Meeting notes - Part 1 - Dr. Jacobs
Qualcomm 2003 Shareholders Meeting
San Diego February 11, 2003
qualcomm.com
I have made some notes from the slides, which are available on the Qualcomm website. qualcomm.com Thus, the first paragraph under many of the slides is my summary of the slide – except where I note the speaker’s initials. The rest of the material is from my notes of the webcast except where otherwise indicated (usually by brackets). My notes are not verbatim and I often use “…” to delete less important material or to indicate places where I could not hear the webcast clearly. I generally have excluded the financial material since it has been dealt with elsewhere recently. I have bolded statements I thought were new or particularly interesting. If you listen to the webcast, I highly recommend the RealAudio version since the Windows Media version was constantly buffering. Both of them still have a background noise.
Dr. Irwin Mark Jacobs – CEO
[Dr. Jacobs handled the formal part of the meeting, introduced the directors and thanked retiring director Jerome Katzin. Citing sufficient cash flow and strong balance sheet, Dr. Jacobs said that the company would pay its first quarterly dividend of 5 cents a share (payable March 31st to shareholders of record March 14, 2003) and had authorized the repurchase of up to $1 billion of stock over the next 2 years.]
Slide 4 – Qualcomm Reporting Segments
IJ: We continue to provide market leading technology. We always have focused on being an innovative company, a company that brings new innovations to the market. One way that we can best to that is to put those quickly into the chips and software, make those available to manufacturers around the world and that way get these developments to the market in the broadest way possible very quickly. So that is a very strong part of our strategy going forward…
[Re QSI] Some of the larger investments that we have made in the past are now done. CDMA is spreading pretty much worldwide. Although there will be additional investments, probably the total dollar volume will be coming down. As a result, that gives us flexibility for dividend and stock buyback…
We also have Qualcomm Digital Media; part of that involves digital film – the ability to distribute and project films digitally. The studios are now kind of sorting through how they are going to move forward and how these various projectors will be paid and I am sure in a few years just about all the movies you’ll see in major theaters – probably around the world – will be distributed, projected digitally and probably also be taken digitally – so a very interesting area although certainly not of the size of our CDMA technology.
Plus we’re very busy these days on the government side. A lot of the products we developed for commercial use are now applicable to various government needs.
We are working with the government to support that both on the defense side and on the homeland security side.
Slide 5 – EMC CDMA Subscribers Worldwide 143 Million (December 2002); EMC GSM Subscribers Worldwide 792 Million
As of December 2002, EMC says there were 143 million CDMA subscribers and 792 million GSM subscribers worldwide. CDMA has a 13% penetration of worldwide wireless [which would include TDMA and other technologies too]. The slide lists the top 10 CDMA Carriers, led by Verizon, SKTelecom, Sprint, KDDI, KTFreetel, China Unicom.
… One of the more recent additions to the list [of the top CDMA carriers] is China Unicom – it’s been growing very rapidly. I suspect that next year we’ll also see Reliance, an Indian company, on that list.
Slide 6 – CDMA versus Non-CDMA Handset Growth
Based upon an average of 4 industry pundits, this slide shows that CDMA is projected to grow 33% compounded per annum from 2001 through 2005. All of wireless growth is coming from CDMA as the same slide shows that non-CDMA handset sales are basically flat in the 324-329 million range except for slight blips to 359 million in 2003 and 351 million in 2004 before falling to 329 million in 2005.
They [referring to the pundits listed on the slide] actually underestimated the number of handsets by small amounts in each of the last two years and we’re estimating a little bit larger numbers for this year. But their projections are certainly very positive and we are going to work hard to continue to achieve those projections.
Slide 7 – Qualcomm CDMA MSM Chip Shipments – Calendar Year
1x chipsets were 72% of 2002 CDMA handset chipsets but should be over 85% in 2003.
The Q2 that we are now in we expect also to be quite strong [regarding chipset sales]… [The 85% figure for 1x shipments in 2003] is indicating a very rapid changeover of operators from second generation to third generation technology. Indeed, if you look around the world, you see that just about all of the second generation CDMA operators now are launching their commercial services with third generation CDMA20001x. “1x” means by the way that from a radio point of view it uses exactly the same radio frequencies – bandwidth that the second generation used and that’s one reason that we have been able to get that out to market very rapidly…
1xEV-DO – our high data rate technology – is, I believe, going to be showing some significant growth this year – being pressed very hard in South Korea, in Japan and is being trialed by a number of other operators.
Slide 9 – Cumulative U.S. Patents
Qualcomm now has 936 issued patents in the U.S. and 2,655 Total [including patent applications I assume]. It has been averaging over 200 new applications per quarter.
We continue to stress innovation within the company. We started, of course, with a very early lead on CDMA. Most other companies did not think it would work – did not think it was promising – thought TDMA was the future, not Code Division Multiple Access. We’ve been working on that and clearly the world is now coming our way… In a sense we are trying to stay several steps ahead of the companies in the rest of the world… There’s always the question, “Are you patents about to run out?” The answer is, “They do have a finite life but one keeps adding patents and, as long as the licensee uses one claim of one of our patents, they will continue to pay agreed upon royalty rate.”
Slide 10 – Signed Over 55 UMTS/WCDMA License Agreements; Same Royalty Rate by Manufacturer Regardless of Standard
This lists some of the leading licensees.
Slide 11 – 3G CDMA Evolution
This slide shows 1x Antenna Diversity – another doubling of voice – coming in 2004 and 1xEV-DV coming in 2005. It lists examples of what is coming next for 1xEV-DO, including broadcast, push to media and forward/reverse link enhancements (capacity increases).
[Re 1xEV-DO]… The high data rates are not often required for applications – you can get by with lower data rates. But with the high data rate, you can handle more users with the same infrastructure; the cost is lower – much less money in providing this data capability. Various carriers .. see the build up of their [1x] business with data; they are now beginning to add 1xEV-DO capability to support this lower cost of data.
In addition, we continue to provide further enhancements. We provide capacity enhancements… Push to Media you might think of as: join a chat room, push a button and you can show one of the pictures that you’ve taken to the rest of the group and then they, of course, can send them back to you, etc. – it’s kind of a group capability that many are interested in these days. Broadcast capability: .. you can receive broadcast video clips – to make that lower cost …. A great deal of development activity is still taking place.
On 1xEV-DO, we are just beginning to see the build-up on our initial chips supporting that technology – using our 5500 chip – we’re now also launching the 6500 chip. A key enhancement in the 6500 is considerably more computing power on chip – you can support a whole variety of high powered software applications. There’s a whole number of 1xEV-DO devices… One of the things I often do these days at meetings or cocktail partiers or wherever is take out an EV-DO phone, take a video, and then show that video immediately and, of course, with the EV-DO service, it can be transmitted to other users anywhere in the world.. – to PCs or ..to EV-DO phones as well.
Slide 14: Qualcomm CDMA Products and Expertise Leveraging WCDMA (UMTS) Development
The slide says that Qualcomm has the world’s first and only fully integrated multimode UMTS/GSM/GPRS solution and is in the lead for UMTS verification.
WCDMA had been late to the market. It’s late to market in the sense of what a number of companies had claimed – 2001, 2002. We have been anticipating significant growth in WCDMA in the 2004-2005 time period so in a sense from our point of view – although one can hope and we are working very hard to have it sooner – it’s about on the schedule that we anticipated.
We have a very effective chip out that supports WCDMA now being built into a number of the commercial phones and, because of our great experience on CDMA2000, we have the expertise needed to do the WCDMA; there are some parameter changes – some detail changes – but basically, of course, it is CDMA and that gives us a great advantage over others who are now trying to enter the CDMA chip business but have to, in a sense, start almost from scratch. Also, we have additional capabilities on board all of our chipsets, including the WCDMA chipset.
So we are trying to take advantage of our capability of designing functions across the full range of chips that we provide. Again, this is leading to a whole range of new and exciting devices … position location.. and a variety of located based services. Cameras have turned out to be very popular in countries where they have been launched – video cameras – now video streaming. In fact, I think I saw the first phone video to be delivered – I think it was by SK Telecom in Korea; it’s designed to allow you to receive this film or video in several parts on your phone.
Slide 16 – CDMA Chips to Supply All Networks: Global Roaming Now Supported by radioOne Technology – Multimode, Multiband, Multinetwork Chipsets
IJ: One of the problems with the cellular business is that it’s not a single standard worldwide. I think it’s very safe to say there never will be. There will never be a single frequency band for the cell phone to use and there will never be a single standard. The reason for that is not that people won’t try but you always have a number of phones already out there in the existing generation – for example, something over a billion users right now on second generation. And so third generation is coming in strongly on the CDMA side – gradually transitioning over – but for at least another decade you’ll have many of those users stay on second generation. In addition, by the time that decade is over, the third generation will continue to evolve and have new capabilities. Further, there will be other frequency bands that become available. And so one needs to support that.
The way to support that is to have the chip – which luckily has more and more capability because of the increase in the number of transistors you can put on these chips – have the chip have the responsibility of picking the right technology and the right frequency band for the subscriber in accordance with the wishes of the company to which that subscriber is in service. And so we are now shipping those chips that support, for example, various CDMA technologies as well as GSM/GPRS. We’ll see the first phones shipping at the end of the summer – beginning of the fall. That’s going to in a sense change very much the way people look at cellular; right now you have to worry about which type of phone and what kind of quality you get depending upon location. These phones with these chips will be truly world phones; they indeed will work everywhere.
We are continuing to evolve those, providing more and more capability. The 6250 chip which will be coming out later this year will support WCDMA/GSM/GPRS but also will have on board an advanced processor similar to the ones we are not shipping on our CDMA2000. We are also going to have the 6500 chip coming out supporting GSM/GPRS but also supporting 1xEV-DO and the 1x technologies all on the same chip but again combined with even more powerful capability for the processor. So each of these allow the phones to become more and more capable and hopefully provide things that you find interesting and useful.
Slide 17 – RadioOne – Zero Intermediate Frequency (ZIF) – New Radio Architecture
IJ: The radio frequencies used actually occur in different frequency bands in different parts of the world and so the phones have to operate in these different frequency bands. That has to be done less expensively, requiring less power, very flexibly. We’ve introduced in all of our 6000 series of chips – and most of our chips now shipping are rapidly switching over to the 6000 series – our Zero Intermediate Frequency. That allows again great flexibility in the choice of frequency band but also lower cost, lower power, smaller size and additional capabilities – supporting our global positioning system, frequency path and supporting perhaps some of the local area network frequencies as well.
Further, we are enhancing the capacity and allowing one as you go from one system to another to look for that new system, finding that you often need a second radio frequency path within the phone and the ZIF technology does allow that to occur. For example, the 6500 chip will support two antennas – two radio paths come into the chip, therefore improvements in quality and capacity for voice and data.
We continue to move ahead – better price, cost point as well as additional services. Now because of the ability on each chip to provide very powerful computers – and we are now going into the next phase of increasing our computing power – [reviews usual slide re multimedia, connectivity etc.] The phone is becoming a very powerful computer and for many of us it probably will support much of whatever we need to do on computer. And so that opens up all of these possibilities.
Of course, one of the most exciting parts is including on the chip the gpsOne capability.. Every CDMA phone will be a global position satellite receiver – some non-CDMA phones as well – we hope that continues to build up. They will operate ever better than a stand-alone receiver because of the ability to receive information over the wireless link. In the U.S., there’s a requirement for e-911 – when we dial from a wireless phone the emergency number, the person receiving the call can immediately determine where you are, direct the call to the station closest to you and they can know exactly where you are and can provide that service – a great safety enhancement. Those capabilities are shipping. The various safety authorities are over the year coming up to the position where they have upgraded their equipment to be able to handle this information. I think that will drive many people to have a phone for the youngsters … just the ability to know where they are will become important. That capability already is being well received around the world. We have already sold over 10 million gpsOne capable phones so now it’s just a question of getting the infrastructure and the safety and location based applications available to make these very widely desirable.
Slide 19 – BREW Device Architecture
IJ: With all the capability of the chips, the question is how do you get the software – do you have to build it all into the phone in advance? And the answer with the technology we call BREW is “No.” You can download a variety of applications to the phone after its already gone.
In the lower right area [on the slide] is the system software that we ship with all of our MSM chips. Just above that is a thin layer we call the BREWapi which is also now being shipped with all of our chips and then supports downloaded applications to the phone on top of that BREWapi and also download other extensions that may be required by the operation – browsers, video phones – all of these things are evolving very rapidly…
Now you can provide additional capability to the phone in real time. The manufacturers greatly benefit because these various modules, including the user interface, are ones that they can then load on after they’ve done their basic development and test of the phone, making the time to market – the cost of bringing a phone to market – much lower. Further there may be some applications that you call for that may not be supported initially by the phone. For example, you might request an application – not knowing it – you won’t know the language of the application – written in JAVA in which case automatically it will download that virtual machine extension to the phone and then the JAVA application that you requested. If you request another one, you don’t have to download the virtual machine again…
And so, a great capability for upgrading phones, doing it across all the various technologies and so operators, regardless of technology and as they upgrade their technology, can with BREW have a very powerful capability.
Slide 20 – Even Across Air-Interface Technologies
IJ: The interesting aspect also is that there are a variety of phones from low-cost entry level with some data capability and memory up to very elaborate phones and BREW will support capabilities across these. You may get a slower game playing on a less expensive phones but you’ll still get many of these applications to run on all the various phones.
Slide 21 ESPN and Disney BREW Games
IJ: Now many of the various content suppliers, game developers are noticing that this market is indeed a very large market, a growing market, one that will be larger probably than any other way of delivering content, data, games, applications to users. So we are seeing people enter this – ESPN, Disney – various games that are popular now available by BREW downloads from companies such as Verizon – also available in other countries. We be seeing sports activities being downloaded. We’ve seen presentations of a number of these companies for the capabilities that they are very excited about using to phone. We and they think indeed, because of the quality of the data transmission to color screens, that these will turn out to be very attractive capabilities.
Slide 23 – Personal Information Management Applications Makes Every BREW Handset a PDA.
IJ: Further many of us use separate devices for our PDAs to keep track of our appointments, to keep track of our contacts, to keep track of our ability to do many things, but now the phone is taking over those. And you always have the latest capabilities because that capability can be downloaded to the phone.
Slides 24 – Return on Investment for Enterprise
This BREW slide is showing business applications for data and noted medical/insurance/ pharmaceutical applications. It also said that a business in Boise had doubled the number of inspections without adding people. The User Interface on the handset can be customized over the air with BREW applications – Generation Y vs. Business vs. Basics. The carrier (not the handset manufacturer) is in control of the branding with BREW.
I have been stressing the consumer side but probably one of the fastest growing areas will be the enterprise side – the use by business. Wireless has not been widely used for significant aspects by business – security issues, cost issues, availability issues. But now that is rapidly changing and with new applications – vertical applications – businesses as well as, for example, medical applications, many of these are occurring. We are trying to self-develop a number through our Wireless Knowledge affiliate – but also supporting many others developing these. We think that indeed is going to be a major use of phones, adding even greater productivity to companies going forward.
Slide 25 – BREW User Interface Customization
IJ: Now with all of these capabilities, one of the concerns is – “Is the phone too complicated?” Different people are going to want different things from their phones – from experts under the age of 8; to the less expert above the age of 8. You’ll be able to download different interfaces – the way your phone looks to you and the way it operates – and you’ll be able to customize that to your own use, operating needs as well as your business needs.
Slide 26 – Changing Paradigm – Carriers Are in Control of Their Branding
With BREW, the carrier (not the handset manufacturer) acts as a software retailer, choosing products and setting prices.
Different operators are very much customizing the way that the phone looks to their users…
Slide 27 – Frequency Propagation
IJ: I mentioned that there are different frequency bands that can be used for wireless. One of the bands that was used very early was down at 450 MHz. The latest bands that have been auctioned over in Europe – for over a $100 billion – is at 2100 MHz. I often refer to that as 2.1 gigahertz. One interesting thing is that as you go up in frequency the effective area covered by a cell site is reduced. So at 2.1 GHz – 2100 MHz – the yellow at the center of that target [the slide looks like a target with concentric circles) – that cell site covers a much smaller area than does one at 800 which is the current cellular band in the U.S. or 450 which is in a variety of countries. And so there is an additional cost as you go up in frequency.
Slide 28 – GSM1x with WCDMA
This is a new slide which shows how GSM1x could work with WCDMA. WCDMA would be used in the major cities, using the 3G spectrum. In the less populated areas, GSM voice would run on 2G spectrum. In the areas in between, GSM1x would offer 1x/1xEV-DO in 2G spectrum.
We’ve been working with various operators looking at different ways of perhaps supporting the provisioning of third generation services but doing so at a lower cost and here’s one particular one – something we call GSM1x. When WCDMA is put out – because it’s at 2.1 GHz and it’s a new service – initially it will be probably an island – probably in the larger urban areas. We’re showing that in little orange here [on slide] which will have the WCDMA service that is being provided. But then you have broad areas not covered. Well, one thing is you can fall back on second generation; if it’s a GSM area, you fall back on GSM/GPRS. But that’s a tremendous drop-down in the capabilities – particularly for data.
And so what we propose is that those other frequencies using the same antennas – cell sites – in fact fewer of the total, one can put on CDMA2000 with an expansion in voice capacity – considerable expansion – as well as the higher data rate capability because they can get by in less frequency than required for the WCDMA. It can be done in the existing frequency band and therefore you can get broad coverage across an entire country during the period before you are able to build out WCDMA across the entire country and reuse frequency bands and base stations that are there, getting a much better financial return. The GSM1x means that the CDMA2000 technology can be used with a GSM core network – the network centers that they already have in place can be reused for both the GSM side as well as the CDMA side. So a number are looking at this possibility – the regulatory issues, etc. We think it does provide a way of providing services across entire countries much earlier than could be economically justified if one only went with WCDMA. We’ll see how people react to that.
Slide 29 – Industry Recognition
IJ: We continue to receive a number of awards... We did win this year a very prestigious award from the Secretary of Labor’s on equal opportunity – only one in the entire country.
Slide 30 – Corporate Governance and Nominating Committee Charter
Dr. Jacobs briefly discussed a slide regarding the new charters for each committee of the board of directors. The charters are available on the website. qualcomm.com |
