DR J on QCOM:
Dr. Irwin Jacobs from 7/7/00 Bloomberg Interview
Q: There seems to be some uncertainty over which version of CDMA will be used in Korea. What is happening?
DR. J: The issue is still to be decided as to which way the companies go and which technology they choose in the new frequency band. Korea is the first to upgrade to 3G technology in the existing band. SK Telecom will deploy 1XMC in 10/00 and Korea Telecom Freetel in 11/00. These services will be available this year and we will see the impact on voice capacity and data rates. The new frequency bands have yet to be awarded or built out. In either case they will be using CDMA. The world is going CDMA and that benefits QCOM in the long run. Any commercial system using CDMA for mobility for will pay QCOM royalties. Many major manufacturers having current CDMA licenses have upgraded to 3G licenses and many more are going to do so.
Q: What is the impact on QCOM if Korea uses WCDMA rather than CDMA?
Dr. J: Royalties will be the same regardless of the flavors of CDMA. From a royalty perspective there is no difference. QCOM's greatest expertise is in CDMA chips and extending it to all flavors will provide a highly superior chip and therefore QCOM will end up with an interesting percentage of the market. In 2003 and 2004 the growth in the CDMA market will be huge and we expect to capture an interesting part of the market.
Q: Do you think QCOM growth in chips will be hurt if Korea goes with WCDMA?
Dr. J: We expect to sell a significant part of the CDMA chips. There is great pressure in Korea for locally manufactured components. There can be over time a decrease in percentage but the market will be growing faster. What flavor of CDMA will not be an issue.
Q: What percent of your revenues are derived from CDMA chips and royalties?
Dr. J: Current revenues - 60/40 chips/royalties
Current earnings – much larger % to royalties
Q: What will change for QCOM if Korea chooses WCDMA?
Dr. J: They are going to 3G this year and CDMA will give operators world wide a huge advantage over other technologies – in terms of both voice capacity and data. We see CDMA giving them the greatest commercial advantage but from a QCOM perspective it doesn’t really matter. Roaming has been brought up as an issue. Roaming will be taken care of before 3G. In that we are already providing the capabilities for cellular PCS and new 3G bands as they become available. Secondly multi-mode across not only across various flavors of CDMA will be straight forward but probably across TDMA used by GSM. Handset manufacturers are providing multi-band phones and will operate in different flavors of CDMA and in the future TDMA. Finally in terms of the two different networks, GSM/MAP and US TDMA/CDMA/AMPS, those two are being connected now. The roaming support issue is going away. Finally looking forward, from my own perspective, data and most voice traffic will go out over the Internet and those are common network protocols and so the differences will become easier to deal with and roaming world-wide will become more generally available because multi-band, multi-mode, multi-network issues are being dealt with.
Q: From a QCOM revenue perspective, is your position that it just doesn’t matter if they choose CDMA or WCDMA?
Dr. J: My biggest concern is that they move to CDMA of any flavor as quickly as possible. Introducing new technology such as WCDMA introduces risk that it could be delayed. Moving to CDMA is only a benefit to QCOM.
Q: How fast is CDMA growing?
Dr. J: We foresee rapid growth in CDMA in US as we go digital by 2002. We are seeing a large market develop for wireless access over CDMA by 2002. CDMA growth will be accentuated in the existing frequency bands over the coming years. As new 3G frequency bands come online where most people are using CDMA that growth will even further accelerate. We see the wireless Internet access market as greatly favoring CDMA and we see it making sense for carriers to go to CDMA earlier rather than later.
Q: Nokia has predicted CDMA to be 20% of 1B handset market by 2002. What percentage of phones
Dr. J: By 2002, 3G will still be a minor factor. CDMA will increase market share in existing frequencies.
Q: How do you view the future landscape for QCOM?
Dr. J: The landscape is positive. We are disappointed that China Unicom has delayed their use of 800 MHz. There has been a debate about what form of CDMA 2000 to use - IS95A as in US and most of world, or IS95B as in Korea and Japan, or 1X as is being introduced in Korea now and US next year. Which brand do they use has caused some confusion because some manufacturers are comfortable with existing technology because they are close to being able to supply it while others prefer to wait and bring up their capability to provide 1X. That’s still getting ironed through. But China and rest of the world is going CDMA.
Q: Who are your biggest competitors?
Dr. J: For CDMA chips there are no significant competitors now but we expect there will be. We see Intel and TI as emergent suppliers focusing on the mobile market. We see vertical manufacturers trying to develop and use their own chip sets. We see the advantages of going with a more powerful chip set and using the expertise of QCOM to make that happen will convert more people to buying rather than building.
Q: Why have QCOM shares fallen?
Dr. J: There is some confusion in the marketplace. The Koreans will expand existing CDMA and go to some flavor of CDMA for new frequencies. There is confusion thinking the existing bands are being converted to some other technology and that is not happening. The on-going confusion in China as to when they will go ahead. It has been delayed and that has hit the stock. What people are losing sight of is the fundamentals: wireless Internet access will be a major growth market, CDMA is by far the best technology for providing data access, and almost all additions to the frequency bands will be CDMA. All that benefits QCOM.
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