Transcript of Dr.J interview on 7/7
Interviewer: There seems to be uncertainty now over which cell phone
standard will be ultimately used in Korea. Which version of CDMA which
QUALCOMM developed, either WCDMA which is a standard favored by Ericsson
and Nokia or CDMA which seems to be your favorite standard. What do you
think is happening there?
Dr. Irwin Jacobs: Well first of all, I think the issue in Korea is still
to be decided as to which way the companies go, which technology they use,
but that's in the new frequency band, the 3G frequency band, that is yet to
be awarded. In the existing frequency bands, they continue to use our
existing CDMA technology and indeed they are the first to upgrade to
third-generation technology in the existing band. SK Telecom has announced
that they will be providing the 1xMC technology roughly in October this
year and KT Freetel in roughly November this year and so the very first
third-generation technologies will be based on our 1x technology will be
available this year. We'll be able to see the impact of that great
improvement in both voice capacity and data rates before the end of this
year in Korea. Now in the new frequency bands which are yet to be awarded
and will be built out etc., in either case they will be using CDMA, and
whichever flavor of CDMA it is, we're quite pleased with the fact that most
of the world is going CDMA and that can only benefit us in the long term.
Interviewer: And that's because you earn royalties on all CDMA used?
Jacobs: Right. Any commercial CDMA system for mobility users has to use
our technology and we have licenses with most of the potential
manufacturers. Many are upgrading those now to 3G. Many have already done
so.
Interviewer: What's the difference between WCDMA as opposed to
cdma2000? In kind of basic terms and what do you think it would mean for
QUALCOMM if Korea chooses WCDMA as opposed to cdma2000?
Jacobs: Well first of all from QUALCOMM's point of view, the royalties
will be the same regardless of which flavor of CDMA is used in the new
frequency bands in the future and so that's not a great issue. With
respect to the chips, we currently have the greatest expertise in
manufacturing CDMA. WCDMA or Direct Spread, whichever you wish to call it,
or the Multi-Carrier technology are CDMA. It's not the TDMA used in
GSM. It's completely, completely different from that. It's CDMA and we
have the greatest expertise on CDMA chips and we are extending that to all
flavors of CDMA and so those small changes in the different flavors are
ones that will be accommodated in our chips and we expect our expertise
will in fact ensure that we provide a highly superior chip and therefore
end up with an interesting percentage of the market. The interesting
aspect though is that as we go ahead into 2003, 2004, that much of the
world is going to CDMA in the new frequency band and therefore the growth
in the CDMA market is going to be huge and we expect to capture an
interesting part of that market.
Interviewer: Do you think that growth for chipset sales for QUALCOMM will
be hurt at all if Korea does decide to go with the WCDMA?
Jacobs: We expect to be selling a significant part of the CDMA chips. We
think that there is great pressure in Korea whichever flavor they go with
to have some part of their chips be locally manufactured as opposed to
manufactured or bought from other companies and so we think there can be
over some time, a decrease in our percentage, but the market is going to
grow much more rapidly. Which flavor it is I don't think will be a great
issue.
Interviewer: How much revenue do you earn from licensing CDMA technology
and how much from sales of cdma2000 chips?
Jacobs: It really depends on the time period, etc. Probably on a revenue
point of view, it may be in the order of 60/40 chips to royalties and
licensing. On a bottom line, it probably is a much larger percentage from
the royalties side of things.
Interviewer: What will change for QUALCOMM if Korea does chose WCDMA as
opposed to cdma2000?
Jacobs: First of all, the main change for QUALCOMM is a great one which is
the fact that they are going to third generation this year and that will
give all CDMA operators worldwide a huge advantage over the next couple of
years over other operators using other technologies. They will have the
high data rates, the higher capacity, all of the advantages of CDMA. Then,
as other operators and manufacturers begin to introduce CDMA, that only
grows the market and so we see that as being a win-win situation. The
flavor is not that critical. If you ask me which one I think would be at
the greatest advantage to them at this point given their experiencing using
the 1x technology and looking at the greater efficiencies of 1x technology,
both the 1xMC and our new HDR technology, I would say that they have a
great commercial advantage using those technologies.
But from our own revenue and profitability point of view, I don't think
it's critical. There is an issue that's been raised about roaming
worldwide. I think the roaming issues will probably be taken care of
before we get to third generation in that we're already providing the
capabilities, and in many cases providing multi-band phones. The
manufacturers are providing multi-band phones that operate in the cellular
with PCS and will operate in the new 3G bands when those become
available. Secondly, they'll be multi-mode so they'll operate not only
with different flavors of CDMA which is relatively straight forward but
also probably with the TDMA mode used by GSM today and so you'll see the
multi-mode phones which allow worldwide roaming and finally the two
networks that exist in the world today, one in which GSM is based, GSM MAP,
the other in which U.S. TDMA, CDMA and AMPS are based, ANSI-41, those two
are being connected now and so that the roaming support because of having
two different networks, that issue will go away. Finally, looking forward,
my own belief is that most of data and most of the voice traffic going out
into the future will go over the Internet and those are common network
protocols and so the issues of the differences will become even easier to
deal with. But I expect that roaming worldwide will become just more and
more generally available for those that wish it because the multi-band,
multi-mode, multi-network issues are now being dealt with.
Interviewer: So you think from a revenue standpoint for QUALCOMM, it
doesn't matter whether cdma2000 is the one chosen or WCDMA is?
Jacobs: I think the most important thing to QUALCOMM is that people move
to CDMA as quickly as possible. My major concern would be that in
introducing a new technology such as WCDMA, the risks are a bit
higher. The delays could be there and therefore we'd see a slight delay so
that is a risk. But as far as people moving to CDMA, that's only a benefit
from our point of view.
Interviewer: What do you think the market is for CDMA? How fast is it
growing and what are we going to see as far as cell phones using the
standard in the future?
Jacobs: Well in existing bands, I think you will see very rapid growth now
in CDMA in the U.S. as we go more and more to digital. I think we are
beginning to see a market develop, and by 2002, I think we'll be quite
large for wireless Internet access and that by far favors CDMA. I don't
think there is really any competitor that's credible at this point and so I
think that means that CDMA growth will be accentuated in the existing
frequency bands over the next couple of years. Then as new frequency bands
become available in the third generation, where most people are using CDMA,
that growth will even further accelerate and so we see the increasing
market for wireless Internet access as greatly favoring CDMA and the fact
that everybody will be going, well almost everybody in the future, going to
CDMA in the new frequency bands means that it probably makes a lot of sense
to go to CDMA earlier rather than later.
Interviewer: CDMA phones right now are about 20 percent of the cell phone
market and I think Nokia has predicted a billion cell phone users by
2002. What percentage of phones do you think by then will use CDMA technology?
Jacobs: By 2002 I think the third generation will still be a minor factor
and so it's the growth in CDMA in the existing frequency bands through 2002
that will guarantee the billion, billion plus number of subscribers and we
think that CDMA will continue to increase its market share. Then as we
move beyond 2002 and aim towards that second billion of users, just about
everybody will be adding new capacity through CDMA and so the growth will
be even faster.
Interviewer: What do you think are the prospects for cdma2000 in Asia now
or even worldwide? There's been what some folks call setbacks for QUALCOMM
with China United Telecommunications agreement unraveling and South Korea's
government decided to end cell phone subsidies, what does the landscape
look like now?
Jacobs: Again, I think the landscape is positive. I'm disappointed that
there has been a delay in China, with China Unicom delaying their move or
their use of the CDMA 800 MHz spectrum, but I think that's
temporary. There has been a debate as to which form of cdma2000 to
introduce. Whether it's the 95A which is mostly used throughout the world,
95B which is being used in supplying the 64 kilobit per second service in
Korea and in Japan right now. Whether 1x technology that's being
introduced in Korea before the end of this year and in the U.S. throughout
next year ... I think that will cause them some confusion. Some of their
manufacturers preferred the existing technology because they were already
very close to being able to supply it. Others prefer to wait and bring up
their own capability to supply 1x technology and that's still getting
ironed through. Again, China will be going CDMA as is the rest of the
world and I think it will be happening sooner rather than later.
Interviewer: Who are your biggest competitors now?
Jacobs: Well on the chipset side in CDMA, there aren't any significant
competitors at the present time but we certainly expect there will be. We
see Intel and TI, as far as merchant suppliers, focusing a lot on the
mobile market. We'll see vertical manufacturers - that is some
manufacturers trying to develop and use their own chips and continue to
take part of the market. But I believe that more and more the advantages
of going with a powerful chipset, in particular using the CDMA expertise
that QUALCOMM has, will convert more people to using chips that they buy
rather than they develop themselves and therefore even further expand that
market.
Interviewer: Your company's shares were the best performing in the S&P 500
last year and now they're near the bottom of the list for this year's
shares, for a little bit today I think on fears of slowing sales or growth
for cdma2000 in South Korea. Why do you think that shares are falling today?
Jacobs: Well, I think there is some confusion in the marketplace. Again,
the Korea companies are moving to CDMA, adding 1x capability in existing
bands. They're not changing that at all. And over the next years, we
think that is going to be going very rapidly and then they will be going to
whichever flavor of CDMA they select. I don't think that's decided yet,
but it's a not a great issue and so I think there's confusion thinking that
the existing bands were being converted to some new technology. That's
certainly not the case. They are being converted to our 1x
technology. That will happen rapidly and I think cause great growth and so
that's positive. And there's been the ongoing confusion in China as to
when they will move ahead. It has been delayed from the original time so
obviously that's hit our stock also. But I think what people are losing
sight of are the fundamentals; mainly, wireless Internet access is going to
a major growth market, CDMA is by far the best technology for providing
that and that over the next few years almost all new additions certainly in
the new frequency bands will be with CDMA and all that benefits QUALCOMM. |
