In Touch With a Wireless World
washingtonpost.com
Qualcomm Finds Riches Linking Internet, Hand-Held Devices
By Peter S. Goodman
Washington Post Staff Writer
Sunday, February 20, 2000; Page H01
SAN DIEGO?It has become a virtual cliche: A technology company points itself
toward the Internet and incomprehensible wealth materializes out of the ether. Yet,
even by that standard, the explosion of riches that has landed in this scrub-covered
bowl north of downtown is astonishing.
Of the 9,000 people who work inside this corporate campus, more than 3,400 are
today stock-option millionaires. The company at the center of this bonanza saw its
stock increase by 2,600 percent last year. The sun-baked earth that has nurtured this
phenomenon is now known as Wireless Valley.
But if the cataclysmic prosperity of Qualcomm Inc. reflects the gold rush mentality of
our times, it also signals where much of the gold lies: at the intersection of two of the
fastest-growing phenomena in history, the Internet and mobile telephones.
Qualcomm has secured itself a central role as the brains behind the spread of the
Internet from the desktop to cellular phones and hand-held devices such as Palm
Pilots. Its patented technology--a modern spin on a World War II radio technique
called CDMA--has been embraced around the world as the best way to route the
computer data soon expected to fill the skies. It designs and makes most of the chips
that power the new breed of phones.
Qualcomm has persuaded regulators in Europe to gravitate from GSM--now the
continental standard for wireless telephones--to CDMA, as the next generation of
wireless networks is erected. This month, it gained a beachhead in China, potentially
the largest market in the world.
Only about 5 million Americans subscribed to wireless Internet services last year,
according to the Strategis Group, as pioneers such as SprintPCS delivered
scaled-down World Wide Web pages, stock quotes, sports scores and the weather
on wireless phones. By 2004, the number is expected to reach 20 million.
Qualcomm's technology, CDMA, is expected to capture a bigger slice of the overall
wireless telephone market, growing from about 10 percent today to nearly 30 percent
by 2005, according to the Yankee Group. By then, the number of mobile phones
worldwide is likely to double, climbing from about 470 million to more than a billion.
CDMA still has its critics. Those with networks that use competing technologies
question its supposed superiority. "The jury is certainly out on which technology
can provide the best service," said Rod Nelson, chief technical officer for AT&T
Wireless.
Some maintain that Qualcomm's achievements say more about hype and advocacy
than any technological advantage. "They have a legal team that threatens people
who come up with conclusions they don't like," said Bruce Lusignan, a Stanford
University engineer whose criticisms have provoked scrapes with Qualcomm.
GSM proponents acknowledge CDMA's momentum, but say it guarantees no
franchise for Qualcomm, asserting that its patents don't cover all variants of the
technology--a contention Qualcomm vows to challenge in court, if tested.
"CDMA and Qualcomm are not synonymous," said James Healy, deputy chair of the
GSM Association, which represents 360 wireless phone providers worldwide.
But if Qualcomm's patents hold, its take could be enormous. The company makes 90
percent of the computer chips that run CDMA networks. Its licenses bring 2 percent
to 5 percent of the costs of every CDMA phone. Qualcomm logged nearly $4 billion
in revenue and $420 million in profit last year and has grown 62 percent annually
over the last half-decade.
Irwin M. Jacobs, the former MIT engineering professor who launched the company
15 years ago, contends his company had been grossly undervalued before the great
climb--so much so that he feared someone would buy it. Now, Qualcomm is worth
more than $90 billion, its fortunes tied to the skies. Jacobs's own stake is worth $3.2
billion.
No one accuses Qualcomm of being undervalued today. Jitters about whether the
company can continue its rapid growth have recently made for a bumpy ride. Since
the beginning of the year, the stock is down more than a third.
But built into the price is the market's belief in the vast promise of the airwaves. In
the future under construction, wireless will carry the Internet virtually everywhere.
Telephones will incorporate schedulers and instant messaging, and play music
downloaded from the Internet. Tourists will download restaurant reviews from the
backseats of Manhattan cabs. Laptops will be wirelessly connected to office
networks, supplying the freedom to work from backyard patios or wherever.
"Nobody wants to be stuck in one location," said Jacobs, a product of New Bedford,
Mass., where a high school guidance counselor once warned him that science and
technology held no future. "We're all going wireless."
Qualcomm has already developed--and deployed in Asia--chips that can carry the
Internet to mobile phones at three times the speed of dial-up modems. Much faster
chips are on the way. A system known as High Data Rate, due out next year,
delivers Internet connections at more than 40 times the usual dial-up speed, enabling
multimedia--video and music--to infuse wireless phones.
Qualcomm's story amounts to a composite of wireless evolution. In the beginning,
systems ran on frequency division multiple access. The airwaves were sliced into
individual channels, each dedicated to one call. It worked well enough, but once all
the channels were in use, the next caller got a busy signal.
TDMA, or time division multiple access, transcended those limits. Multiple calls
could now simultaneously be run over the same channels, thanks to precision
timing. TDMA splits every second into as many as eight parts. Each caller gets the
exclusive right to communicate during one assigned slot. During that window, the
phone transmits in "digital bits"--strings of computer code. Chips in the phones
unscramble the bits at the other end.
TDMA was a major breakthrough, roughly three times as efficient as FDMA. AT&T
used it in erecting its national wireless network. In Europe, an assortment of nations
not prone to agree on anything adopted a form of TDMA-GSM--as their continental
standard. The same phone would work from Spain to Finland.
Had voice calls remained the only wireless cargo, TDMA might have gone
unchallenged. But the spread of the Internet has put the squeeze on the airwaves,
creating a window for CDMA: Analysts say it is about three times as efficient as
TDMA, though competitors dispute that.
With CDMA, more bits can be transmitted over the same channel. The fix is in the
codes. Callers are assigned one of 4.4 trillion mathematical equations to encode their
signals. Two signals using the same code can hear one another fine. Signals using
different codes are effectively muted.
Though the codes were first used to encrypt military radio communications,
CDMA's utility on a mass scale was dubious. All the phones had to transmit at the
same volume. Otherwise, the stronger signals--phones closer to cell towers--would
drown out the others, codes or no.
Given that wireless phones are mobile, this was a huge problem. In the mid-1990s,
CDMA was viewed as so risky that the manufacturers of its first systems--Motorola,
among them--refused to issue guarantees that the networks would work.
But Jacobs and his company fashioned a solution: About 800 times a second, cell
towers measure the strength of the signals coming in from the phones, radioing back
instructions for adjustments.
"To claim that a handful of engineers could actually do this was preposterous," said
Ajay Diwan, a wireless analyst at Goldman Sachs Group Inc. "But they did it.
Fundamentally, they've created something that's amazing."
Throughout the early 1990s, Jacobs proselytized, addressing trade groups and
regulators from Los Angeles to Washington. He floated the idea of making CDMA
an industry standard at a 1989 meeting with the influential Cellular
Telecommunications Industry Association in Chicago. No go. The group had just
picked TDMA. Then he won the backing of several phone companies, including
Pacific Telesis Group Inc. In July 1993, the association endorsed CDMA, alongside
TDMA.
In Europe, where defense of GSM became a pan-European cause, Qualcomm enlisted
the U.S. trade representative to press governments to adopt CDMA for the wireless
networks that will be built over the next several years to allow for high-speed
Internet transfers. Authorities have since agreed to gradually shift to various forms
of CDMA.
Two years ago, Qualcomm persuaded Japan to welcome CDMA. More recently,
American officials pressed Qualcomm's case with the Chinese government in the
context of China's entry into the World Trade Organization.
"We've had great support from Washington," said Richard Sulpizio, Qualcomm's
president and chief operating officer.
If there was a single moment that catapulted Qualcomm, it came last February, as the
company gained a settlement with Sweden's wireless telephone manufacturing giant,
LM Ericsson.
Ericsson had challenged Qualcomm's patents and led the charge in Europe against
the CDMA invasion. Now, it was accepting CDMA as the future standard. It even
bought Qualcomm's CDMA infrastructure manufacturing business, meaning it will
make the towers and base stations. Qualcomm's most powerful enemy had become
its business partner.
This month, Qualcomm netted an agreement with China Unicom, the nation's
second-largest state-owned telecommunications company, to license its technology
for use in a wireless network there.
With the stroke of a pen, CDMA's reach was expanded to a land of 1.2 billion
people.
Qualcomm
Business: Develops and delivers wireless communications products and services
based on the company's CDMA digital technology. Business areas include
technology licensing, Eudora e-mail software for Windows and Macintosh
platforms, and satellite-based systems such as Omnitracs and Globalstar.
Based: San Diego
Origins: Started in 1985 as Qualcomm, for "quality communications." Went public in
1991.
Employees: 9,700
1999* sales: $3.94 billion
1999* net income: $200.9 million
Friday's closing stock price: $134.50, up $4.50
Ticker symbol: QCOM on the Nasdaq
Web address: www.qualcomm.com
* Fiscal year ended Sept. 30 |
