Q's Pocket On Fire?>
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$1.4 Billion Burns Hole In Qualcomm's Pocket
MONDAY, OCTOBER 18, 1999 11:43 PM
- Phillips Business Information
Oct. 18, 1999 (WIRELESS INSIDER, Vol. 17, No. 41 via COMTEX) -- By John
Sullivan
Like a retired athlete who can't bear to watch the game from the sidelines,
Qualcomm [QCOM] is looking for new ways to keep its hand in the CDMA
marketplace.
Chairman Irwin Jacobs told reporters last Monday at the ITU's Telecom '99 trade
show in Geneva that Qualcomm is looking for new business opportunities,
including equity investments or joint ventures that would accelerate the adoption of
CDMA.
CDMA is no longer Qualcomm's only focus, however. As the company prepares
for an assault on Europe, execs admitted that Qualcomm will also be looking for a
partnership that will let them produce dual-mode CDMA/GSM chips.
It's easy to see why Qualcomm wants CDMA's share of the market to grow. As
the company that pioneered the cellular applications of CDMA technology,
essentially all the licensing revenue streams for CDMA eventually flow to
Qualcomm. And the money has certainly been flowing in. In addition to watching
its stock price explode since this spring's 3G and CDMA patent licensing deal
with LM Ericsson [ERICY], Qualcomm has accumulated a remarkable $1.4 billion
in cash.
"It's just cash sitting in commercial paper. It's surplus," says Vice President and
Treasurer Richard Grannis. "It's sitting there, ready to be invested in technology
initiatives, strategic investments or acquisitions."
So Qualcomm has the means, motive and opportunity for a serious spending
spree. However, the company has already gone down this road once, and then
backed off.
The last time Qualcomm got its hands dirty in the wireless business, the
company was struggling to commercialize a technology that many in the industry
were calling engineering snake oil.
There were serious questions as to whether carriers would embrace CDMA or
reject it in favor of better-understood, less risky time-division technologies.
At that time, Qualcomm swore there would be customers for its technology even if
it had to go out and create them itself. The company did just that, investing in
carriers pursuing new spectrum licenses around the world, and teaming with
vendors to produce CDMA infrastructure and handsets.
However, CDMA was selected by major carriers, and vendors began adding CDMA
equipment to their product lines. As it became clear that the technology would
succeed without direct mouth to mouth resuscitation from Qualcomm, the
company began returning to its original vision of itself as a stripped down chip
producer and R&D house.
It spun off carrier interests in the United States, Mexico, Australia, Russia, Chile
and Peru as Leap Wireless International [LWIN], sold its infrastructure business to
Ericsson, and expects to sell its handset division by the end of the year.
Yet Qualcomm never totally abandoned the idea of outside investments. After the
Leap spinoff, Qualcomm invested in new wireless licensees in Brazil, for example.
On the technology side, it formed the Wireless Knowledge joint venture with
Microsoft [MSFT] to develop wireless data applications.
Grannis said Qualcomm also has invested in a few very small technology
startups, although it hasn't disclosed any deals yet.
Qualcomm's next round of spending may have different targets than its last one.
With CDMA riding high, carrier alliances will be less important than technology
development.
Where should Qualcomm be looking to put its money? CDMA Development Group
Executive Director Perry LaForge's wish list includes making fixed access from
the home more robust, as well as applications development to help fill the broad
pipes that 2.5G and 3G systems will create.
"What I think would make sense is helping to proliferate wireless use from the
home itself, and then applications based on that [model] that could tie into the
mobile environment," LaForge says.
Grannis says Qualcomm will look at technologies that "enhance the use of
CDMA," whether they are directly related to CDMA or not.
As chips become Qualcomm's main business, the company will also seek
"acquisitions or investments that will strengthen and add to that division's
capabilities," Grannis says.
In particular, he says, Qualcomm is interested in partnering "with someone so that
we can get access to GSM intellectual property rights that would enable us to
incorporate GSM capabilities on a CDMA chip."
Qualcomm also has its sights on Europe. Dual-mode CDMA/GSM chips could
give Qualcomm an entree into the current European market.
The big prize in Europe, is carriers' 3G upgrade budgets. Other announcements
out of Geneva make it clear that Qualcomm will attack that market as well. It will
face a difficult battle cracking the European market. Companies that can help with
that struggle probably would place high on its shopping list.
Qualcomm's longtime nemesis, Ericsson, had little public reaction to hints that
Qualcomm is gearing up to invade Europe.
Ericsson execs declined to comment for this story, other than to note through a
flack that "it would certainly make sense," that Qualcomm would want to enter the
GSM segment and that the market "would support another player."
If Qualcomm can replicate the success it's seen elsewhere in Ericsson's
backyard, however, we suspect they'll have something to say about it in time.
Copyright Phillips Publishing, Inc.
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