SAN DIEGO, Sep 25, 2000 (AP WorldStream via COMTEX) -- The idea struck Irwin Jacobs in a flash: Take an
obscure process used in military communications networks and turn it into a bedrock technology for a new generation of
cellular telephones.
It was an idea that ultimately could make cellular networks cheaper to operate, more dependable and capable of
delivering the Internet at high speeds.
Since that moment of inspiration in 1985, Qualcomm Inc. has become the world's leading developer and an unflagging
cheerleader for a technology known as CDMA, or Code Division Multiple Access.
Exuberance about Qualcomm's role in the wireless world to come sent shares up more than 20-fold last year, making it
the fastest-rising stock on the Nasdaq Stock Market. But that was before setbacks in Asia and slower-than-expected
acceptance of Qualcomm's current generation technologies knocked shares down from dlrs 200 in January to its current
dlrs 70 range.
Yet if Qualcomm makes the right moves, it still stands to profit handsomely from the rollout of so-called third-generation
cellular systems that will offer users high-speed Internet access, streaming video and other features, analysts say.
Ultimately, the extent to which Qualcomm cashes in on the wireless market's explosion depends on a successful defense
of more than 1,000 technology patents it owns or has filed, and its ability to continue exacting royalties at favorable rates.
As wireless carriers move to so-called third generation technology, chips based on some form of CDMA could become
a ubiquitous feature of cellphones and other handheld devices.
Sprint and Verizon already have deployed CDMA networks in the United States. Other companies in the United States
and abroad are developing telephones and other equipment.
At current market rates, patent royalties from CDMA licenses will bring Qualcomm dlrs 3.1 billion a year by 2005, up
from an estimated dlrs 632 million in 2000, according to a forecast by Prudential Securities Inc.
That compares to revenues of dlrs 3.9 billion generated by all of Qualcomm's businesses, including royalties, license fees,
chip sales and its OmniTracs fleet tracking service, during fiscal 1999.
"In the long run Qualcomm is considered really the company to watch," said Sean Batting, an analyst with Carmel Group.
"They're positioned in the industry in a very strong way."
The current market rate gives Qualcomm about 4 percent of the wholesale price of each cellular phone that uses its
technology, said Pete Peterson, an analyst with Prudential Securities Inc.
Qualcomm last month announced it will spin off its chip manufacturing operation, which accounted for about a quarter of
all revenues in fiscal 1999. The spinoff, once completed, will allow Qualcomm to focus on patent development and
licensing.
The new company, temporarily called Spinco, will be in a better position to cross-license its product to meet both
European and American standards for next-generation CDMA chips.
Qualcomm also is pushing a new, high-speed wireless Internet technology, High Data Rate, which can deliver Web
access at speeds up to 2.4 megabits per second - twice as fast as a typical DSL connection - to users in a moving
vehicle.
So far, the biggest battle Qualcomm has won was its fight to make CDMA the standard technology for new generations
of wireless networks.
CDMA is one of several versions of a technology known as spread spectrum because signals are broken down into
packets that are coded and scattered across the radio spectrum.
Since World War II, the U.S. military has used spread spectrum systems, including CDMA for secure radio
communications because the signals are difficult to jam.
Early pioneers of spread spectrum technology included the late actress Hedy Lamar, the star of such films as "Tortilla
Flat" and "Samson and Delilah" and one-time spouse of Austrian munitions magnate Fritz Mandl.
In 1942 Lamar and composer George Antheil were granted a U.S. patent for a spread spectrum device that would allow
torpedoes to be controlled by jam resistant radio signals. The patent was never used, but the use of spread spectrum by
the military and in commercial satellite networks grew.
In 1985, Qualcomm was working with Hughes Electronics to develop a CDMA-based satellite communications system
when it suddenly occurred to Jacobs that CDMA would work well in a land-based commercial, cellular network.
Jacobs is surprised by the success of Qualcomm, created as a sort of retirement project in 1985. Three months earlier,
Jacobs and his partners sold Linkabit, a San Diego-based defense contractor that they had founded in 1980. Jacobs
made dlrs 25 million on the sale, and was looking for a way to keep busy.
A former engineering professor, Jacobs considered a return to teaching when he decided instead to join some old
Linkabit colleagues and form a new company.
They started out in offices above a pizza restaurant in a San Diego strip mall. Qualcomm now employs nearly 10,000 and
has offices in 14 countries.
"I've always found that the most fun comes by working with people and creating products," said Jacobs, who owns just
under 4 percent of Qualcomm. "We never really anticipated we would come up with a number of very good ideas that
would turn out so well."
By MICHAEL WHITE AP Business Writer |
