QCOM--Nasdaq's biggest star in '99, Qualcomm has bright future in wireless world
SAN DIEGO (AP) - The idea struck Irwin Jacobs in a flash: Take an obscure process used in military communications networks and turn it into a bedrock technology for cellular phones. It was an idea that could make cellular networks cheaper, more dependable and capable of delivering the Internet at high speeds.
Since that moment of inspiration in 1985, Qualcomm Inc. (NasdaqNM:QCOM - news) has become the world's leading developer of a technology known as CDMA, or Code Division Multiple Access.
Exuberance about Qualcomm's role in the wireless world to come sent shares up more than 20-fold last year, making it the fastest-rising stock on the Nasdaq Stock Market.
But that was before setbacks in Asia and slow acceptance of Qualcomm's technologies knocked shares down from $200 US in January to its current $60 range.
Yet if Qualcomm makes the right moves, it still stands to profit handsomely from the rollout of so-called third-generation cellular systems that will offer users high-speed Web access, streaming video and other features, analysts say.
Ultimately, the extent to which Qualcomm cashes in on the wireless market's explosion depends on a successful defence of more than 1,000 technology patents it owns or has filed, and its ability to continue exacting royalties at favourable rates.
As wireless carriers move to so-called third-generation technology, chips based on some form of CDMA could become a ubiquitous feature of cellphones and other handheld devices. Sprint and Verizon have already deployed CDMA networks in the United States.
At current market rates, patent royalties from CDMA licences will bring Qualcomm $3.1 billion US a year by 2005, up from an estimated $632 million in 2000, says a forecast by Prudential Securities Inc.
That compares with revenues of $3.9 billion generated by all of Qualcomm's businesses, including royalties, licence fees, chip sales and its OmniTracs fleet tracking service, during fiscal 1999.
"In the long run, Qualcomm is considered really the company to watch," said Sean Batting, an analyst with Carmel Group. "They're positioned in the industry in a very strong way."
The current market rate gives Qualcomm about four per cent of the wholesale price of each cellphone that uses its technology, said Pete Peterson, an analyst with Prudential Securities Inc.
Qualcomm last month announced it will spin off its chip manufacturing operation, which accounted for about a quarter of all revenues in fiscal 1999. The spinoff, once completed, will allow Qualcomm to focus on patent development and licensing.
Qualcomm is also pushing a new, high-speed wireless Internet technology, High Data Rate, which can deliver Web access at speeds up to 2.4 megabits a second - twice as fast as a typical DSL connection - to users in a moving vehicle.
So far, the biggest battle Qualcomm has won was its fight to make CDMA the standard technology for new generations of wireless networks.
CDMA is one of several versions of a technology known as spread spectrum because signals are broken down into packets that are coded and scattered across the radio spectrum.
Early pioneers of spread spectrum technology included the late actress Hedy Lamar, the star of such films as Tortilla Flat and Samson and Delilah and one-time spouse of Austrian munitions magnate Fritz Mandl.
In 1942 Lamar and composer George Antheil were granted a U.S. patent for a spread spectrum device that would allow torpedoes to be controlled by jam-resistant radio signals. The patent was never used, but the use of spread spectrum by the military and in commercial satellite networks grew.
In 1985, Qualcomm was working with Hughes Electronics to develop a CDMA-based satellite communications system when it occurred to Jacobs that CDMA would work well in a land-based commercial, cellular network.
"I indeed recall it as a flash," said Jacobs, 66, who taught electrical engineering at MIT and the University of California, San Diego, before moving to private industry 28 years ago. "I realized CDMA was really a better way to go."
Jacobs is surprised by the success of Qualcomm, created as a sort of retirement project in 1985. Three months earlier, Jacobs and his partners sold Linkabit, a defence contractor that they had founded in 1980.
Jacobs made $25 million on the sale and was looking for a way to keep busy. He considered a return to teaching when he decided instead to join some old Linkabit colleagues and form a new company.
They started out in offices above a pizza restaurant in a San Diego strip mall. Qualcomm now employs nearly 10,000 and has offices in 14 countries.
Worldwide, about 60 million cellphone users rely on CDMA networks, popular because they uses radio spectrum more efficiently and decrease the incidence of calls in a moving vehicle being dropped.
GSM, the current European standard, claims more than 200 million users. Europe, however, has adopted a version of CDMA, dubbed WCDMA, that was developed by companies that built on Qualcomm technology. © The Canadian Press, 2000 |
