcomm.
Qualcomm itself has a two-pronged strategy to proliferate its
CDMA technology in the market. On the equipment side, the
company sells a line of handsets based on its own internally
developed chipset. It also sells these chipsets to major
CDMA handset OEMs, such as LG, Samsung, Sony, and
others.
Hoping to proliferate its technology in the market,
Qualcomm in the mid-1990s licensed its chipset technology
to four companies: DSP Communications, LSI Logic,
PrairieComm, and VLSI.
Not surprisingly, Qualcomm dominates the CDMA-based
chipset business, according to Edward Snyder, an analyst
with Hambrecht & Quist LLC, San Francisco. In total,
Qualcomm owned 89% of the CDMA-based chipset market
in 1998, but the company's share is expected to drop to
77% in 1999, and 43% by 2000, Snyder said.
Gaining ground on Qualcomm in the chip sections are two
major OEMs-Motorola and Nokia. However, Motorola and
Nokia separately develop their own chipsets for their own
CDMA-based handsets; the two cell-phone giants do not sell
these devices on the mer-chant market.
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