A Qualcomm Spin For GSM
By Peggy Albright
Qualcomm, the unmovable technology giant that went against much of the world to push for its proprietary CDMA technology,
last week changed its tune so it could join the GSM club.
The company announced that it will split in two. The parent, still called Qualcomm, will function primarily to maintain its CDMA
intellectual property rights while investing in more royalty-bearing ventures. The new company, called Spinco for now, will
house the semiconductor and system software business, including position location products developed through SnapTrack,
which Qualcomm acquired last year.
Qualcomm acknowledged the split was needed to eliminate business barriers caused by having the two entities under one roof.
Patenting technologies and licensing the intellectual property rights are by definition protective processes. But selling goods to
technology partners often involves cross-licensing IPRs in a cooperative, royalty-free fashion. Having both licensing and
technology sales functions under one roof creates a house divided against itself.
For Qualcomm, the spinoff couldn’t be more timely. International interest in the GSM-favored, third-generation technology
known as W-CDMA comes at the expense of Qualcomm’s preferred choice, cdma2000, and it can no longer hold an
isolationist position. Its semiconductor business needs to make inroads on the GSM community, and fast.
While Qualcomm will receive royalties from W-CDMA phones, it profits less from that technology than from cdma2000. And
as long as it doesn’t have cross-licensing agreements to develop GSM products, it cannot develop market share in that industry
nor develop multi-mode technologies that will enable global roaming from 3G systems.
And Qualcomm has watched its global prospects for cdma2000 technology diminish this summer as both China and South
Korea became more friendly to W-CDMA. South Korea, which generates more than 20 percent of Qualcomm’s chipset
revenue, already dented Qualcomm’s forecasted income when in May it banned handset subsidies.
Japan would have posed yet another problem for Qualcomm, which this new spinoff could serve to avert. With NTT DoCoMo
claiming to launch W-CDMA next year, the country will be turning out new 3G terminals–the first the world will see.
“They were encumbered by the parent in terms of being able to go out there and get GSM technologies,” says Deutsche Bank
analyst Brian Modoff. “Now they’re not.”
Citing the handset subsidy problem and lack of new cdma-One markets, Credit Suisse First Boston estimates Qualcomm will
see a 20 percent to 25 percent year-over-year decline in chipset revenue for September. It downgraded Qualcomm’s stock
from “buy” to “hold.”
But will an independent identity and name be enough to overcome previously difficult business relationships between Qualcomm
and the GSM companies that could not deal with it before? Leap Wireless, carved out of Qualcomm in 1998, does not seem
to suffer from its Qualcomm legacy. The carrier is proceeding apace to expand its low-cost Cricket services here in niche
markets under the leadership of Harvey White, himself a former Qualcomm executive.
“I know there is some anti-sentiment,” acknowledges Richard Sulpizio, who is leaving his position as president and COO at
Qualcomm to take the CEO job at Spinco.
But he says the company’s semiconductor products and business performance are proof that it’s a viable company that will
succeed. His examples: The company is in its sixth generation of chipsets and already has shipped more than $100 million of
these goods. It has never missed a shipment. “People who know us as a technology, from a chip point of view, respect us,” he
says.
Whether that respect will be enough to garner membership in the coveted GSM Club is another matter. |
