The Odd Couple
(there is a quote under a picture of Sven-Christer Nilssen saying:
"Let's put it this way, we have never belittled CDMA")
Once-quarrelsome Qualcomm and Ericsson
decide they have something in common: faith
in CDMA and confidence it s going to be
worth a bundle
By Mike Drummond
STAFF WRITER
April 4, 1999
Founder and chief executive of Qualcomm:
After a decade of wrangling, Qualcomm and Ericsson have announced a truce
that virtually everyone agrees will benefit both companies -- and the entire
wireless phone industry, as well.
It ends a long-standing lawsuit over who owns patent rights to CDMA, the
code division multiple access mobile-phone technology Qualcomm pioneered,
and it ensures that both companies can focus their energies on capturing
market share and developing products for the next century.
Qualcomm and Ericsson also have agreed to fuse a single standard of CDMA
into future generations of mobile communications devices. That means
cell-phone manufacturers won' t have contend with a protracted fight between
mutually exclusive forms of technology, such as the Betamax vs. VHS
controversy that plagued early developers of video cassette recorders.
Further, Ericsson will buy Qualcomm' s infrastructure division, an ailing
business unit that has dragged down Qualcomm' s earnings for years.
Yet, as executives toasted each other and Wall Street sent Qualcomm' s
stock price soaring with the announcement of detente, deep scars remain. It
might take months for the healing to begin.
"No one' s excited about working with the Swedes," says one engineer from
Qualcomm' s soon-to-be jettisoned infrastructure division. "Most of us have
battled Ericsson for most of our professional lives. We fought the battles and
got the bruises. Now we have to work under their regime."
Fueling the bitterness is the fact those being transferred across company lines
must exercise their vested Qualcomm stock options -- or lose them. Ericsson
does have a stock-option plan of its own, but compensation details for the
transferred employees are being worked out, and in any case, Qualcomm' s
stock last week was worth more than Ericsson' s.
In recent interviews, executives from both companies talked about the end of
the industry' s longest-running telecom holy war; about their past, present and
future plans; and about the daunting challenge of transferring part of
Qualcomm' s talented-yet-laid-back work force to foreign rule.
Qualcomm' s founder and chief executive, Irwin Jacobs, insisted that the
infrastructure division, with its 1,600 employees, remain in San Diego. Refusal
on that and other points would have been a deal breaker, he says.
The division makes cell sites, or base stations, crucial and expensive
equipment that keeps mobile phones linked to central communications grids.
Jacobs acknowledges that the sale is jarring, ranking up there with M/A Com'
s takeover of his Linkabit enterprise in 1980 and the layoffs of 700
Qualcomm employees in February.
Yet, Jacobs contends, those at the infrastructure division will have it better
under Ericsson. He notes that while exiled employees won' t be able to keep
stock options, they will get to take advantage of Ericsson' s retirement plan,
which he considers to be better than Qualcomm' s.
Some employees at the division don' t see it that way and have quietly
threatened to file a class-action lawsuit on the grounds they are being treated
differently than previous Qualcomm castoffs.
When Qualcomm spun off Leap Wireless International last year, employees
who migrated to the new company got to keep their stock options. So, too,
did those who walked over to WirelessKnowledge, Qualcomm' s joint
venture with Microsoft.
"It' s a discriminatory policy," says an infrastructure employee who requested
anonymity. "This is unethical."
Jacobs explains that WirelessKnowledge employees are considered part of
Qualcomm still and that Leap virtually works hand-in-hand with Qualcomm to
deploy CDMA-based phone service.
Stock options are motivational tools, dispensed on the premise that a worker
who owns a stake in the company will pledge fealty and thus work harder.
Employees are allotted a certain number of stock options set at a current
market price. Employees can sell or exercise those options after a certain
time, usually at a much higher value.
Despite the recent truce, Ericsson remains a competitor of Qualcomm.
Conflict of interest precludes one company allowing a segment of its ranks to
own stock in a rival.
"There was concern that there be loyalty to the new company," Jacobs says.
Try as it might, Qualcomm didn' t have the size or market reach to make the
infrastructure division solvent, Jacobs says.
Unlike industry giants Lucent Technologies, Motorola or Nortel, the much
smaller Qualcomm was forced to the margins of the $9 billion infrastructure
industry and relied on selling base-station equipment in unstable markets such
as India and Russia.
When the Asian economic flu and economic collapse in Russia struck last
year, Qualcomm felt the shock.
Ericsson made its fortune with a rival wireless technology called global system
for mobile communications, or GSM, which boasts more than 130 million
subscribers worldwide.
Ericsson disparaged CDMA when Qualcomm introduced it in 1989, but
when subscriptions of CDMA pushed past 23 million recently, the Swedes
grew interested in getting into the planet' s fastest-growing mobile phone
technology.
In June 1996, Ericsson filed its lawsuit, claiming it owned patent rights to
CDMA, a claim Qualcomm thought ludicrous. Qualcomm stopped laughing
when Ericsson began calling CDMA a toy. Qualcomm filed a defamation suit.
Business considerations, however, began to overrule acrimony. The world
started work on developing technical specifications for a single global
standard of wireless mobile phones. Such phones will handle video
conferencing, high-speed Web surfing and will be used in almost every major
city on the globe.
Major carriers, eager to start developing services and products for the
so-called third generation, or 3G, mobile phones due sometime in 2001,
urged Qualcomm and Ericsson to settle their differences.
With the patent trial date looming this month -- then reset to June -- the
companies started talking about a settlement, then about a possible sale. First
the dialogue occurred via e-mail and phone calls. Then there were
face-to-face meetings in New York and, more recently, San Diego.
The deal wasn' t sealed until a day or two before the announcement on March
25.
The presence of Ericsson executives walking the halls of Qualcomm buildings
gave rise to rumors that a sale or possible takeover was in the works.
Jacobs says that Qualcomm has no intention of selling any more business
units. Quite the contrary.
Without talking specifics, he plans to expand the company' s relatively small
Eudora e-mail business, its OmniTracs global satellite positioning service, and
its newly hatched digital cinema business -- a venture Jacobs called "very,
very interesting."
Qualcomm has developed technology that can beam motion pictures via
satellite to digital projectors. The upcoming Star Wars movie will be the first
shown using digital projectors on four screens in two cities yet to be
announced.
With the patent lawsuit in the rearview mirror, Qualcomm now can afford to
explore other business opportunities.
"Qualcomm is always looking at new directions," Jacobs says.
One new name appearing on San Diego radar is Ake Persson, Ericsson' s
vice president of marketing and sales of radio systems.
Persson was the key deal broker who shuttled between San Diego, New
York and his home base in Stockholm, in the months and days leading up to
the agreement.
Persson will take over the infrastructure division, a force of some 1,600 San
Diego-area workers, as well as about 150 in Boulder, Colo.
Because of the legal dispute, Ericsson didn' t make CDMA gear and, unlike
65 other companies, was unwilling to pay Qualcomm royalties to license the
technology.
That all ended late last month.
By buying Qualcomm' s infrastructure division, Ericsson gains an almost
immediate presence in CDMA. The division will form the nucleus of Ericsson'
s CDMA research and development and product lines. The company says it
will have CDMA-based mobile phones on the market within a year -- and
will pay Qualcomm royalties on present and future iterations of CDMA.
Ericsson, then, gives CDMA a massive distribution vehicle in the near and
long term. "We can take CDMA products to where they (Qualcomm) couldn'
t," Persson says.
Persson, an avid hunter and skier, says the first order of business will be to
assimilate the infrastructure division into Ericsson, no easy task given the
cultural divide between the companies.
Sven-Christer Nilsson, Ericsson' s chief executive, provided a glimpse of that
unease when he met with Qualcomm employees during an all-hands meeting
the day after the agreement was announced.
He was counseled to wear a formal business suit, a strange choice on casual
Friday, and stranger still at Qualcomm, where engineers and others usually
don jeans and T-shirts.
Nilsson says he has no intentions of imposing a strict dress code. "You dress
for the occasion," he says. "Not necessarily in a dark suit and tie, but you
follow the customs of your customers."
Nilsson says Ericsson delegates authority to the local level and characterized
the Ericsson work environment as an "accountability and consequence
culture."
Tackling the thorny issue of compensation, Nilsson is quick to note that the
true asset in the infrastructure acquisition are all those engineering minds who
know the innards of CDMA.
Salaries will remain attractive, Nilsson says. "We want people to stay with
us," he says. "Without talent it wouldn' t mean much."
Copyright 1999 Union-Tribune Publishing Co. |
