<<I wouldn't say QCOM was so brilliant with their "strategy". They arrived at the strategy by failure.
Originally, they built infrastructure ... and phones ... and ASICs ..., plus the software to drive it all and software to deliver services .... Then they created Leap Wireless ... as service providers. Not to mention Pegaso and Vesper - arggghhhh......
At one time QCOM had potential to be bigger than Microsoft, IBM and Intel combined, as well as being a service provider and infrastructure supplier. QCOM market capitalization should now be about $1 trillion.>>
Be careful what you wish for.
None of us will ever know if the current situation was QCOM’s original strategy, but most would probably agree that investments in making infrastructure, phones, etc. were necessary up-front in order to launch an entirely new standard. But to think that QCOM could or should have been researcher, chipmaker, phonemaker, content provider and service provider, and grown to be the biggest thing ever….well….I want some of whatever you’re smoking.
If one exists I’d like to know about it, but I cannot think of a single example, ever, of a company being highly vertically integrated in a continuously evolving, technology driven industry and remaining competitive on a long term basis. Nobody has that magic. Maybe the closest example was the original ATT, but their core business wasn’t evolving rapidly, and while they were allowed to exist as a monopoly for years they were ultimately broken up. If, somehow, QCOM had been able to achieve what you wrote they would either a) be spurned by every part of the industry and their technology relegated to a little corner, whether they licensed it or not, or b) be a monopoly that would be broken up.
But there’s something else you may not have thought about. Even if they had some kind of magic, I at least would not want them to be in businesses outside what they are now. Why? Which part of the value chain (research, chips, phone making, content, provider) has the highest profit margins? That’s right….research and chips….if, and only if, you collect the royalties and stay ahead of the curve in research. Which part has the highest return on capital? Same answer. The other parts of the value chain? Greater need for capital and leverage, thinner margins, brutal competition forever pounding at margins because those businesses compete mostly on price.
QCOM’s part of the business is the pearl in the wireless oyster, which is why Nokia desperately wants to collect royalties like QCOM and be on equal footing in the control of the technology. They had that in GSM, and there is no trick too nasty for them to try and repeat it in WCDMA. If they don’t they’ll feel increased pressure on margins and their R&D may not be able to pay for itself. That could lead to some very interesting outcomes. |
