Friday, January 7, 2011

Atheros purchase continues shift north

Qualcomm doesn’t do acquisitions as often as Cisco or Oracle. The WSJ says it bought six companies in FY2010, one in 2009 and five in 2008. Almost all of its acquisitions are below $50m.

Like Apple, it prefers to make rather than buy. This could be due to a strong corporate culture, “not invented here,” hubris, or a realization that so many acquisitions are failures (at least for the acquiring company).

The $3.1 billion plan to buy WiFi chip maker Atheros is one of the biggest and most strategic acquisitions of the company’s history. (To put the size in perspective, the company’s market cap has hovered around $70-80 billion over the past decade). The next biggest acquisition was $1b in 2000 for GPS chipmaker SnapTrack, which made Steve Poizner a multi-millionaire and perennial candidate.

However, to me the strategic importance of Atheros seems more similar to the $800 million to buy Flarion in 2005, to acquire its OFDMA technology and cement its position as a 4G patent-holder.

Yes, the Atheros technology will help it compete more for tablets, as did its 2009 purchase of AMD’s handheld business. More broadly, it continues its shift away from a cellphone chip maker to a mobile device components company, as with the 2004 acquisition that led to the Mirasol color display technology that it hopes will power e-readers Real Soon Now.

But I think the major strategic importance is that it positions Qualcomm in direct competition with Broadcom, the Irvine-based patent nemesis. Broadcom has succeeded by integrating everything with everything else on a chip, commoditizing away single-purpose chips. For mobile communications device, Qualcomm is broadening its industry footprint in a way that gives current Broadcom customers more choices.

It also increases Qualcomm’s competition with Intel. In some ways, Intel helped Qualcomm by reducing Atheros recent growth and thus depressing the sale price. (San Jose-based Atheros was cofounded by Stanford University president John Hennessy).

Finally, I think this is part of the increasing evidence that Qualcomm is emphasizing growth outside San Diego. The SnapTrack acquisition formed the nucleus of what now is its Santa Clara campus. The big Q paid $80 million in 2007 for the low-rise campus to co-locate all of its Silicon Valley acquisitions. (Interestingly, Qualcomm has said nothing publicly about its Silicon Valley expansion efforts.)

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The 320,000 square feet facility is smaller than one building in San Diego, the 12-story building WT that is headquarters for QCT. Still, by modern office standards, the campus could hold nearly 1,000 workers, even if the parking lot seems to limit the campus to 500 or so.

Qualcomm’s founding CEO Irwin Jacobs moved to California to teach at UCSD. However, his successor, son Paul, did his Ph.D. at UC Berkeley and clearly has stronger ties to the Bay Area than his father ever did. The Santa Clara campus shows that rather than trying to relocate SV talent to San Diego — something that has been nearly impossible since the Linkabit days — that it will create a major foothold in the valley to take advantage of its tech talent and job mobility.

Tuesday, January 4, 2011

Life after Qualcomm: Sanjay's big reward

The breakup of Motorola became effective Tuesday: Motorola Mobility (MMI) gets cellular handsets and settop boxes, Nokia Siemens gets the cellular infrastructure business, Motorola Solutions (MSI) gets government & industrial radio clients, and Sanjay Jha gets to be COO.

The split brought a nice day one stock bounce of 9.5% for MMI and 6.6% for MSI.

On one level, it marks an ignominious end for the company that invented the handheld cellphone. It also clears the way for one or both of the companies to be gobbled up by bigger companies — no small concern given that Carl Icahn owns $2b worth of shares and (as always) wants to maximize his own short-term return rather than build a long-term winner.

It didn’t have to come to this: Motorola was the world leader in handset sales as late as 1997 and second until 2007, when it still led the US cellphone market. However, it was late to shift to digital and late to shift to software. (By comparison, the infrastructure business was never able to master the complexity of telephone switching and became uncompetitive once mobile radio technology diffused throughout the industry.)

Its handset business has been losing money for many years. As announced in March 2008, the handset spinoff was an attempt by CEO Greg Brown to dump the losing handset business after being unable to sell it. Even with its recent improvement, its survival is by no means certain.

Motorola co-CEO (now MMI founding CEO) Sanjay Jha deserves full credit for the turnaround over the past 30 months, in large part through his bold decision to bet the farm on Android. It’s too soon the say whether the turnaround is permanent, as MMI faces brutal competition in all the major categories where it competes: US market, smartphone market, Android handset market and even for Verizon’s loyalty (with the iPhone LTE due Real Soon Now.)

Still, it’s a good move for Jha, who as COO of Qualcomm was going to grow old waiting two or three decades for Paul Jacobs to retire. Very few Qualcomm execs seem to want to leave the mother ship — whether it’s because of the weather, lifestyle, or gross margins, I don’t know.

His gamble to move back east has certainly paid off. Even if MMI is unable to pull it off, he will certainly be snapped up by another tech company. Exhibit A: Eric Schmidt, who jumped from the sinking Sun Microsystems ship to become CEO of Novell and — without fixing its intractable problems — got named CEO of Google.

One unresolved question: will MMI keep settop boxes? The former General Instruments (with major operations in San Diego thanks to the Linkabit Videocipher spinout) accounts for about one-third of its revenue, but there are few obvious synergies. Now that Cisco owns its main competitor, Scientific Atlanta, there’s no obvious exit strategy, but I imagine finding a home for the STB business will be one of Jha’s 2011 priorities.

Cross posted to Open IT Strategies.