Red Herring Interview with Dr. J
CODE DIVISION multiple access (CDMA) is a radio-
frequency communications system based on technology
originally developed for secure transmissions in World War II.
With the vision of developing CDMA
for commercial use, Irwin Jacobs, a former computer
science and engineering
professor at the University of California
at San Diego and the founder of ISP
Linkabit, founded Qualcomm in 1985.
Today it is a front-runner in the race for a
standard platform for global wireless
telecommunications.
Qualcomm, however, has endured a
series of setbacks since January. First, the
Korean government withdrew its sub-
sidies of handsets, which will slow
subscriber growth in that key market. Sec-
ond, a multibillion-dollar deal to license
CDMA to China Unicorn appeared to fall
apart. As if that weren't enough, Global-
star, a wireless telecommunications satel-
lite network that Qualcomm heads, is
looking more like an Iridium every day.
Any company whose stock gains
2,600 percent in one year, as Qualcornm's
did in 1999, will be hard-pressed to dupli-
cate such an appreciation. This year,
speed bumps have shaken investor confi-
dence and sent its stock price plummet-
ing 60 percent with a pinball-like trajec-
tory. Analysts are split on whether these
slowdowns are temporary or long-term.
Chase Hambrecht & Quist analyst Ed
Snyder provides a widespread opinion:
"The company is not in trouble. But the
operational performance has to inform
the stock price at some point. If you
can't deliver on your promises, people
get crabby. That's what we've been
seeing since January first."
We decided to ask Mr. Jacobs,
known as "Dr.J." to shareholders and
employees (he earned a doctorate in
electrical engineering from M.I.T.),
about Qyalcomm and CDMA:
As wireless telecommunication ser-
vices continue to roll out globally, how will
CDMAfare against other platforms?
I think, without question,
CDMA is going to be the dominant
platform. Most of the operators and
manufacturers who haven't se-
lected it in the past are selecting
CDMA. With respect to the dif-
ferent technologies, CDMA has a
very clear path for evolving. In
Japan and Korea, several compa-
nies have rolled out Qual-
comm's IS-95 B, which sup-
ports 64-Kbps service.
GSM and TDMA
won't go away. They will
be used by over a billion
people before anything
else begins to replace
it. But I think that
phones then will become
multimode, multiband, and multi -
network.
The Korean government recently with-
drew its subsidies ofhandsets. How much of
an impact will that have on Qualcomm?
The government basically has said
that the operators can't offer subsidies.
They've done that twice before,
and it had an im-
pact for a month or two, and then went
away fairly quickly. There's some feeling
that this could last longer. If it depresses
demand in Korea, and it will clearly for
the short term, then it affects Korean
manufacturers, and therefore it affects
Qualcomm. I suspect they'll try to
make up for that to a certain
extent through increased
exports. The other thing
that's happening is the transition to
Qualcornm's thirdgeneration IX multi-
carrier MC technology, which has
higher data rate capabilities. I think
operators will be pressing customers to buy
the IX handsets early.
We have heard conflicting state-
ments about China Unicom eventually
adopting CDMA. Can you shed some
light on the status of that situation?
Right after we signed the licensing
framework agreement and had our celebrations,
there was a slowdown in allowing
us to move ahead with that and a slowdown in the
procurement of equipment by Unicom to go in their
8oo-MHz CDMA band. The reasons
had to do with preferred outside trade
agreements. They originally announced
that they would try to have infrastructure
for10 million subscribers by the end
this year. I think it's clear that thats
not going to happen. I think the government
is still trying
to sort out the right way to proceed, par-
ticularly after this quite successful IPO
by Unicorm. In the interim, we're taking
the steps to work with the manufacturers
there to make sure that they are prepared.
We've signed agreements with eight
manufacturers at this point.
Is there any truth to the rumors of a
merger with Nokia?
I have absolutely no idea how that
rumor got started. I will again say there is
no truth to it.
What is the status of Globalstar?
It's obviously out there operating
commercially. Quality is excellent. We
will very shortly be providing commer-
cial support for low data rate communi-
cations. So it's moving, but I would say
the buildup in subscribers has been
slower than we'd like to see. Iridium cast
a little bit of a shadow on this whole area.
The key items are conserving cash, doing
things carefully, and allowing that sub-
scriber base to build and move toward
cash breakeven.
How do you feel about Qualcomm's
stock performance over the last few months
and the future of the company in general?
Clearly there have been quite a few
fluctuations. It's always more fun when it's
fluctuating up than down. Wireless Inter-
net access is going to be a major opening for
the entire industry. Since CDMA sup-
ports wireless Internet access so well, I see
it being a great boon for manufacturers and
users. The phone is also going to evolve. It
will become for many people their com-
puter. There is a huge set of opportunities
looking forward. |
