Great article:
Ericsson may feel more than buyer's
remorse
Licensing issues, ego could be behind Qualcomm dispute
By Mike Drummond
STAFF WRITER
November 20, 1999
Executive ego and a desire to obtain better licensing concessions may be driving
Ericsson to dispute the purchase price of a business unit it bought from Qualcomm,
industry analysts and insiders say.
Earlier this week, Qualcomm revealed in a federal Securities and Exchange Commission
filing that Ericsson wants to renegotiate the price of the infrastructure division, which it
purchased from the San Diego company in May. The division makes base stations used
to keep cellular calls connected.
The sale settled a long-running patent dispute, as Ericsson agreed to adopt and pay
royalties for using Qualcomm's code division multiple access -- or CDMA -- wireless
technology. The deal also settled international debate over future cellular standards and
set the world's wireless corporations on a CDMA path.
As a result, Qualcomm is becoming the Microsoft of the wireless world, and its stock
price has shot up dramatically in the months since the agreement.
Ericsson, the world's third-largest phone maker, is still selling Qualcomm-branded base
stations until it can ramp up its own production. The Swedish telecom giant reportedly
paid about $250 million for the division, which had been costing Qualcomm $30 million a
quarter to operate.
"Apparently, they (Ericsson) don't feel they got a good deal," said one analyst. But
those with an ear to the industry's rail say forces other than buyer's remorse are afoot.
One analyst linked the new dispute to alleged troubles Ericsson is having with the
development of "Edge," a still-experimental way to deliver high-speed data and Internet
connections through wireless networks known as global system for mobile
communications or GSM, and time division multiple access, or TDMA.
Edge, developed by a consortium of wireless and network corporations, is designed to
work in future versions of wireless phones and devices.
GSM networks, deployed throughout Europe and Asia, and TDMA, deployed by
AT&T and others in North America, are older than Qualcomm's CDMA, which has
proved superior at delivering data and voice and is gaining commercial adoption.
If Ericsson is having trouble developing Edge for GSM and TDMA networks, it may be
forced to use Qualcomm's CDMA technology, said Mark Roberts, analyst with First
Union Securities.
"I'm hearing from some engineers within the industry that Ericsson is having problems
getting Edge to work properly in any environment," Roberts said. "If you see U.S.
TDMA carriers move away from Edge toward Qualcomm's technology, it would
certainly be in Ericsson's best interest to renegotiate the infrastructure sale in relation to
what they pay in royalties on CDMA."
Ericsson and Qualcomm say they're trying to hammer out an agreement and declined to
discuss the current legal imbroglio.
However, Ericsson said it has "a number of demonstration systems" of Edge running.
Gary Pinkham, Ericsson's vice president of business development, said he expects
Ericsson to deploy Edge systems late next year or by early 2001.
"Like any new technology development, you have some problems, and other things go
easier than you expect," Pinkham said. "For us, at least, it's on schedule."
Roberts remained skeptical.
"I have suspicions it's not working as advertised," he said.
Some analysts say Ericsson should have no complaint about the quality of the work
being produced by the infrastructure unit it purchased from Qualcomm. They note that
cellular carriers praise the last-generation Qualcomm base stations for their small size
and large capacity to ferry call traffic. And Ericsson was able to ink a $200 million deal
this summer, under which they will deliver Qualcomm base stations to Brazil.
"I don't think Ericsson bought a lemon," said Brian Modoff, analyst with BT Alex.
Brown. "Qualcomm built -- right before the sale -- a rather outstanding base station."
He predicted the companies will settle and that, at worst, Qualcomm would have to
surrender "a couple million dollars" to make the case go away.
For years, Ericsson, under the leadership of Lars Ramqvist, bashed Qualcomm's
technology -- first as an impossibility, then as a "toy."
Ramqvist handed over the reins to Sven-Christer Nilsson, a CEO who struck a more
conciliatory posture toward CDMA, which led to the truce this year. That truce
involved Ericsson supporting CDMA as well as paying royalties to Qualcomm for the
foreseeable future.
Nilsson unexpectedly stepped down in July and back came Ramqvist.
"A lot of the bear stories that surfaced about Qualcomm over the years I have attributed
back to Ericsson management," Roberts said. "That all happened under the leadership
of Lars Ramqvist.
"It would not surprise me that there isn't a little undercurrent here that's more personal
than anything else," Roberts added.
Modoff, the BT Alex. Brown analyst, concurred.
"Engineering-wise, Ericsson's a strong shop," Modoff said. "But they had to eat a little
humble pie with this sale, and this could be a little payback."
Copyright 1999 Union-Tribune Publishing Co. |
