Thanks for an excellent post. What I like about it is your understanding that other companies have different agendas and strategies based on their differing situations and views of the world.
Intelligent people can disagree, one of them doesn't have to be stupid, and it may turn out that both are wrong.
IMO a central issue is for Q to obtain GSM IP rights economically, so it could produce dual mode ASICs for dual mode 3G phones (GSM+cdma2000/WCDMA). The engineering part is not a major issue in my opinion. Both GSM and CDMA have been working for a long time now so people will be able to engineer it (Q has the edge in CDMA know-how though).
I'm not sure how this can happen, and am very curious how it might work out. GSM IPR is very expensive, approximately 15% for a new entrant if I remember correctly, compared to approximately 5% for CDMA. This worked well to keep GSM manufacturing mostly in Europe because each of the patent holders had cross license agreement with each other, thus giving the a huge margin advantage against outsiders. It gets very complicated and info is available in a white paper at the CDG site:
cdg.org
ETSI maintains a database of patents, SR 000314, allegedly Essential to the GSM Standards. This database contains 140 patent families, covering 369 individual patents, in the ownership of 17 companies. However, it is known that there are at least three other companies who have not, as yet, made licensing declarations to ETSI but claim to own, or control, Essential GSM patents.
Simplifying, there are two obvious choices in getting GSM IPR, buy someone with significant rights, or just pay the royalties. Each has issues:
As in the case with Q's license contracts, buying a GSM IPR holder may cancel their cross licensing agreements with the other holders, requiring a renegotiation with all other holders. This may work out OK if we get critical IPR but will be time consuming, especially since delay will be seen to be in their favor. Plus, one has to actually want the company, or be able to afford it.
Just paying up for the royalties can work, but at 15% will make dual mode phones significantly more expensive than straight GSM. My guess is that GSM phones are subsidized in Europe the way all phones are here. Since the 15% is against the wholesale (or higher) cost, this price differential may be difficult to overcome. A carrier may have to eat much of it to entice change, thus negating the value of doing it in the first place. A catch 22.
This could be easy if Europe wanted to change, but I think we agree they don't and will not line up to make this easy.
IMO, Q obtaining GSM IP licenses, and how it does it, is the key to this story at this moment in time. Irwin has stated many times he is working hard on it.
This obviously is vital to Qualcomm's ASIC business because going forward Qualcomm would very much like to produce and sell dual mode (GSM/CDMA) chips.
It is critical, and it will be hard. The key will be finding a way to make it in someone's interest in addition to Q. But how?
This was not to be (probably) because Nokia wanted to (must) protect its 'hold' on its GSM business as much as possible, and it was not in their interest to embrace cdma2000 the way Qualcomm wants the world to.
I think NOK (and ERICY) is in a good position when Europe goes CDMA because they will make money on each dual mode phone made by a non GSM major IPR holder as will the Q. This will keep Fortress Europe in the game until the very end when they all agree to move together.
If (when) CDMA conquers Europe (via cdma2000 or WCDMA), China would be an automatic convert. The way things look, perhaps China will start on CDMA before Europe. Either way is fine really.
I think China will go CDMA before Europe, though if you are right I wouldn't want to be holding Q LEAPS but rather Q stock because we may not see the big upsurge in price so many see as inevitable in the near-term. I see it as inevitable, but it may take longer than some think. (my only comment on options, I promise.)
Charlie Munger have said that a sign of a good business is that management is constantly confronted with 'good or better' choices to make. This characteristic was demonstrated this week. Qualcomm's CDMA is on a roll, the Kyocera deal is a good one as Ramsey's shy friend explained, however just not the best one possible IMO.
I agree that Q's management has been superb up to know and see no reason for expecting any less of them going forward. |
