Mq,
<< Possibility of Q! selling ASICs division. No bad thing in my view. >>
You may be right. My initial reaction was negative to this idea, but the more I think about it ...
... and your thought encouraged me to go back and reread the cover story from the March Issue of Cahners "Electronic Business" Magazine called "Meet the new Qualcomm" that addresses the issues and challenges that Qualcomm faces in the ASIC arena. I've clipped a few applicable sections below:
eb-mag.com
>> One reason for the enthusiasm is that by concentrating on CDMA semiconductors and software, instead of phones, Qualcomm will become far more profitable. While the handset business has been a persistent money loser, Qualcomm's CDMA application specific integrated circuit (ASIC) business earned a pre-tax profit of $428 million in fiscal 1999 on sales of $1.13 billion. Licensing its CDMA technology raked in another $454 million last year, most of it pure profit. Together, the two businesses achieved an impressive 52% profit margin before taxes.
Qualcomm also dominates the CDMA chip business, worldwide, with 66% marketshare, even including the chips that Nokia and Schaumburg, IL-based Motorola Inc. make for their own use (see chart, page 60).
That market share is almost certain to fall, because of competition from newcomers such as Milpitas, CA-based LSI Logic Corp. and Cupertino, CA-based DSP Communications Inc., a unit of Intel Corp. Yet CDMA is an extremely complex technology and Qualcomm's head start is so large it's likely to take years for potential chip rivals to erode its leadership.
"Qualcomm is the competition as far as I can see it," says Greg Helton, director of LSI Logic's wireless products strategic business unit. "They want to be the Intel of wireless communications."
<snip>
COUNTING ON CHIPS
That sort of rapid growth will be crucial to support Qualcomm's transition from phone maker to designer of chips and software. To its credit, the company already has shipped more than 100 million CDMA chips. While most competitors are just reaching the market with their first CDMA devices, Qualcomm has already begun shipping samples of its seventh-generation MSM5000 CDMA chipset, a transitional step toward the full CDMA 2000 standard and the first available 3G technology.
Qualcomm relies on Taiwan Semiconductor Manufacturing Co.,IBM Corp., Intel, Texas Instruments Inc. and others to fabricate its chip designs. Last year, Qualcomm vaulted past San Jose, CA-based Altera Corp. to become the world's largest fabless chip company. Being fabless keeps it nimble and saves it the huge cost of building manufacturing plants. Yet as CDMA volumes rise, integrated chip makers like Intel and LSI Logic may gain advantages by deriving benefits from their manufacturing expertise.
Another newcomer with the potential to become a heavyweight is Eindhoven, Netherlands-based Philips Electronics NV. Last year, it bought CDMA chipset maker VLSI Technology Inc., and has been haggling with Qualcomm since then over the transfer of VLSI's CDMA technology license from Qualcomm. Motorola, an early CDMA licensee, could decide to begin selling its chips to outside customers, although thus far it has not met even its own internal needs. One company that doesn't look like a competitor is Kyocera, which has agreed to continue buying Qualcomm's CDMA chips for at least five years.
Qualcomm had little choice but to make its own CDMA chips, and license its technology to other chip makers, until the market took off. But it's not clear whether it can continue doing both over the long term.
Will Strauss, president of Forward Concepts Co., a Tempe, AZ, market research firm, sees inherent conflicts between Qualcomm's own chip business and its CDMA licensing. "They're competing with their ASIC licensees," he says. Strauss sees Qualcomm's business strategy as not quite like Intel, which tries to dominate production of a key technology component, nor like that of U.K.-based ARM Holdings PLC, a "chipless" semiconductor company that derives revenue almost totally from technology licensing. "There are no models for what they're doing, none whatsoever," he says.
Jack Quinn, president of Micrologic Research, says he expects Qualcomm to eventually get out of the CDMA chip business and rely mostly on license and royalty revenue. "Right now there's a good markup in [CDMA chips], but it won't always be that way," he says. "That chip business is going to be dog-eat-dog."
Qualcomm's Jacobs concedes his company has created numerous competitors for its CDMA chip business. Yet he has every intention of keeping Qualcomm's chip business out in front. "We've got a very good lead as far as CDMA is concerned and we're working hard to extend that lead. . . I don't see us selling that business." <<
Interesting premise in the evolving Qualcomm world. If Jack Quinn's expectation becomes reality maybe sooner is better than later. That thought crossed my mind when I first read this article, and I have pondered the issue of their competing with their ASIC licensees many times.
As far as Dr. Jacobs saying, "I don't see us selling that business", I think I have heard that before.
I have learned to respect Dr. Jacobs judgement, and I think he will make the correct decision, at the right time, at the right price, and with the right partner.
- Eric - |
