Qualcomm completes sale of unit to Ericsson
Rival reportedly paid $250 million for division
By Mike Drummond
UNION-TRIBUNE STAFF WRITER
May 25, 1999
uniontrib.com
SAN DIEGO -- Qualcomm has officially closed the sale of its money-losing infrastructure division to Swedish rival Ericsson.
The deal, which closed yesterday, consummates a wide-ranging truce that saw the end of a long-standing patent dispute. It also virtually assures that much of the world will adopt Qualcomm's patented wireless technology -- and will give giant Ericsson a beachhead in San Diego.
Now, it's all over but the shouting -- about 60 local workers being transferred to Ericsson are embroiled in a class-action lawsuit seeking millions of dollars in the form of unvested stock options from Qualcomm.
The companies did not disclose terms of the deal, but insiders have put the purchase price at about $250 million.
About 1,800 people worked at the division, which makes base stations -- closet-sized equipment that keeps mobile phones connected to central, conventional phone networks.
Ericsson said it is assimilating 1,280 former Qualcomm employees, mostly based in San Diego, where it will maintain a research and development center. The world's No. 3 mobile phone maker also will retain about 150 employees in one of Qualcomm's former facilities in Boulder, Colo.
Qualcomm will maintain a research and development center there, manned with about 150 workers.
Qualcomm has absorbed about 500 local employees from the infrastructure division and is working to find positions for about 50 remaining employees. Qualcomm had about 600 job openings companywide before the sale, said spokeswoman Christine Trimble.
Qualcomm, which began the year at about 11,000 employees and ranked as the county's largest private employer, now has 9,200 people on the payroll.
"Both Qualcomm and Ericsson have worked closely to make the transition of our infrastructure employees as smooth as possible," chief executive Irwin Jacobs said in a prepared statement.
Indeed, the companies offered a bonus retention plan that pays transferring employees up to 50 percent of their unvested stock options in four payments over the next two years.
But the transition hasn't gone as smoothly as planned. Earlier this month, about 63 Qualcomm employees, including at least two senior managers, filed a lawsuit demanding unvested stock options.
The employees accuse the company of fraud, saying Qualcomm lured them with a five-year stock-option plan, all the while working to sell the division.
Moreover, their attorneys claim Qualcomm executives pressured employees to sign the bonus plan that waived their rights to sue.
Qualcomm denies the charges.
Outside legal observers say that by offering stock options, a company is not guaranteeing job security and that these types of cases are hard to win.
Qualcomm conceived its infrastructure division in the early 1990s as a proof-of-concept unit. The company needed to make base stations to prove to potential customers that its patented code division multiple access or CDMA wireless technology worked.
While the division succeeded in that regard, it failed to make a profit, bleeding as much as $30 million a quarter in the year before the sale, announced in March. Larger corporations, such as Motorola and Nortel, adopted CDMA, then built and deployed their own CDMA base stations. Those companies could produce massive volume and outsell Qualcomm in more markets.
The sale was bittersweet for Qualcomm, which was forced to jettison many workers it had cherry-picked from bigger corporations around the world. Yet the sale helped propel the company's stock to all-time highs, prompting ranking executives to cash in their options for hefty profits -- triggering the lawsuit.
On April 26, Richard Sulpizio, Qualcomm's president, sold 25,000 shares, including sales made through the exercise of options, leaving him with direct ownership of 4,241 shares. And from April 23 through 26, Anthony S. Thornley, Qualcomm's chief financial officer, sold 65,000 shares, including options sales, leaving himself with 1,021 shares owned.
Sulpizio sold 14 percent of his stake; Thornley said he still holds about 39,000 shares of vested options.
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