San Diego Telecom Industry

The end of Snapdragon Stadium

2011-12-28T23:58:00.000-08:00

Tonight was the 11th and final day of “Snapdragon Stadium,” a temporary moniker rented by Qualcomm for its smartphone processor. San Diego’s largest company has held the naming rights for the former Jack Murphy stadium since buying them in 1997 in a deal that set the trend for the rest of US pro sports (including Nokia Theatre in Los Angeles and the onetime Ericsson Stadium in Charlotte).

Qualcomm paid an unspecified amount for the temporary renaming to capture three nationally televised games over 11 days, December 18 to 28. This included a Sunday Night Football game by the Chargers (where the Bolts cruelly raised the hopes of their long-suffering fans), the Dec. 21 Poinsettia Bowl (where TCU defeated Lousiana Tech) and tonight’s Holiday Bowl between the UC Berkeley Golden Bears and the Texas Longhorns.

Inside the stadium, they showed a brief snapdragon promo in the same screaming red color scheme as the signs. They also bought the Google adword for “snapdragon” (pointing back to their standard website) to make sure no TV viewer would miss the message. The website also allowed you to pick an Android, Blackberry or Windows Phone OS device with Snapdragon inside. (iPhone lovers need not apply).

As noted by others, this was all reminiscent of (if not blatantly copied form) the “Intel Inside” campaign of the 1990s.

I took some pictures of the signage both outside and inside the stadium on its final night. While I(as a researcher) I was excited to see the signs during their brief tenure, I was depressed to see the Bears to meet the same fate as during my last trip to the Q, when they lost in the 2004 Holiday Bowl to Texas Tech. (Since Cal finished 2011 with a 7-6 record, it should be noted they would not been bowl material back before every town added a bowl or two.)

Presumably tomorrow the signs will start coming down and the stadium will revert to “Qualcomm Stadium.” The next football game at the Q won’t be until next summer, so they have plenty of time to get the stadium ready for the monster truck rally in three weeks.

Qualcomm gets its $1.9b

2011-12-24T23:16:00.001-08:00

Now that AT&T has abandoned its proposed acquisition of T-Mobile, on Thursday the FCC approved its $1.925b purchase of Qualcomm’s 700 MHz spectrum. This came almost exactly one year after the sale was announced, and a little more than four months after the FCC blocked the sale pending disposition of the T-Mobile acquisition.

AT&T desperately needed spectrum for LTE service, particularly after the fiasco of its iPhone network crashes and the recent (successful) efforts of Verizon to acquire new spectrum. In fact, spectrum was the nominal reason for buying T-Mobile. However, merger of the operators of the #2 and #4 largest US cellular networks always had serious antitrust concerns, which were realized when the Obama administration sued to block the sale.

AT&T's small market rivals had hoped to use both the Qualcomm spectrum sale and the T-Mobile acquisition to win favorable roaming agreements. Indeed, FCC commissioner Michael Copps dissented from Thursday’s 3-1 decision in favor of Qualcommm and AT&T, siding with the rural carriers:

This license transfer takes a pre-existing competitive problem—the lack of interoperability in the Lower 700MHz—and aggravates it by giving one of the two dominant carriers enhanced ability to ensure that interoperability doesn't happen without a regulatory requirement. I am encouraged there will be a rulemaking on interoperability, but such proceedings take precious time. Even assuming the Commission can propose rules early next year, we would be unlikely to see the benefits of such rules for quite a while after that.

The main issue is that we don’t know the endgame on the consolidation of US cellular carriers down to 3, where it is going for other countries and where the US will eventually end up.

A merger of the #5 and #7 largest networks, MetroPCS and Leap, is inevitable, but has been fought for more than four years by the smaller Leap. Their roaming agreement and convergence of their 4G strategies may eventually accomplish integration in pieces rather than through a big acquisition. Metro at least is further along on LTE deployment than any carrier other than perhaps Verizon.
Both MetroPCS and Leap once hoped to exit by being bought by Verizon (as Alltel was) but after the denial of AT&T, such an outcome seems next to impossible due to antitrust concerns.
Sprint wouldn't have antitrust barriers to buy T-Mobile, but their incompatible networks make it unlikely to happen before at least 2015 (when presumably Sprint will have switched from WiMax and T-Mobile will eventually offer real 4G service)
Both Metro and Leap are technologically compatible with Sprint, but the sickly #3 carrier hasn't been ready to buy anyone after losing more than $8.5 billion from 2008-2010.

Qualcomm is quite happy to finally get its $1.9b for the unused spectrum, as their press release made clear

"We are very pleased that the FCC has approved the sale of our spectrum licenses and look forward to working with AT&T to deploy supplemental downlink. This is a positive outcome for Qualcomm and our stakeholders," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. "We would like to express our appreciation to FCC Chairman Julius Genachowski, his fellow FCC Commissioners and the FCC staff. The use of supplemental downlink will enable the efficient use of unpaired spectrum for mobile broadband in the U.S. and a richer, faster mobile experience for consumers."

Smartphone adoption is increasing demand for data services, Qualcomm chips, and its Snapdragon processors.

FCC puts hold on QCOM spectrum sale

2011-08-11T13:34:00.000-07:00

Four months ago, carriers opposed to AT&T’s acquisition of T-Mobile and its spectrum asked the FCC to delay Qualcomm’s planned $1.9 billion sale of its 700 MHz (former UHF Channel 55) FLO spectrum to AT&T.

At the end of its 180-day review of the spectrum sale on Monday, the FCC sent a letter to Qualcomm saying that the sale of the spectrum will be considered simultaneously with the (much larger and slower) review of the very controversial (and larger) AT&T/T-Mobile acquisition.

As noted by eWeek, Qualcomm shot back that it thinks that the sale should be consummated without delay:

FCC should approve the pending AT&T-Qualcomm spectrum sale now because of the clear benefits to the public from the sale that stand on their own and are totally unrelated to the proposed AT&T-T-Mobile merger.

If the merger gets approved, the current betting is that it would be heavily constrained by conditions. I’m not optimistic about the spectrum sale surviving those conditions.

With the FCC’s ruling, the best case for Qualcomm is that the T-Mobile acquisition be denied. AT&T will badly need to additional Qualcomm spectrum and the antitrust issues largely go away.

The 2nd best case is that Verizon Wireless buys the spectrum if AT&T doesn’t. However, given the sickly nature of the rest of the US cellphone industry, Verizon will know it’s the only serious bidder left and (I suspect) would pay less than AT&T’s winning bid last December.

This case raises yet another objection to the proposed merger. Most of the objections have focused on the duoopoly of carriers that reduce choice for cellular subscribers. Here we have one (of many) example for the oligopsony side: what impact would having only two large scale buyers for phones, infrastructure, spectrum, on-deck applications and other key mobile technologies.

Smartphones could solve prepaid carrier problems

2011-08-10T10:42:00.001-07:00

MetroPCS and Leap Wireless reported disappointing earnings last week. MetroPCS stock plummeted after missing analyst estimates by 20%, dragging down Leap with it.

MetroPCS has been a hot stock. It’s the fifth largest cellular network operator — only MVNO TracFone and the Big Four are larger — and has the fastest growing network. It’s been aggressively advertising in its local markets, and through a roaming agreement with Leap claims to provide (voice) coverage for 90% of the US population.

Its Q2 results were not all bad — with 19% YoY increase in subscribers, and an “adjusted” EBITDA up 11% over Q1.

With the bad news, the stock has lost its high-flying multiple. Since the Aug. 2 bad news, it’s dropped almost 50% below where it traded since May.

Some were quick to announce MetroPCS’s impending doom. In Fortune Scott Woolley wrote:

The question now is, can the company's stock claw its way back? Yesterday's tumble reflects increasingly visible cracks in the budget provider's armor.

Certainly costs per subscriber are rising faster than ARPU.

At least MetroPCS is showing a profit. The shares of Leap (operator of the Cricket network) fell 32% after its quarterly loss more than doubled compared to a year ago. The stock had already fallen 20% due to fears raised by the MetroPCS disappointment.

Why are the two discount prepaid carriers facing such problems now? One factor mentioned is that they are facing increased competition from #3 carrier Sprint. Certainly its Virgin and Boost brands are aggressively competing with unlimited service plans in the $40-60 range that directly target the two prepaid carriers. (Interestingly, all three are CDMA carriers, and of course Leap is a Qualcomm spinoff).

I see a different problem. Thanks to the iPhone success, almost every man, woman and child wants a smartphone, which in the US today means either the real thing or the Android substitute.

While the iPhone remains exclusive to the Big Two, Virgin has a good range of (slightly delayed) Sprint Android phones which has enabled it to grow rapidly. From my own brief experience as a MetroPCS customer last week, its Android offerings do not yet measure up.

It’s clear that MetroPCS knows that Android is crucial to its near-term success. Both CEO Roger Linquist and COO Thomas Keys talked extensively about Android phones during its earnings call last week. So if this is only a temporary problem — with “good enough” phones coming down the road — then subscriber growth and earnings may turn around.

Meanwhile, for more than a year Leap has needed the scale that its larger and faster-growing rival could provide by acquiring it. With its smaller subscriber base and incompatible data strategy, it will have even a harder time getting the latest Android phones.

Both MetroPCS and Leap are beneficiaries and victims of commoditization: they are using price to compete, but need acceptable quality commodity (i.e. Android) smartphones to be attractive to prospective subscribers. The decision of the Big Two to end unlimited data plans creates an opening for both if they have the right products.

The collapse of the MetroPCS stock makes it less likely that the long-fought merger will happen. For antitrust reasons, I think it unlikely that Verizon would be allowed to buy either carrier, and so far Sprint has been too sickly to consider further acquisitions.

I believe the next 18 months are crucial for both companies: if their offerings are considered comparable to the (non-iPhone) offerings of the Big Four, then their subscriber and ARPU growth will continue. Otherwise, they may become cheap enough for even Sprint to afford them.

Will Qualcomm lose billions on T-Mobile acquisition?

2011-03-29T23:07:00.000-07:00

The proposed AT&T acquisition of T-Mobile raises serious antitrust issues, which have yet to be investigated by the FCC. (Of course, if the deal is blocked, T-Mobile’s long-term viability will be called into question.)

One casualty of the merger controversy could be Qualcomm’s expected windfall unloading the spectrum from its unsuccessful MediaFlo venture.

The FT reported Wednesday:

[T]he Washington-based Rural Cellular Association, which represents nearly 100 rural and regional telecommunications network operators in the US, told the Federal Communications Commission that it should delay AT&T’s proposed acquisition of the Qualcomm spectrum.

“AT&T is on a spectrum buying binge, including both this Qualcomm acquisition and the recent announcement that it will acquire T-Mobile,” said Steven Berry, the association’s chief executive.

“These actions are further proof that AT&T is doing everything possible to strengthen its already dominant position in the wireless industry at the expense of competition.”

I don’t know how seriously the criticism will be taken, but their logic is understandable: helping AT&T get more spectrum was less anti-competitive when taken separately rather in combination with buying their largest GSM rival.

The other implication, unfortunately, is that if AT&T can’t buy the spectrum, who will? If Verizon knows it’s the only serious bidder, it will try to buy it for 40¢ or 50¢ on the dollar.

I’m guessing independent network operator LightSquared could use the network to build a nationwide LTE footprint, and Qualcomm spinoff Leap Wireless (aka Cricket) would certainly be happy to have more spectrum for its LTE supplier.

However, I’m guessing LightSquared can’t go to its VCs and say “you got an extra $2 billion lying around anywhere?”

So if not sold to AT&T or Verzion, I suspect Qualcomm will need to sit on its spectrum or find some other use: the sub-10% market share carriers have less cash than it does to buy its valuable spectrum. Its balance sheet at the end of FY 2010 (Sept 26 2010) showed $18 billion in cash and cash equivalents.

Paul's fifth anniversary

2011-03-10T09:23:00.001-08:00

Both Xconomy and the U-T covered this week’s shareholder meeting. (I’m sorry I couldn’t make it, but it’s been harder to cover the meetings since I moved to Silicon Valley.)

Former U-T writer Bruce Bigelow focused on the five year anniversary of Paul Jacobs being promoted to CEO, while the U-T focused on the share price.

Alas for shareholders, the latter story is far less interesting. Now at $54, the stock has never tested its record $88 close at the end of 1999, at the end of the telecom bubble. While the stock has recovered wonderfully from its post-NASDAQ low of $13, for the past five years it has gone back and forth in a broad trading range of $30-60.

In that regard, it almost exactly mimics my Apple stock in the 1980s, when the correct strategy was to wait for the shares to double to $50, then dump them, and buy them back as they got closer to $25. (This strategy would have only worked twice in the last seven years with AAPL, with the dips of February 2008 and December 2008 legitimate buying opportunities.)

While 2010 provided record net income, sales have essentially been flat for the past three years. The stock price is highly dependent on the growth multiple, and the U-T quoted an analyst who’d downgraded the stock due to slowing growth.
So while the industry is continuing to expand its use of mobile data services — the driver of profitability for QCOM in this century — it’s not clear how much of that will accrue to the share price and its shareholders. The pressure on QCOM over the past few years has been the commoditization of even high-end handsets, pushing down wholesale prices and thus the basis for QCOM’s royalty payments.

As Bigelow recounts, Jacobs fis has a sound strategy for expanding Qualcomm’s influence and reach in the wireless industry, beyond cellphones and (with the Atheros purchase) beyond cellular to Wi-Fi and other forms of wireless communications. Still, it’s not clear whether these efforts will grow the company or merely replace shrinking revenues in existing business.

In this regard, Qualcomm is looking like any other mature tech company, like IBM, HP or Intel. A retailer or other low tech company can usually count on the same revenues year in, year out — but Moore’s Law tech companies must accepted that the old products will decline in price and thus must be replaced by upgraded or entirely new products.

Perhaps the world’s largest semiconductor company offers a ray of hope: Intel revenues were declining from 2007-2009 until things rebounded in 2010 with revenues up 24% and record earnings. According to its January earnings call, Intel benefitted from exposure to rapidly growing product categories and geographies. It remains to be seen whether Qualcomm’s diversification will bring it similar dividends in 2011.

San Diego to WSJ: what about us???

2011-02-10T09:14:00.001-08:00

The front page of the Bay Area edition of the Wall Street Journal this morning proclaimed: “Wireless Industry Calls Valley Home.” The inside headline said: “Phone Makers’ New Area Code: 650.” For members of the San Diego telecom industry, those should be fighting words.

The premise of the story:

According to IDC, sales of smartphones are expected to grow 39% world-wide this year from 2010 to 421 million units. More than 40% of those devices will run on operating systems developed within 10 miles of each other in Silicon Valley.

The article by veteran tech reporter Yukair Iwatani Kane presented a oversimplified and distorted version of the US wireless industry. It played up Sony Ericsson — the has-been cellphone marker in 2010 to 6th in global market share and off the map in smartphones. It never mentioned chips at all — nor Qualcomm, the largest cellphone chip maker or its San Diego hometown.

However, Kane can’t be held responsible for the most glaring error, that of the headline: the iPhone, its OS and app store are developed and run in the 408 area code.

Still, if the measure of mobile phone leadership is software platform market share (arguable but plausible), Silicon Valley is out in front. It didn’t have to be so: Seattle (through Microsoft) had many chances but blew it, and London was ahead for a decade (due to Nokia’s investment in Symbian Ltd.) until Nokia started to fold.

This of course is about the secular shift in cellphones: it’s not about the radios and networks, it’s about the software, platform, application and the Internet. (Intel’s dreams notwithstanding, the chips are all ARM licensees which means Qualcomm must fight relentlessly to gain and maintain market share.)

If the fight is over software, then San Diego will play a decreasing role in the growth of the wireless industry. When I helped start the SDSIC in 1993, we were concerned about the region’s ability to support local software companies, and modeled some of our practices after Silicon Valley forebears. Despite our hopes, the region’s software industry never grew all that much — certainly trailing Silicon Valley, Seattle and several other cities.

UCSD and Qualcomm alumni are starting firms, but the software engineering and VC talent will remain concentrated elsewhere in the state.

Qualcomm itself would rather switch than fight. Under Jacos fils, it’s become less interested in San Diego and is expanding in the Bay Area to get local design wins and tap its software and Internet expertise.

Effect of zombie portfolio on LTE royalties?

2011-02-03T23:37:00.001-08:00

The WSJ reports that the liquidation of Nortel is moving on to its portfolio of 4,000 telecommunications patents, worth as much as $1 billion.

The most strategically valuable are those related to LTE, given that the Canadian firm was aggressively developing 4G technology before it went bankrupt two years ago.

The WSJ listed four telecom firms as likely bidders — Apple, Google, Huawei and ZTE — all firms relatively light on 3G and 4G patents.

However, the article mentions as a possible bidder only one of the four major 3G patent holders: Nokia, Ericsson, Qualcomm and InterDigital. The latter is mentioned in the same breath as Intellectual Ventures, Nathan Myhrvold’s well known Silicon Valley patent troll:

Closely-held Intellectual Ventures and InterDigital use patents for offensive purposes, licensing them as broadly as possible and asserting them in infringement suits against companies that refuse to take a license.

A possible rival bidder is RPX, a “defensive patent aggregator” that lists Google, HTC, Huawei, Nokia, RIM and Samsung as members. For obvious reasons, Qualcomm is not a client of the company.

Without knowing where the patents will end up, it’s impossible to predict their impact on Qualcomm’s QTL division and its IP-based business model.

However, with two rare exceptions — Broadcom and Nokia — large patent portfolios in the hands of other telecom companies have had no significant impact on the QTL business. Qualcomm has managed to cross-license patents with its customers (including more than 15 years with Nortel) without jeopardizing its royalty rate.

If the patents go to Apple, Google or one of the Asian makers, I don’t think it will impact Qualcomm‘s royalty rate. (Instead, Qualcomm’s pricing power will depend on the relative strength of its LTE portfolio vs. its 3G or cmdaOne holdings.)

I think the story is different if the patents are acquired by IV or InterDigital. Either might choose to sue Qualcomm’s LTE chips for infringement, and — unlike Nortel, Samsung or even Broadcom — they lack their own hostages that QTL can threaten with its patent portfolio. Still, I think Intellectual Ventures is a far more serious threat to QCOM than InterDigital.

In 1993, InterDigital sued Qualcomm (and was countersued) over 2G CDMA patents. The upshot was that Qualcomm paid InterDigital a flat $5.5 million settlement while InterDigital customers paid royalties for use of Qualcomm’s patents. InterDigital’s has been settling with smaller firms, but lost a major case against Nokia in 2009.

InterDigital stock has doubled in less than five months, but is still trading an discount to Qualcomm’s. They have an incentive to rebuild their patent portfolio to strengthen their hand in 4G licensing.

Given they cut their R&D back by 30% in 2009 — and their 2010 quarterlies suggest that R&D remains cut — I don’t see how InterDigital could afford to buy even one of the six portfolios. It’s also not like them to partner — the don’t need a license to patents but the right to assert — but perhaps they could presell rights to the patents they buy to existing customers to help pay for the cost.

Atheros purchase continues shift north

2011-01-07T09:44:00.001-08:00

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.)

View Larger Map
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.

Life after Qualcomm: Sanjay's big reward

2011-01-04T23:59:00.000-08:00

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.

End of Qualcomm's TV career

2010-12-21T23:59:00.000-08:00

On Monday, Qualcomm announced it had sold its FLO TV 700 MHz spectrum to AT&T for $1.9b. Most of the articles focused on how AT&T will have enough spectrum to roll out LTE after the PR disaster of its 3G network congestion, post-iPhone.

By one estimate, Qualcomm spent $683 million for the former UHF Channel 55, whose national rollout to AT&T and Verizon customers was delayed when Congress (and the administration) delayed the DTV switchover in a futile attempt to prevent any inconvenience to analog TV owners.

The concept of FLO was twofold. First, broadcasting is a more efficient way to deliver spectrum-intensive video; second, Qualcomm had the money, connections and chutzpah to create a nationwide multichannel TV network.

FLO has been in critical condition much of the year. After an upbeat assessment for the NYT in May, a month later later CEO Paul Jacobs admitted problems but ruled out any closing:

“We are not shutting down MediFlo. … We’ve always said to our investors that we’re going to either sell it or spin it someday. It’s been that way from the very beginning so the question is to just find the right partners to work with and what’s the possibility to get more usage of it.”

Seven weeks later, Jacobs said that the company was looking to sell the service.

What happened to FLO? In July, Eric Zeman of Information Week said it was the price ($10/month), lack of devices and delayed release. For consistency’s sake, Zeeman said three years earlier that it was overpriced with no real market.

I think price is part of it. A related issue is that consumers were paying $10/month for increased spectral capacity that helped carriers, not necessarily something they would see or directly value. (Of course, if it’s a carrier pain point, perhaps they should have charged less).

But I also think the Internet has created a generation of instant-gratification, asynchronous entertainment consumers. Gone is the decade when the whole country tuned to watch Ed Sullivan on Sunday night (or I Love Lucy or All in the Family or Who Shot JR?) Today YouTube and Hulu (and iTunes and Amazon and Netflix) promise Generations Y and Z instant video gratification, whenever and wherever they want it. I think there’s no going back, at any price.

With the end of FLO, Elizabeth Woyke of Forbes suggested that it pointed to a pattern of failure for Qualcomm, after a 2005 Forbes checklist that also included Wireless Knowledge and Digital Cinema. (The earlier story noted that the latter failures were initiatives championed by Jacobs the younger before ascending to CEO, a point Woyke politely left out of her story).

In one of his earliest executive positions, Jacobs ran the QCP handset division for Qualcomm — which was a product failure but a strategic success. On the one hand, Qualcomm never learned how to make handsets and eventually both it and its Sony JV partner gave up (Sony later joining with Ericsson to learn its secrets). On the other hand, the exit came after the 2G IS-95 (later known as cdmaOne) was well established with multiple handset suppliers.

What are the consequences of failure. I recall a Sept 2006 telecom council event when Gina Lombardi, then-president of the FLO TV subsidiary, was prominent at the QCOM annual meeting and part of Paul’s inner circle. In January 2009 she was pushed aside, and left the company that fall (after 19 years there). So far her successor, former Handango CEO Bill Stone, remains a top Qualcomm executive.

So what is the lesson going forward? Certainly Qualcomm is a lot like Intel: it’s good at technology, its original franchise was a license to print money, but it has a mixed record creating products consumers want to buy.

It has done an excellent job of expanding its semiconductor business from radio modems to smartphone processors, particularly with Android smartphones.

But I think the reality is that the US wireless industry is bigger and messier and less malleable than in the early 90s when Irwin Jacobs pushed through CDMA and brought it to market. It’s also more linked to international standards, with lead cdmaOne and CDMA-2000 customer Verizon, forcing Qualcomm to kill its own 4G option two years ago and support LTE.

Fortunately, one other legacy strategy from Jacobs père remains crucial for Qualcomm’s success today. Cofounder Irwin Jacobs pushed aggressively to invest in rapidly growing overseas markets, most notably China but also Korea and India. Jacobs fils is continuing these efforts, even if all three countries (and Southeast Asia and South America and other developing countries) continue to be challenging places to do business for a heavily regulated industry like telecom.

A tale of two commodities: Android and discount CDMA carriers

2010-11-29T12:01:00.000-08:00

It’s no secret that Qualcomm has played a major role in getting Android off the ground — going back to the public launch of Android in 2007 — and has been rewarded handsomely for its aggressive bet.

The goal of Android is to make smartphones a commodity, and in the US it’s been quite successful. By supporting Android, carriers hoped that it would spur adoption of wireless data plans, even at the risk of making them a commodity.

Thus it was surprising to discover this weekend that two of the US cellular carriers most responsible for commoditizing voice service — Leap (Cricket) and MetroPCS — have very different Android strategies. The two are so similar in strategies (including their use of CDMA) that there have been repeated calls for them to merge despite Leap’s repeated rejection of the MetroPCS advances.

Like other San Diego companies with ties to Qualcomm, Leap has been aggressive in supporting and promoting Android. In March it became the first discount carrier to announce an Android handset, the Kyocera Zio. Its website is promoting its second Android handset from Huawei, and it even has billboards around San Diego announcing $55 for its Android smartphone unlimited voice/text/data plan.

Meanwhile, MetroPCS launched its first Android phone last Wednesday, from LG. However, you wouldn’t know it from visiting the website unless you tried hard to find the (one) Android phone among its offerings.

Still, MetroPCS is a little more aggressive on the pricing: $50/month (vs. $55 + fees for Cricket and $80 + fees for Sprint). MetroPCS has often started price wars in the cellphone industry, so this may put pressure on the other carriers to cut their prices. Also, as one of the top five global carriers, LG has a better brand than Kyocera or Huawei (even if it doesn’t quite match Samsung or Motorola in the US).

Interestingly, when I was researching this blog posting, MetroPCS asked me to take a survey about future purchases, which focused on smartphones but also asked about tablets and WiFi hotspots (like MiFi). They even asked about the iPhone, even though the availability of a premium iPhone on a discount carrier seems a long way off.

Starting up without VC: the old and new normal?

2010-11-26T00:01:00.000-08:00

In my entrepreneurship research, one of the clearest trends of the last few years is how financing for startups has dried up. Banks have tightened capital requirements, pension funds and angels lost millions or billions in the market crash, and many of the former VCs are gone.

Last week, the WSJ had a great article on the national trend that was illustrated by problems of local San Diego firm. The national statistics were grim, with new firm creation peaking in 2005, and the past three years seeing net job losses.

The article illustrates the national trend by looking at the San Diego tech industry. notes the history of tech startups in San Diego dating back to Linkabit and Hybritech

It focused on serial entrepreneur Derek Smith, founder of wireless startup Tesla Controls. It also mentioned would-be entrepreneur (and UCSD assistant professor) Deli Wang and the director of UCSD’s Von Liebig Center.

From my study of the SD telecom industry going back to Linkabit, what was striking was what was not mentioned: the new normal is the old normal. Linkabit was started by three college professors who put in $500 each (and then later got a round of angel funding to expand.) Qualcomm also started with modest funding, as did most of the 1st generation Linkabit spinoffs from 1980 to 1993 or 1994.
The VC-funded model allows for faster growth, at the risk of losing control and the company. The other alternative is is bootstrapping, which certainly require patience (and send the firm towards self-funding niches), but also allows the founders more say over the firm’s direction. Bootstrapping is also the normal mode for most startups, including most of the SD telecom startups.
Other than Enterprise Partners, San Diego has never had a sizable local VC firm. Money was readily available from local (or Silicon Valley) VCs in the late 1990s, but not really before or since. Given so few SD telecom firms reached an IPO — 11 by my last count — it makes sense that VCs would shy away from funding startups with limited options for liquidity.

The software startups will probably do fine without VC. Those that want to make something will have to bootstrap using consulting work — the way that Linkabit, Qualcomm, ViaSat and others did. Rather than chasing VC that has gone away, perhaps Connect should go back to helping firms get started — as they did when I attended my first Connect event back in 1985 or 1986, soon after Bill Otterson had founded the group.

Qualcomm's next monopoly

2010-11-14T00:01:00.000-08:00

Qualcomm was among the first Fortune-500 backers of the Android alliance when it was announced by Google three years ago this month. Qualcomm won a design win for the first Android phone, and has aggressively invested to leverage its local ecosystem to develop and port technologies to Android.

Paul Jacobs seems to understand embedded software more than most cellphone CEOs — which is why his former COO rationalized Motorola’s platform strategy and seems to be turning the once-great US maker.

Qualcomm’s early efforts seem to be paying great dividends. A report by PRTM in Forbes found that of 57 Android-based handsets they studied, 77% used Qualcomm chipsets.

The PRTM analysts provided specific evidence of the long-predicted commoditization of handset makers by the Google OS. There are lots of handsets running the same software, making it nearly impossible for any handset maker to use software to achieve differentiation (as Apple has).

However, they go further in predicting Qualcomm-Google monopoly rents:

[M]ost of the handsets–77% of the sample–are based on Qualcomm chip sets. Seasoned observers may find this ominous. Over the years, Microsoft and Intel have captured far more value than the makers of the PCs. Will “Quadroid” become the new Wintel?

This is not just Android: Qualcomm has enjoyed increasing market share in smartphones.This part of a broader shift of revenues and profits from patent licensing to an increasing dependence on chip sales.

However, unlike Microsoft or Intel, Qualcomm has always faced competition in its chip business (if not patent licensing). If Apple can get into the smartphone/tablet CPU business, then Qualcomm will have other firms offering ARM cores — not to mention yet another effort by its arch-rival Intel to enter the mobile business.

So the recent trend is positive for Qualcomm’s chip business — and even if it loses some share points, revenues will grow along with Android’s explosive unit share growth. At the same time, its enviable margins will invite further entry, whether by chip makers or handset makers.

Metro leapfrogs 3G to LTE

2010-09-21T21:54:00.000-07:00

Dow Jones, PC Mag and others report that CDMA discount carrier MetroPCS is the first US carrier to offer LTE. (That effectively means 2nd for 4G, after Sprint’s WiMax, and ahead of Verizon’s planned LTE launch before the end of the year.)

It launched the service in Las Vegas, but plans 3 other cities by the end of the year.

PC Mag says that the new Samsung Craft is “the world’s first LTE phone,” a dual 2G/4G phone. DJ notes that Samsung supplied the LTE infrastructure for Las Vegas, as well.

This is a rare example in the cellphone industry of “the last shall be first.” Metro skipped 3G altogether, saving a significant investment. Also, roaming for 3G in the US seems to be a lot less common than for 1G or 2G, so the company doesn’t lose anything by not having 3G hardware.

Normally, companies that are low-cost providers don’t lead technological innovation — it’s contradictory to their basis of competitive advantage.

In this case, MetroPCS hopes to gain cost savings by migrating voice off onto LTE-enabled VoIP.

So much for smartbooks

2010-09-09T23:06:00.001-07:00

Qualcomm's effort to create a “smartbook” are officially dead. While a major strategic push in 2009 was creating a mobile communications device that’s in between a smartphone and a laptop, Paul Jacobs admitted Wednesday that the plan is dead.

Instead, Jacobs reportedly admitted that the iPad has filled that niche, in his talk at the IQ2010 event in London. (I say reportedly, because there are no transcripts, videorecordings, or press releases of his talk, and few if any direct quotations).

I never quite got the “smartbook” concept, because it was always somewhat like a netbook or a laptop. The advantage the iPad has is that it‘s a device that can be used in a different way than a laptop — standing up, in a restaurant, on a Southwest flight, etc. — but with some of the screen real estate and computing power of a laptop.

Even if smartbooks have lost to tablets, all is not lost. Unless WiFi coverage gets dramatically better than today, there will be a demand for 3G (or 4G) chips for these tablets as well as ARM-enabled processors like the QCT Snapdragon. And except for HP's (webOS) and Apple’s (iPhone OS) tablets, most will be running Android, which Qualcomm and its ecosystem are well-equipped to support.

Qualcomm progeny are Android partners

2010-03-24T01:33:00.001-07:00

Qualcomm has very close ties to the Open Handset Alliance and its Android operating system. Thus, it’s not surprising that its Leap Wireless spinoff is winning the first Android handset for a discount carrier.

Leap’s discount brand, Cricket, is believed to be the first carrier for the new Kyocera Zio. Along with Metro PCS, Cricket has been promoting price competition in the handset business through its flat-rate pricing.

Leap was created as a 1998 spinoff of Qualcomm’s cellphone licenses. In the final irony, Kyocera got into the CDMA handset business when it bought Qualcomm’s handset business in 2000.

Qualcomm in bed with everyone, including the Borg

2010-02-15T23:55:00.000-08:00

Qualcomm has committed itself to supporting all possible smartphone platforms: Android, BlackBerry, Symbian, Windows Mobile and someday it hopes the iPhone.

At Mobile World Congress on Monday, Microsoft CEO Steve Ballmer announced the latest Windows Phone, Windows Phone 7 (née Windows Mobile). Perhaps inspired by the iPhone — or perhaps Windows PCs — Microsoft will be dictating all aspects of the new devices, including the Zune-inspired user interface. (Right now, I’m watching the first “Star Trek” episode involving the Borg — an eerie coincidence?)

In conjunction with the Microsoft announcement, Quacomm announced it will be the first to support WP7 with its Snapdragon chips in the first batch of WP7 devices, in time for the Christmas selling season. The 1 GHz Snapdragon — used in the Nexus One — was welcomed as the fastest CPU available today for the new Microsoft platform.

Of its supported platforms, in the short term clearly Android and BlackBerry will be the highest volume for Qualcomm. But perhaps Qualcomm will someday displace TI and ST Micro as the main chip suppliers for Symbian handsets from Nokia, which are still the world’s market leader.

Predicting the past is easy

2010-02-03T09:17:00.001-08:00

CNBC yelling head Jim Cramer trashed Qualcomm’s stock on Tuesday night, after last week’s disappointing earnings guidance for the current quarter. (This is by someone who earlier this month owned the shares).

Qualcomm attributed the problem to delayed 3G demand in developing countries while smartphone prices are falling in the developed countries. Both hurt the company’s royalties. One analyst suggests that the company also faces increased 3G chipset competition, particularly selling to Samsung.

Shares fell 14% Thursday on the news — it largest drop in almost 10 years. Most of the fall came in after hours trading Wednesday after the earning announcement.

So on Tuesday night, Cramer talked about Qualcomm using various technical analysis tools, concluding that most of the selloff was over:

Cramer said this doesn’t mean that Qualcomm is done going down, even as it has some 2010 catalysts such as share gains in Nokia, the increased adoption of 3G and 4G smartphones, new design wins, and expanding markets like netbooks, iPads and eReaders that use QCOM’s technology.
…
The bottom line: Qualcomm is guilty before its proven innocent, Cramer said. On Wall Street that means investors need not one but two quarters before anyone can ever “fall in love with Qualcomm again.”

To this, one of CNBC’s readers replied [links added by me]:

OK, let me get this straight. Cramer tells us on January 7th of this year that Qualcomm is one of the 10 players of his "mobile Internet tsunami". On that day Qualcomm was trading at $49.15. Now, when it is south of $40.00, he's suggesting that we bail. Hummmmmm. Better yet, if you put 10K on all of the mobile internet plays outlined by Mr Kramer and posted by CNBC on Jan 7th, you would be down about $18K. Not bad for 3 weeks work!

In other words, predicting the past is always easier than predicting the future.

This reminds me a little bit of the Apple shares that I owned in the 1980s — the shares would go up on good news and down on bad news. When Steve Jobs came back, few anticipated his ability to deliver a decade of sustained economic growth.

After the shares collapsed at the end of the telecom bubble, Qualcomm had a good run from 2002 to 2006, but has been going sideways every since. The drivers of its income growth have been are industry growth and diversification into new markets, with most of the bottom line coming from the former. However, as markets mature, competition increases. The commoditization facing its main customers (handset makers) is not going to end any time soon.

Disclosure: Several years ago, I sold all my Qualcomm shares, because I decided that writing about Qualcomm and other San Diego telecom companies was more uniquely important to my career than owning shares was to my portfolio.

Past time for Leap and Metro PCS to merge

2010-01-17T14:46:00.000-08:00

San Diego-based Leap Wireless has been rebuffing efforts by its frenemy MetroPCS to buy it since 2007. With the latest price cuts by the Big Four carriers, it is past time for the two firms to merge, gain economies of scale and attempt to go national before their market window closes.

Despite the bad blood between them — fueled by Leap’s belief that Metro PCS copied its CDMA-based Cricket Wireless business plan — the two companies finally formed a roaming alliance in late 2008.

Without a merger, each firm is presumably seeking its own exit strategy. Since Sprint is in no shape to buy either one, I’m guessing both Leap and Metro are hanging on in hopes of being bought by Verizon Wireless the way that Alltel was. However, this now seems an unrealistic hope. The Obama administration has signaled a much more hostile attitudes towards mergers by market-leading oligopolists than was ever true under the laissez-faire Bush administration.

Meanwhile, the Big Four are now responding to the pressure that Leap and Metro have helped place on their business models.

In the second half of 2009, the Big Four instituted drastic price cuts in their unlimited voice plans — first with their prepaid brands of the major carriers and then by #4 carrier T-Mobile. On Friday, the pressure on the two firms increased when both Verizon and AT&T cut unlimited voice service from $100 monthly to $70. This puts pressure on both carriers to justify why subscribers should pay $40-50/month for their smaller and less reliable networks.

Last summer, I predicted further commoditization, arguing that a Leap-Metro PC merger was long overdue:

The price wars in prepaid are only going to get more brutal, as MetroPCS and Leap both fuel the wars and respond to efforts by TracFone, Boost (Sprint), Virgin (Sprint) and GoPhone (ATT). Combining the two wouldn’t guarantee success, but it would expand and smooth their footprint while nearly doubling their respective scale for buying and other efficiencies.

Even if they combine their 11 million subscribers, building out a quasi-national network will take time: it took VoiceStream (now T-Mobile) more than a decade. As they build out their networks, the quality gap in voice will diminish, although the demand for a comparable 3G (and then LTE) footprint will only increase.

As smart phone prices companies will also need to add ever-cheaper smartphones as BlackBerry prices continue to fall and the two Korean CDMA manufacturers roll out more Android models.

Len Lauer surfaces at Memjet

2010-01-15T22:53:00.000-08:00

Last month, Len Lauer stepped down as COO of Qualcomm to be CEO of an unnamed company. It turns out it’s Memjet of San Diego.

Given the big risks I see with the Memjet strategy, I’m not sure I understand his decision. Is it a great opportunity? Is it a chance to become CEO when getting the top job at Qualcomm is not in the cards? Was it looking for the best opportunity available in San Diego?

Only time will tell, I guess.

Symbolic Snapdragon success

2010-01-06T00:54:00.001-08:00

The new Google Nexus One incorporates a 1 GHz QSD 8250 “Snapdragon” processor, part of a series of design wins that includes the Google G1.

I think there are two aspects to this announcement.

First, Snapdragon has been recently promoted as the heart of the Qualcomm-promoted “smartbook” and its push beyond the cellphone, and indeed Lenovo announced a Snapdragon-powered smartbook on Tuesday.

In other words, the Snapdragon is a new, market-creating processor but its most important sale in 2010 could be in QCT’s traditional core market, high-end cellphones.

Second, the announcement validates Qualcomm’s strategic commitment to Android, and perhaps suggests that its Android bet may displace its bets on various other operating systems.

Len, we hardly knew ye

2009-12-28T22:14:00.001-08:00

On the day before Christmas, Qualcomm announced that its COO Len Lauer is leaving to become CEO “at another company.” Although his hiring was a big deal three years ago, I didn’t see him quoted a lot during his time as group president and later COO.

I kept waiting for someone to leak what that company is, but no one has said — and he refused to say when the UT asked him Thursday. (My hunch is that the former CEO of Sprint Nextel is not leaving to head a small startup.)

A few things bother me about this announcement. I agree with Sebastian Rupley of GigaOM:

I know companies don’t typically release news a day before Santa’s visit, unless they want to push things under the carpet.

He’s right, but no one is going to brag about losing a top exec and so that part’s understandable.

I’m only slightly bothered that Lauer was one of the troika of leading execs at the Dec. 16 annual Qualcomm “town hall” for the local telecom community — and then 8 days later he’s gone. It’s also curious that the December 2006 press release announcing his appointment has been deleted from the US website (but not the Russian site or the Google cache).

More seriously, one of the things is that we’re seeing the replay of what happens at any big company where there’s no chance of becoming CEO — the most experienced execs are leaving. Then-COO Sanjay Jha in August 2007 left to become Motorola’s handset CEO (when/if it’s spun off).

Yes, it’s a testament to the quality of the people at Qualcomm, the experience they gain and the value that other firms place on that. (Of course Lauer had excellent operating credentials before joining Qualcomm.)

However, when your CEO is 47 and the scion of one of the founding families, it’s obvious that it’s going to be a long, long time before anyone else gets to control the reins. I haven’t seen any evidence that Qualcomm is prepared for its new role of providing executive talent to the rest of the industry.

It would be good if the board were populated with someone who lived through the two decade Jack Welch era at GE, where the company groomed talent and saw them bail out in despair of ever taking the gold ring.

Perhaps some of the GE experience can be used to keep good talent longer. In retrospect, some of the GE CEO wannabes — think Nardelli — turned out to be spectacularly bad CEOs without the GE infrastructure behind them. Qualcomm has a unique position of strength in an industry that still is growing (at least a little), and it may hard to be a huge success in a company or industry that poses more serious challenges. (Exhibit A: Ed Zander.)

There was one other troubling thing about the announcement. With Lauer’s departure, Qualcomm is juggling responsibilities between people to fit the men (they’re all men), just as they did when Lauer was appointed 33 months ago.

I’ve never been an executive in a Fortune 500 company, but it seems to me that the lines of the various divisions should be consistent and not re-juggled based on who’s available this week to run them. On the one hand, QCT head Steve Mollenkopf has the operating experience most relevant to running (as he now will) Qualcomm MEMS Technologies, makers of Mirasol.

On the other hand, will running QCOM’s biggest division cause the QMT growth possibilities to be neglected? And if this was such a good idea, why wasn’t it done earlier? Lauer’s service business were assigned to president Steve Altman, and it appears the top rungs of the executive team also includes Andrew Gilbert Derek Aberle (head of QTL, historically Qualcomm’s most profitable division.)

I’m guessing that another re-assignment of responsibilities will come in the next 12-15 months. Hopefully, that will be as the result of substantial growth from one of Qualcomm’s newer divisions (like QMT or MediaFlo) rather than more juggling to fit the changing personalities in the executive suite.

Updated Dec. 30: As a Qualcomm reader points out, Derek Aberle is head of QTL while Andrew Gilbert is head of Qualcomm Internet Services.

Update: see this report of Len’s new job.

Qualcomm: beyond the cellphone

2009-12-18T09:34:00.000-08:00

CEO Paul Jacobs and two of his top executives were on stage Wednesday for the annual San Diego Telecom Council CommNexus “Qualcomm Town Hall”. Deutsche Bank analyst Brian Modoff pitched his own questions, as well as ones texted to him by audience members.

Bruce Bigelow covered the story for Xconomy San Diego. (At the reception beforehand, I chatted with Bruce — we’d never met although I’d traded emails with him when he was at the U-T.)

Bruce’s story focuses on one of the major themes for Qualcomm nowadays, which is the ongoing shift from voice to data. He emphasizes discussion of 4G deployment, although the 4G questions were all about LTE (particularly Verizon’s rollout starting next year) rather than WiMax. And indeed, looking at my notes, 4G/LTE was one of the major topics of the evening.

As Bruce notes, Jacobs noted that the 4G rollout will happen over time. One question relayed by Modoff: analysts are asking was when will there be single mode LTE devices? The answer was that there will be multimode devices as long as analysts have a job on Wall Street — and Jacobs added “hopefully that's not because they have a short career.” Jacobs also talked about limited prospects for improving spectral efficiency with 4G, something he and his dad had discussed in their rare joint keynote at CTIA in October (also held here in San Diego).

Still, in listening to Jacobs talk, I found at least one answer to my longstanding question: how will Paul be different than Irwin?

The short answer: Irwin is about radio and Paul is about mobile computing.

Yes, Irwin was UCSD’s most computing-oriented professor at the APIS department back in the 1960s — to the point that the department chair despaired of losing him when he left on leave in 1971 to take charge of Linkabit. However, Irwin’s publications and influence were as a popularizer and entrepreneur for Shannon theory, including his greatest career accomplishment — turning CDMA into a business.

And certainly Paul has his Berkeley EE PhD and can talk spectral efficiency with the best of them. But his career and his passion seems to be as a device geek, and Wednesday’s session seemed to emphasize that he is taking Qualcomm not just beyond voice, but also beyond the cellphone. (Of course, he was also born into the software/microcoding era, and has fully internalized software-based device design to a degree that perhaps Dad never could).
Indeed, the idea of Qualcomm beyond cellphones was a recurring theme during the executive Q&A. Beyond LTE, two other topics that came up over and over were the Snapdragon chip and the FLO TV 700 Mhz broadcast television service.

Prompted by Modoff, QCT president Steve Mollenkopf kept coming back to Snapdragon over and over again. It’s not clear how clear how successful the Qualcomm ARM cpu/communications chip will be, but it was very clear that pushing Snapdragon is one of Qualcomm’s major strategic thrusts for 2010 as it moves into mobile devices such as “smartbooks”.

Mollenkopf was asked to compare Snapdragon vs. Intel’s Atom. He made it clear that they’re in different niches now, but eventually the two products (and presumably companies) will be directly competing. Indeed, it’s hard to imagine how the Snapdragon smartbook will be distinct from an Atom netbook in 2011 or 2012 — other than the choice of operating system (Android or perhaps Windows CE vs. genuine Windows).

The other non-cellphone device that came up was the Personal TV portable device that Qualcomm is selling to promote use of FLO TV in the US. COO Len Lauer pulled it out more than once — and also mentioned that it was available at Best Buy, Amazon and Radio Shack. His ongoing plugs for the PTV became a sort of running joke for the evening.

It was not clear where the PTV is an attempt to bypass cellphones to win FLO TV adoption, or merely to create a buzz and urgency while waiting for cellphone makers and the Big Two (AT&T and Verizon) to more enthusiastically promote the service.

While they are less about radios and more about mobile devices, the PTV and Snapdragon also reinforce an existing Qualcomm strength dating back to Irwin (and Andy Viterbi’s) earlier company: Linkabit. It is clear that Qualcomm was born (and remains) a systems company, designing things from end to end rather than individual components. Yes, it may partner for other pieces of the value chain, but it can also bring products to market if that’s what it takes (CDMA cellphones, the PTV).

I think this is one area where Qualcomm is quite different than Intel: it is and has always been a systems company, while Intel has spent 30+ years seeking R&D and scale economies from high-volume semiconductor manufacturing. Given their complementary strengths, and overlapping customer base they could conceivably work together.

However, given their size and corporate egos, I think the two companies are destined to remain more competitors than coopetitors. To Qualcomm’s credit, its relations with the third titan in this segment (Nokia) are somewhat better than Intel’s.

Personal note: This was the first time I’ve attended an evening event in San Diego and then flown home afterwards. At the Southwest terminal in Lindbergh, I was relieved to see Modoff and an associate also there after the talk, catching a 9pm flight to SFO as I caught a flight to SJC.

"First" 4G networks

2009-12-14T16:13:00.000-08:00

The news Monday reported that TeliaSonera launched “the world’s first fourth-generation wireless service” (as the FT put it) Monday in Stockholm and Oslo.

The statement is untrue, since the industry (including vendors) considers both WiMax and LTE are 4G services, and Sprint rolled out WiMax in 2008, and Clearwire is continuing the WiMax launch across the US. (I’m a bit of a WiMax skeptic, but fair is fair: they did get there first.)

Information Week more accurately calls it “the first LTE deployment”:

The first LTE deployment gives TeliaSonera first-to-market bragging rights as several other global service providers prepare to roll out LTE service. Initial deployments are expected to be limited to laptops with modem cards although handsets with voice capability are expected to be introduced later.

Verizon has been running US trials of LTE and hopes to launch the service next year.

Qualcomm claims patents on both LTE and WiMax. They are likely to upgrade existing W-CDMA clients to LTE, and they are hoping to collect royalties from WiMax as well.

Odd blast from the past

2009-12-05T17:49:00.001-08:00

My Google News watch on Qualcomm today turned up this interesting news story:

Qualcomm Incorporated (NASDAQ:QCOM) Appoints Rich Sulpizio as President and CEO

Ft Lauderdale, Florida 12/05/2009 12:55 AM GMT (TransWorldNews)

Qualcomm Incorporated (NASDAQ:QCOM) is welcoming Rich Sulpizio as its new President and CEO. Mr. Sulpizio has previously served the company as its President and COO. His new responsibilities will include the provision of strategic and operational leadership to grow the company’s market share worldwide.

No, Paul Jacobs isn’t suddenly unemployed: he still has his day job.

Instead, a more accurate account is given here:

Qualcomm Appoints Rich Sulpizio President And CEO Of Qualcomm Enterprise Services
12/2/2009 4:20 PM ET

(RTTNews) - Wednesday, Qualcomm Inc. (QCOM: News ) appointed Rich Sulpizio as president and chief executive officer of Qualcomm Enterprise Services. Sulpizio rejoins Qualcomm with more than 10 years of leadership experience in the Company, including previously serving as Qualcomm's president and chief operating officer. In his new role, Sulpizio will provide strategic and operational leadership to grow QES' market share globally. Sulpizio will succeed Bob Walton, who has decided to look for other opportunities.

Sulpizio most recently served as president of MediaFLO USA Inc., a wholly owned subsidiary of Qualcomm, overseeing the development and deployment of MediaFLO technology, and previously as interim president of Qualcomm China. From 1998 to 2001, he led the Company as president and chief operating officer.

Qualcomm has only had two CEOs, both named Jacobs. However, in 2000-2001, Qualcomm was discussing spinning off the QCT division, with Sulpizio nominated to be CEO of the firm dubbed “Spinco”. In 2000 — as in 2006 — part of the motivation was to avoid giving 3G IP holders a hostage to take in bare-knuckles negotiations over QTL royalties.

Another explanation I heard, however, was that the split would allow Paul Jacobs to become CEO of QTL while the older and more proven Sulpizio would take QCT. Instead, Jacobs fils became CEO of the whole enchilada back in 2005.

I have not had a chance to interview Sulpizio yet. His decision to come back appears unusual, particularly since Paul Jacobs appeared to have cleared out almost any executive associated with his father’s leadership. (CTO Roberto Padovani being a notable exception.)

Certainly I find it encouraging that Sulpizio and Jacobs have overcome whatever natural rivalry they had a year ago — perhaps encouraged by the board, which still includes some faces who worked with Sulpizio in his earlier QCOM stint.

Paul Jacobs negotiates way out of EU complaint

2009-11-24T17:24:00.000-08:00

The European Commission today announced that it’s dropping the four-year-old antitrust case against Qualcomm‘s patent licensing policies. Don Rosenberg — general counsel of Qualcomm since October 2007 — was understandably pleased:

Qualcomm is extremely pleased to learn of the European Commission's announcement. After an extensive four-year investigation into Qualcomm's practices, and despite the coordinated nature of the complaints made against it, the Commission has terminated its investigation with no finding of a violation

The Case

The complaint was filed in October 2005 by two European telecom makers (Nokia, Ericsson), two Japanese makers (NEC, Panasonic) and two US competitors for Qualcomm’s chipsets (Broadcom, TI), sending Qualcomm’s shares down 4.6%.

Since that time, Qualcomm settled with two of the original complainants. Its biggest customer — Nokia — renewed its license to Qualcomm’s patents in July 2005 on terms believed to reduce its long-term royalty payments. After losing repeated lawsuits with Broadcom, last April Qualcomn settled all IP complaints between the two companies. Both parties dropped out of litigation against Qualcomm.

In anticipation of the commission’s decision, Ericsson on Tuesday dropped its complaint to the EC. (Note: this is Ericsson the leading supplier of cellular infrastructure, not Sony Ericsson, the handset also-ran). Ericsson claimed victory in its attacks on Qualcomm’s business model due to a $208m fine in Korea and an ongoing investigation in Japan.

Since 2005, TI and Qualcomm have avoided litigation, but in 2007 Qualcomm passed TI to be the top mobile handset chipmaker. Qualcomm is on track to be the 6th largest semiconductor vendor (albeit a fabless one) this year.

The official EC statement said

The Commission committed time and resources to this investigation in order to assess a complex body of evidence, but has not as yet reached formal conclusions.

All complainants have now withdrawn or indicated their intention to withdraw their complaints, and the Commission has therefore to decide where best to focus its resources and priorities. In view of this, the Commission does not consider it appropriate to invest further resources in this case.

The Commissioner

One possible factor in the decision may have been the expected end of the term of the EC’s Competition Commissioner, Neelie Kroes, who saw her role as remaking the global world order for the benefit of EU firms.

Kroes has openly campaigned for more aggressive oversight against US market leaders (Microsoft, Intel, Qualcomm). She unilaterally imposed a $1.4b fine on Intel for its actions against its US competitor. She hoped to use her success over Microsoft to bring down Qualcomm as well.

Two months ago rumors surfaced that Kroes wanted to convene a special panel to examine Qualcomm’s activities. At the time, some speculated that others within the EC opposed Kroes because there wasn’t much of a case. Tuesday, Kroes won reappointment to the European Commission, but is widely expected to be rotated out of the powerful Competition position.

The CEO

I believe that clearing up the uncertainty and risk associated with these various legal threats constitutes Paul Jacobs’ greatest accomplishment thus far as Qualcomm CEO. It’s tough to follow an industry legend — the only CEO the company had ever known — who also happens to be your father. (Note: for my book, I’ve interviewed Irwin Jacobs twice but have only heard Paul Jacobs give speeches.)

However, Paul Jacobs inherited these problems, the inevitable collision between Qualcomm’s take-no-prisoners royalty model and the decision of its GSM rivals to use CDMA technology in their 3G standard.

When Qualcomm (charitably) had mixed results in the courtroom, its new CEO took a more conciliatory approach with its most determined opponents (Broadcom and Nokia) to create a win-win outcome. (I’m betting Qualcomm also worked out less public accommodations with its other adversaries). The resolution of these cases brought the end to the EU case, the most serious threat to its business model.

When he ascended to the CEO position in July 2005, Jacobs was best known as a technology enthusiast who emphasized new revenue streams such as MediaFLO. The jury is still out on these businesses, but given his pragmatic approach towards litigation, one can hope he will take a dispassionate look at them and decide to pull the plug if they’re not panning out.

Motorola to spit out General Instruments?

2009-11-11T18:13:00.000-08:00

One of the first and most important Linkabit spinouts was the Videocipher division, which designed and built settop boxes for 10' C-band dish owners who wanted to watch HBO. In the late 1970s, Videocipher was one of Linkabit’s fastest growing divisions and slated to become its first high-volume consumer business; the Linkabit founders have said that the capital needs of building this business were a major factor in selling the company to M/A-COM.

M/A-COM acquired all of Linkabit in 1979-1980, and then after Andy and Irwin left, M/A-COM sold Videocipher (and other commercial TV businesses it had acquired) to General Instruments in 1987 for $220 million. The local San Diego GI team worked on a number of issues related to settop boxes, including the DOCSIS standard that both enabled the widespread adoption of cable modems and commoditized the business, destroying profit margins.

In 1999, Motorola offered $11 billion for General Instruments and the deal closed in January 2000: for almost a decade, the local ex-Linkabit outpost has been a Motorola facility. Continuing to build on the original Videocipher direction, San Diego is headquarters for the public key infrastructure (cryptography) operations of Motorola Inc., assuring Hollywood today (as 30 years ago) that no one is going to get copyrighted entertainment without paying for it.

Now the WSJ reports (picked up by others) that Motorola is looking to unload the settop box division for about $4-4.5 billion. It’s not clear whether the buyer would be another telecom company or a private equity firm hoping to spruce it up and resell it. I’ve not been out to the Sequence Drive facility in several years, but my impression was that the division (like the rest of Motorola) has been enduring a series of job cuts.

Motorola — co-led by former Qualcomm COO Sanjay Jha — is also said to be re-opening plans to dump its declining handset business, once the market leader but for the past few years in rapid freefall. Jha was hired in August 2008 to run the handset business, but the spinoff was halted this time last year after it was clear the business had to be fixed before it could be sold.

As Jha predicted six months ago, Motorola has gotten a nice bounce from its Android phones, suggesting that now is the time to sell (or spinoff) the division. No word on whether Jha will stay with the mobile division he currently heads when it’s spun out; in the past year he’s been much more visible than the other CEO, Greg Brown, who heads the broadband division.

Despite Qualcomm, Sprint losing Kindle

2009-10-22T12:28:00.000-07:00

Earlier this month, Amazon introduced an “international” (i.e. GSM) version of the Kindle 2 that uses AT&T (like the new Barnes & Noble Nook). Now CNET reports they’ve cancelled the CDMA Kindle 2, leaving only the 10" model on the Sprint EV-DO network (for now).

To get it all straight, I had to do some digging. Amazon has thus far released 4 Kindles:

November 2007: Kindle, with a 600x800 6" screen and Sprint
February 2009: Kindle 2, with better grayscale and still on Sprint
October 2009: Kindle 2 International, same as the Kindle 2 but GSM
May 2009: Kindle DX, with 1200x824 9.7" screen and Sprint

Sprint was clever to partner to get this business, so it’s a shame they’re losing it — particularly since the Kindles began life as Powered by Qualcomm.

The original Kindle was powered by a Qualcomm MSM chip, and according to an iSuppli teardown, the Kindle 2 included a MSM6801A as part of a Novatel Wireless card.

A purported 2008 internal Qualcomm news article credits Qualcomm with working hard to launch the original Kindle:

The device is the result of a two-year collaboration with Qualcomm Enterprise Services, Qualcomm CDMA Technologies, Corporate R&D, Corporate Product Security, the Office of the CTO and Corporate IT.

Amazon was originally introduced to QES through a modem manufacturer who hoped to provide modems for the Kindle. The same company had also worked with QES on the CardioNet project and knew that the wireless connectivity that Amazon envisioned for the Kindle was exactly what QES could deliver.

“The project was a natural fit for QES. We have been delivering end-to-end wireless data services for almost 20 years,” said Susan Hennenfent, Senior Director of Product Development for QES. “Our expertise allows our customers to focus on their businesses while we do what we do best.”

I haven’t seen a teardown on the Kindle 2 International to see whether Qualcomm kept the business or was pushed out of the BOM.

For phones, dual-mode Qualcomm chips have allowed Verizon (and occasionally Sprint) to support global roaming for voice and 3G data. I’m guessing that Amazon decided to switch to GSM rather than pay a premium for the dual-mode chip. Price has been a major concern: the latest Kindle 2 is $259, exactly matching the Nook and a full $100 below the first (CDMA) Kindle 2 when introduced 8 months ago.

End to CDMA iPhone hopes?

2009-10-19T10:04:00.001-07:00

Rumors have been extant all year that — after turning down the iPhone back in 2006 — Verizon Wireless was actively negotiating to get the iPhone on its network. (Cynics noted that even the appearance of talking helped both Verizon and Apple against AT&T).

Verizon is locked in a battle for dominance with AT&T, and its ads this month have been making fun of AT&T’s network reliability with a pun (“there’s a map for that”) that also attacks the iPhone.

Now a new ad campaign has the Verizon promoting the Android-based Motorola Droid by attacking the iPhone. As John Murrell of Good Morning Silicon Valley (of the SJ Merc) wrote

This weekend saw the launch of a TV commercial and a Droid teaser site that opens with a scrolling list of direct jabs — “iDon’t have a real keyboard. iDon’t run simultaneous apps. iDon’t take night shots. iDon’t allow open development. iDon’t customize. iDon’t run widgets. iDon’t have interchangeable batteries.” — and finishes with a hard right: “Everything iDon’t, Droid does.”

Murrell suggests:

[T]he direct Droid attack would seem to be more evidence that Verizon has dropped any hopes of landing an iPhone deal itself and has chosen to cast its lot with Google…

although he hedges his bets by noting new rumors of Apple/Verizon cooperation on a CDMA/LTE phone.

It’s pretty clear that Apple won’t develop a CDMA version without Verizon. I believe Sprint has too many problems to be a major launch customer, and it’s already put big eggs in the Palm and Android baskets.

Yes, China Telecom and KDDI (in Japan) together have as many subscribers as Verizon Wireless. However, the iPhone demand in those two countries is much weaker than in the US and Western Europe, so if there isn’t a US CDMA iPhone, then there isn’t going to be one.

CDMA growth in China

2009-09-29T09:14:00.001-07:00

The FT this morning has a profile of the innovative management of China Telecom, the CDMA carrier in the PRC.

From what the article says, the Ministry of Information Industry's grand reorg of the Chinese telecommunications services sector — reallocating mobile licenses and consolidating weak operations with strong ones — seems to be having the desired effect. Competition is intensifying and firms are investing heavily in rolling out 3G infrastructure, both depressing profits.

In the reorg, China Telecom inherited the 2G CDMA operations run by Great Wall (a People’s Liberation Army affiliate) that became part of China Unicom. CT has been rolling out EV-DO, but many assumed that with its US technology it would be at a disadvantage compared to China Unicom (with GSM/W-CDMA) and China Mobile (the dominant carrier, using China’s home-grown TD-SCDMA).

However, the FT says that China Telecom has the highest growth of the carriers, jumping from 28m to 44m subscribers. (By comparison, China Mobile has 500m). To quote FT:

Analysts say China Telecom has established itself as the best run of the three telecoms operators.

“They are much more of a pragmatic, commercial animal than the political animal of China Unicom,” says Duncan Clark, chairman of BDA, a telecoms consultancy in Beijing.

The article credits the company’s research lab (China Telecom Shanghai Research Institute), and a company-wide innovation initiative that encourages workers to be more innovative in developing and packaging mobile services. The company runs an annual internal innovation contest, while engineers are sent to the provinces to work with regional marketing reps to understand the market.

Obviously it will be a while before China Telecom threatens China Unicom (142 million subscribers), and it seems unlikely to directly challenge China Mobile. Still, Qualcomm (and the global cdma2000 ecosystem) are fortunate to have drawn such an innovative ally in the world’s largest mobile market.

FUD against EV-DO in China

2009-08-27T22:45:00.000-07:00

W-CDMA supporters in China are running a campaign of fear, uncertainty and doubt (FUD) against EV-DO efforts there, in a rehash of their strategies from the 2G CDMA wars.

In the great 3G reorg of China last year that created three mobile operators, China Unicom got GSM/W-CDMA, China Telecom got CDMA/cdma2000 and China Mobile got the homegrown TD-SCDMA. On January 7, all three were awarded their 3G licenses after more than five years of delay.

In a story on China Unicom’s plans to sell the iPhone in China, Forbes included some commentary on China’s three-way fight for 3G market share:

Unicom was given a WCDMA (Wideband Code Division Multiple Access ) license. China Mobile, which holds a commanding 74% share of domestic subscribers, obtained TD-SCDMA (Time Division Synchronous Code Division Multiple Access), a homegrown 3G standard based on spread spectrum technology that is different from approaches used in the West). And China Telecom was allowed to develop CDMA 2000 (a hybrid 2.5 or 3G technology which built on code division multiple access, or CDMA, technology used worldwide.
…
Among the three, China Unicom's WCDMA is regarded as the leading 3G approach. What's more, it's the only 3G technology used by the iPhone.

This sort of FUD marketing strategy is a classic technique by a dominant player to marginalize competitors. IBM in the 1970s was credited with inventing the strategy for the tech industry, and of course Microsoft used it against open source software or other rivals in the 1990s.

Perhaps cdma2000 1x is a 2.5G technology ala EDGE. The fights between GSM and CDMA camps over what should count as “3G” caused a fair amount of disagreement.

But certainly EV-DO — as fast as W-CDMA’s HSDPA — is a 3G technology. This year China Telecom has issued a series of tenders for procuring EV-DO equipment. The company is preparing a new round of handset tenders and can brag about superior data performance.

So to say China Telecom is only developing “2.5G” is a lie. The claim about W-CDMA being the leading technology is true from an adoption sense, if not from a standpoint of technological performance.

I wasn’t there, so I don’t know where the reporter got the bad information. The Chinese equipment suppliers are the least likely suspects, since leading firms like Huawei and ZTE provide equipment to all three of the major standards: W-CDMA, cdma2000, and TD-SCDMA.

However, based on the bitterness of the GSM vs. cdmaOne (or W-CDMA vs. cdma2000) fight, the most likely suspects are those who want to commercially weaken cdma2000 and China Telecom. That leaves either rival operators (China Unicom, China Mobile) or foreign W-CDMA equipment providers such as Nokia and Ericsson.

InterDigital loses key patent case

2009-08-18T23:53:00.001-07:00

On Friday, InterDigital lost an effort to enforce four key 3G patents on Nokia’s cellphones.

Of course, IDCC will appeal. Company supporters hope IDCC can win a favorable settlement — as it did with Samsung.

I don’t see a settlement in the cards. As the world’s largest cellphone maker — and thus the largest royalty target — Nokia has been playing hardball all the way. Of course, in 2008 Nokia settled its war with Qualcomm, on very favorable terms.

My sense is that Nokia places a much greater value on the Qualcomm patent portfolio — or at least considers it impossible to work around all their IP without getting some sort of license.

In the face of a precedent that (if sustained) could begin to destroy its business model, IDCC shares lost 23% of their value on Monday and were essentially flat Tuesday. This seems a little optimistic.

Barron’s reports:

Hilliard Lyons analyst Tom Carpenter maintains his bullish stance on InterDigital despite the setback at the ITC. Carpenter notes that Nokia could still lose on appeal, which could trigger a licensing deal between the two companies. He thinks Nokia could still end up paying IDCC 35 cents per handset, or as much as $300 million over five years.

Even if the company fails to win on appeal, Carpenter contends IDCC’s patent portfolio could make it a potential acquisition target for Research in Motion (RIMM), Cisco (CSCO) or even Nokia. The potential appeal: IDCC holds a large number of patents on LTE, the 4G transmission technology that has been adopted by most wireless carriers.

While I understand the large pool of IDCC bulls, I don’t get this, either. I guess it all depends whether you consider this court case a fluke, or representative of the quality of the rest of its patent portfolio.

MetroPCS latest perpetrator and victim of commoditization

2009-07-31T00:33:00.001-07:00

On Thursday, MetroPCS cut its price for unlimited everything to $45, vs. $100-130/month for the major carriers. Its price for voice text and web is only $40.

Also on Thursday, shares of MetroPCS fell 11% while rival Leap Wireless (aka Cricket) fell 8%, in the face of increased competition from Sprint’s Boost Mobile and TracFone.

The big news this week is that Sprint is buying out the partners in its largest MVNO, Virgin Mobile. Is this good for MetroPCS and Leap?

Quoting one set of analysts, the WSJ M&A blog said yes:

UBS said:
“Transaction helps rationalize US unlimited prepaid market. This transaction helps rationalize the unlimited prepaid market in the US, which had grown to 5 players with Tracfone’s Straight Talk plan. We believe this is good news for MetroPCS and Leap Wireless, the two pure pre-paid carriers in the space.”

Quoting analysts from Current Analysis, FierceWireless said the transaction would put pressure on MetroPCS & Leap:

Interestingly, the analysts also point out that Sprint's acquisition of Virgin should hasten a merger between Leap and MetroPCS.

Whatever pride or bad blood has blocked the merger, such a merger is long overdue. The two have a roaming alliance and perhaps have buried the hatchet enough to form the nation’s 5th largest carrier (now that Alltel is gone).

The price wars in prepaid are only going to get more brutal, as MetroPCS and Leap both fuel the wars and respond to efforts by TracFone, Boost (Sprint), Virgin (Sprint) and GoPhone (ATT). Combining the two wouldn’t guarantee success, but it would expand and smooth their footprint while nearly doubling their respective scale for buying and other efficiencies.

Leap flying high

2009-06-19T07:00:00.000-07:00

Leap Wireless has long been ignored by the industry, perhaps due to its market share, perhaps due to over expansion and Chapter 11 during the telecom bubble. More recently, it appeared doomed to be gobbled up by its rival Metro PCS, until they instead formed a roaming alliance.

On Wednesday, CNET ran an extensive Q&A with CEO Doug Hutcheson. Some of the answers are predictable, e.g. when other companies offer unlimited service it grows the market rather than hurting Leap (or its Cricket brand).

However, it offers a broad overview of how the prepaid carriers are both tapping unserved customers and also reflecting broader industry trends both here and elsewhere.

Perhaps most interesting are the profit numbers:

In some of our most mature markets, the average revenue per user (ARPU) is around $42 to $43. And we sell twice the number of voice minutes and two to three times the number of text messages as the large national carriers, which have ARPUs that are $10 to $15 higher than ours. And our profit margins fall in the high 30 percent range. In some older markets we are closer to 40 percent. We've said we expect to run in the mid-40 percent range.

Just to give you some perspective, these margins are a little lower than Verizon, but a little higher than Sprint. But we do it on much higher usage and lower ARPU. So this means that these providers can't expect to drop prices and lower ARPU and expect to make these same margins.

Leap has 90 million POPs — about 30% of the country, supplementing that with extensive roaming agreements (including that with Metro PCS).

Before Qualcomm

2009-05-13T22:09:00.000-07:00

In the past few weeks, I’ve been hearing from old friends, my in-laws — and even a total stranger — about my article in the latest issue of the Journal of San Diego History.

The article, entitled “Before Qualcomm: Linkabit and the Origins of the San Diego Telecom Industry,” is the lead article of the Winter/Spring issue of the journal, which arrived in San Diego homes late last month. The text won’t be online for many months, and the journal doesn’t use abstracts. So let me quote the introductory paragraphs:

Most San Diegans know that our largest high-tech enterprise of the past decade is Qualcomm, a Fortune 500 company. Qualcomm—founded by Irwin Jacobs and Andrew Viterbi and five others—is recognized locally for the wealth that it created for founders, employees, and investors. It also enjoys a reputation for helping to fund many local philanthropic and charitable efforts.

Outside the local telecommunications industry, however, few people realize that the Qualcomm was the second company founded by Jacobs and Viterbi, not the first. The earlier startup, Linkabit, moved from Los Angeles to San Diego in 1971 and, over the next twenty-five years, helped to generate more than two hundred separate telecommunications companies. A series of fortunate coincidences—rather than a carefully thought out economic strategy—is the main reason why San Diego has a significant telecommunications industry.

This article traces the paths of Jacobs and Viterbi from their New England childhoods to their Massachusetts Institute of Technology (MIT) engineering degrees to the founding of Linkabit. It shows that Linkabit—its early application of cutting-edge communications technologies, its eventual sale, and the eventual dispersal of the company’s key engineering talent—was the catalyst that led to other new companies, including Qualcomm.

Because I expect to write other articles for the journal, I wanted my first JSDH article to tell the back story that few people know. Meanwhile, the journal wanted something with the “Q” word so that people would know why they were reading it. To achieve both goals, I worked with USD history professors Iris Engstrand and Molly McClain, who edit the journal on behalf of the San Diego Historical Society.

In the end, two-thirds of the article is about the story up until 1985 — when Jacobs and Viterbi left Linkabit, later starting Qualcomm a few months later. The final one-third is about the first 10 Linkabit spinoffs:

ComStream (1984)
Sciteq (1984)
Qualcomm (1985)
ViaSat (1986)
MultiSpectra Engineering (1986)
Pacific Communications Sciences, Inc. (PCSI) (1987)
Indra Technology (1987)
Primary Access (1989)
Milpower (1989)
Torrey Science (1990)

The final article was adapted from drafts of Chapter 5 and 6 of my (in progress) book, which cover Linkabit and its spinoffs. It also drew from my research into Andy Viterbi at JPL, which is both part of Chapter 3 of the book and my 2008 article on “Deep Space Communications as the Lead Market for Shannon Theory.”

Overall, we are all proud of the article. For me, it’s a chance to introduce myself to my hometown audience. For the JSDH, it’s a chance to get more local technology history in the journal.

What I really enjoyed was the chance to use so many photographs — something that’s never possible in an academic journal (except for a history journal). Most prominent were the color photos of Jacobs and Viterbi on the cover. Beyond these two men, I also got photos from Martha Dennis and some really cool ads from various archives. Together, they give a sense of what it was like for the Linkabit founders and employees back in the 1970s and 1980s.

The full article will eventually be online at the JSDH website. The historical society sells memberships (with subscriptions) at $40/year or back copies at $20 each.

Update, December 2009: The article is now available at the JSDH website.

Broadcom gets what it wants--but not 3G or 4G

2009-04-27T08:48:00.001-07:00

On Sunday, Qualcomm and Broadcom announced settlement of their patent disputes in identical press releases from San Diego and Irvine. So far this morning, Qualcomm stock is up 6% and Broadcom stock is up 0.8%.

As with Qualcomm’s settlement last summer with Nokia, the agreement settles all existing disputes and lets Qualcomm and Broadcom get on with their business:

The agreement will result in the dismissal with prejudice of all litigation between the companies, including all patent infringement claims in the International Trade Commission and U.S. District Court in Santa Ana, as well as the withdrawal by Broadcom of its complaints to the European Commission and the Korea Fair Trade Commission. Under the agreement, the companies have granted certain rights to each other under their respective patent portfolios.

The press has emphasized the financial terms — Qualcomm paying $891 million over the next 4 years, including $200 million this quarter — which is clearly a lopsided settlement to allocate patent usage rights between the two companies.

TradingMarkets summarizes the numerous complex cases. However, the core issue was simple: Broadcom prefers royalty-free cross-licenses and has sought to coerce Qualcomm into providing same, using its various developed (and acquired) patents to win infringement judgements against Qualcomm.

Qualcomm sought at all cost (as it always does) to avoid setting a precedent that would undercut its core business model and revenue streams from the entire 3G (soon to be 4G) industry. It’s clear that Qualcomm paid dearly to settle the infringement claims without setting that dangerous precedent.

What seems to be under-reported is how the summary of the terms defines a clear partition of the industry:

Qualcomm’s customers get use of Broadcom’s patents for Qualcomm’s ICs in cellular products, but not for non-cellular products.
Broadcom’s customers get use of Qualcomm’s patents for Broadcom’s ICs in non-cellular products, but not for cellular products.

The only interpretation I have is that each firm is ceding key turf to the other: Qualcomm will stay focused (naturally) on cellular-related products, while Broadcom appears as though they will be avoiding cellular products that require Qualcomm’s patents.

At Qualcomm’s instigation, the first paragraph asserts

The terms of this agreement will not result in any change to Qualcomm's 3G (e.g., CDMA2000®, WCDMA and TD-SCDMA) and 4G (e.g., LTE and WiMAX) licensing revenue model.

The wording implies that Qualcomm changed its non-3G, non-4G revenue models. In other words, Broadcom got what it wanted — a royalty-free cross license — but not in cellular. This precedent seems to be the narrowest that Qualcomm could offer to satisfy Broadcom without hurting its core business.

On the analyst call, I would want to ask Qualcomm if the rights it granted Broadcom for non-cellular products will force it to renegotiate or otherwise change the terms of any other existing royalty agreements. My guess is that this is a small part of Qualcomm’s business, but as an analyst I wouldn’t want to guess.

However, the questions for Broadcom are more fundamental. It’s not clear what this means for Broadcom’s future, since it’s hard to see how they could ship a 3G or 4G product without a cellular patent license from Qualcomm. Had they already decided to give up on cellular and stay more in PCs and consumer electronics? Are they foreclosing cellular growth to avoid fighting Qualcomm? Or are they going to come back for a royalty-bearing agreement later on?

San Diego's Android connection

2009-04-04T08:41:00.000-07:00

Last week I was able to attend an Android event held in Sorrento Mesa. Despite the inextricable link between Android and its Google parent, San Diego has a strong representation in the Android ecosystem.

At the event — as at any gathering of SD telecom companies — the 600 lb. gorilla was Qualcomm. The big Q was one of the five founding members of the Open Handset Alliance.

Of the four presenters, two were local companies among the 34 OHA founders: Qualcomm and PacketVideo. Three other non-local founders were also represented: host Wind River (based near Oakland but acquired a San Diego operation) and attendees from LG and Sprint.

The panel was

Jason Bremner, Senior Director, Product Management, Qualcomm QCT (responsible for Multimedia, Winmobile, and all activities surrounding Android at QCT).
Dr. Cheuk Chan, Senior Vice President, CORE Client Products, PacketVideo (Dr. Chan's team is responsible for PV's OpenCore, which is the multimedia framework for Android)
David Tokunaga, Director of Technology Marketing, Nokia
Egil Gronstad, VP Technology Planning, Leap Wireless

Bremner talked how Qualcomm’s traditional two application platforms — Brew and Java — now include BlackBerry, Windows Mobile, Android and Linux. In the future it will also be supporting Brew MP, Flash and Symbian.

Qualcomm is providing chipsets for a wide range of Android devices. The first Android phone, the G1, was launched with Q’s MSM 7201A (which will also be used with the HTC Magic). Bremner said Qualcomm had the “industry’s broadest chipset support for Android,” with three levels:

QSD 8650: with 1 GHz MID, 720p HD video (suitable for Android-based netbooks)
MSM 7600: The replacement for the 7201A, a WVGA video chip suitable for smartphones.
MSM 7627: designed for sub $150 smartphones with VGA video

Chan talked about how formation of the Open Handset Alliance dates to 2006 — the year after Google acquired Android and a year before the public announcement of the Open Handset Alliance.

Tokunaga talked about general principles of open platforms in the context of the Nokia-owned Symbian open source platform. My ears perked up when he talked about “open enough” platforms — open enough to attract third party enhancements but closed enough to be controlled by a firm. (The reason my ears perked up is that “How open is open enough?” was the title of my 2003 paper on open source firms strategies).

Finally, Gronstad talked about this from Cricket’s standpoint. (Egil gave us a long intro on Leap, and several of us noted that the company and its Cricket brand are well known locally.) He talked about their plans to have its CDMA network open to all devices, both those it sells and those it does not. Someday (perhaps not soon) there will be a Cricket smartphone — just as there is already a Metro PCS smartphone (a two-year-old Qualcomm-enabled BlackBerry 8830 once exclusive to Verizon).

Qualcomm working with vendors for more than 20 Android-enable devices. However, a third party developer noted that handset vendors are holding off on releasing new phones because the performance and user experience is not there. Bremner said that “On the G1, we compromised on featureset and performance” to get the device to market, but now the top priority at the Q is to optimize Android performance with the MSM chipsets.

Overall, this partly answers one of my long-term questions. With CDMA going away as a separate air interface, what will be the Qualcomm-specific ecosystem or the benefit of wireless companies to locate in San Diego? There clearly is an increasing role for QCOM chipsets in shipping phones on the CDMA side, and also for Q’s expertise on platform support, thus giving local application developers a leg up over most of the rest of the country.

Dr. D helps take over Wind River

2009-03-26T00:01:00.000-07:00

This morning at the (impossible to find) Wind River offices on Scranton, Marco Thompson hosted the “Android VIP Roundtable III” with four expert panelists on the Google-sponsored open source platform.

As part of hosting the event, Russ Christensen of Wind River put in a plug for the company’s hardware and software design activities for mobile — including Android-based devices. It struck me how much Dr. D has helped transform Wind River.

Once upon a time, Wind River was an embedded tools and OS (VxWorks ) licensing company that aspired to be the Microsoft of the embedded world. They spent a lot of time predicting such an outcome — I remember one Embedded Systems Conference where the pitch was particularly strong — but the industry for years remained badly fragmented.

Now the industry is consolidating around a common platform, but it’s not VxWorks. Instead, it’s Linux, which has many other suppliers beyond Wind River. And the common toolset for the embedded world is based on Eclipse.

So with the proprietary licensing business shot, Wind River has found a new niche around being a solutions provider. The pitch today on Christensen’s slides emphasized time to market.

This was always the Dr. Design story. Founded in 1984 by Marco (UCSD ’79), their speciality was to solve seemingly impossible problems in an insanely short period of time (and charge accordingly).

In 1999, Wind River paid $400+ million to acquire solutions provider Integrated Systems, Inc. In 1996, ISI had paid about $17.5 millionto buy Dr. D.

So what once might have looked like a less-scalable, lower margin complementary business to Wind River’s platform sale has now become an integral part to their new business model based on integrated solutions that integrate an arbitrary combination of hardware and software, off-the-shelf and custom components. This is exactly what Dr. D did for 12 years before Marco cashed out.

The results are not exactly as dramatic as the NeXT takeover of Apple that ushered in the Jobs II era, but in this era of commoditized software platforms, it’s still a happy outcome as Wind River seems to have made the transition to fight another day.

Cricket's big idea

2009-03-25T23:06:00.000-07:00

In Philadephia, Cricket and Samsung are unveiling a 13' high replica of the Samsung Messenger.

The two companies earlier showed the giant phone in Chicago, as part of a publicity stunt for Cricket’s entry into the local market.

San Diego’s Leap Wireless (which owns the Cricket brand) has expanded to 35 of the top 50 markets with a POP of about 84 million — or about 27.5% of the potential US market. At the end of 2008, it had about 3.8 million subscribers.

Its younger roaming partner/low cost rival/spurned suitor Metro PCS is covering both unique and overlapping markets, with coverage in 92 of the top 100 markets. It ended 2008 with about 5.4 million subscribers.

Together, the two carriers have about 3.5% of (my estimate of) the 265 million US cellphone subscribers at the end of 2008, far behind the 28% of #1 Verizon Wireless (plus Alltel) or even the 12.4% of the smallest of the surviving national carriers, T-Mobile.

Photo from Chicago taken from Techgadgets.in.

Nokia joins The Network

2009-03-24T00:01:00.000-07:00

After largely giving up on CDMA in the Americas, on Monday Nokia introduced a stylish new flip phone, the Nokia Intrigue 7205.

The new phone is being offered exclusively on the largest US carrier, CDMA-based Verizon Wireless. It is the third CDMA phone here in the last year for Nokia, beginning with the 6205 and more recently the 2605.

It is unclear whether Nokia will have any impact on the LG and Samsung dominance of featurephone sales at Verizon stores across the country, but it is the logical next step after the patent settlement with Qualcomm.

Broadcom misfires -- this time

2009-03-22T21:33:00.000-07:00

When Broadcom filed suit against Qualcomm last October, it was the latest attempt by the Orange County low cost chip producer to force Qualcomm to change its business model.

Qualcomm announced last week that the suit was dismissed by the US District Court. However, if I were still a Qualcomm shareholder, I’d still be a little worried.

The suit was an opportunistic effort to use the SCOTUS decision in Quanta v. LG as a cudgel. As USD Law Prof. David McGowan analyzed the Broadcom complaint in this blog last November

The complaint alleges Qualcomm double-dips by charging handset manufacturers a royalty on both chipsets and handsets. Qualcomm may earn chipset royalties through sales to handset manufacturers or from licenses to competing chipset manufacturers such as Broadcom. It also charges a royalty directly on handsets.

Broadcom claims the Quanta case holds that a patentee may not charge downstream royalties beyond the first sale of its technology. This claim implies Qualcomm may either charge handset manufacturers a royalty for the handset or for a chipset (directly from Qualcomm or indirectly from Broadcom) but not both. Broadcom is asking the court to declare that it need not pay royalties to Qualcomm when Broadcom sells chipsets to handset manufacturers who pay Qualcomm royalties on handsets.

Even for a law professor (who are generally cautious about predicting court outcomes), McGowan saw the case as too close to call:

It is hard to say what is likely to happen. Quanta dealt with an unconditional license and Qualcomm has said its licenses are expressly conditional. The Court did not rule on such licenses. The district court therefore is not bound to rule for Broadcom. If one read the Supreme Court as sending the signal that patentees should only be able to engage in one transaction per product, though, one could extend Quanta to reach the result Broadcom seeks.

There isn’t much coverage of the ruling online, of which the Telephony Online explanation is the most incomplete:

US District Court Judge William Hayes, however, rejected Broadcom’s reasoning, ruling that Broadcom provided no specific of exhausted patents and that the purported damages Qualcomm has wrecked upon the industry were too speculative.

So I’m no law professor and in fact never went to law school, but the case was clearly dismissed on procedural grounds, not on a question of law; Broadcom’s legal claim was never tested. To me this suggests that the Broadcom case was rushed to court, without bothering to document specific patents and to find a putative victim. Obviously we don’t know what happens within Broadcom’s legal team, but this seems like the sort of weakness that a first year associate could have spotted before the case was filed.

I don’t know the specifics of the ruling, so it’s not clear whether the complaint was dismissed with prejudice, and if so, whether it prevents Broadcom from ever filing another patent exhaustion claim again. Even if so, one of Qualcomm other rivals might want to pick up the cudgel.

Telephony Online noted that Nokia filed a similar complaint that was thrown out (but that was pre-Quanta.) Nokia and Qualcomm now claim to be friends, so perhaps for now Nokia will train its legal guns on InterDigital rather than Qualcomm.

But Qualcomm’s business model and market share leave no shortage of enemies. If not Broadcom or Nokia, another possibility is TI — which was the world’s largest supplier of wireless communications chips until Qualcomm passed it last year. Finally, there are the Koreans, who never stop complaining about CDMA royalties and (like Broadcom) have been looking for any possibility to reduce the checks they send to San Diego.

QCOM: technical vs. fundamentals

2009-02-19T22:33:00.001-08:00

Normally I don’t write about Qualcomm’s stock, but Qualcomm’s stock value got about the most prominent discussion possible on Thursday.

On his nightly CNBC show, retail stock pundit Jim Cramer spent several minutes Thursday night analyzing the last few months of momentum on Qualcomm’s stock, in his weekly segment called “Sell Block.” A written summary is provided on the Mad Money website (and also in a separate article).

He started by talking about Qualcomm’s fundamental business, including a simplified version of its business providing IPR and chips for cellphones. Cramer said: ”It reminds me of the old Intel inside ads. It should be Qualcomm inside.“

But the impetus for the discussion was a very negative report from technical analyst Helene Meisler. To briefly summarize

Any rise in Qualcomm’s stock price is blocked by its January peak.
The upward trends that started earlier this year has stalled.
When there is higher stock volume, the trend on those high volume days is “telling the truth,” and Qualcomm had some ugly down high-volume days.
The stock is heading down towards $30 and won’t break $40 again. (The stock closed at $33.84 Thursday).

Cramer, on the other hand, argues that the business fundamentals favor QCOM. It has been taking share against its rivals. It earns $4-$8/phone royalties (average phone price $200), with 90% margin. Worldwide 3G penetration to go from 40% to 70-80% over next 3 years. This week, Qualcomm even won cooperation from former archenemy Nokia.

Cramer was also not surprised by the lower CY 2009 earnings guidance that Qualcomm provided with last month’s earnings release. To Cramer (and to me), there is the implication that Qualcomm assumes that the economic recovery is pushed back at least to 2010 — a realistic assumption.

Cramer thinks it’s a good deal because it’s down from its $56 peak (last August 14). As Cramer said, “A lot of the bad news is baked in” praising its “pristine balance sheet.”

I don’t know which one is right, but I know they both can’t be right. If over the next 6 (or 12) months, the stock never breaks $40 and ends below $30, clearly Meisler. If it ends above $40, Cramer is right. If it just muddles along between $30 and $40, Meisler isn’t wrong, but that’s a pretty weak sell call — particularly if (as I expect) the broader market is sideways or down for the next 18-24 months.

Note: Cramer owns QCOM for his charitable trust. I do not own any shares.

Qualcomm's other shoe

2009-02-17T09:24:00.001-08:00

After 10 years in which Symbian never supported CDMA or any Qualcomm chipsets, why did Qualcomm join the Symbian Foundation last week? As the EE Times reports, the other shoe dropped this morning:

BARCELONA — Both ST-Ericsson and Qualcomm Inc. have revealed partnership programmes with Nokia based round reference platforms that will use the Symbian Foundation's software.

Qualcomm's deal focuses on developing UMTS mobile devices, initially for North America, that will be based on the S60 software on Symbian OS, running on the San Diego, California- based chip maker's latest MSM7xxx-series and MSM8xxx-series chipsets targeting wireless broadband.
…
The companies, for long arch rivals due to long standing patent infringement law suits that were finally settled last year, say the first mobile devices based on the collaboration would be expected to launch in mid-2010 and be compatible with the forthcoming Symbian Foundation platform.

Nokia currently has a very limited relationship with US carriers. “UMTS … for North America” means selling S60 smartphones either to AT&T or T-Mobile, competing for shelf space with the iPhone or gPhone respectively. Certainly, outside the US the Nokia smartphones are sold side-by-side with the iPhone by the same carriers.

EE Times plausibly argues that this cooperation is because Nokia last summer finally resolved its patent fight with Qualcomm. In November, analysts told EE Times they thought it unlikely that Nokia would go so far as to buy chips from Qualcomm.

It seems particularly odd that Nokia would start its partnership with Qualcomm with W-CDMA phones — given its sells hundreds of millions worldwide — but perhaps it is just trying to prime the pump. Presumably the next step is to use QCOM chips to sell more CDMA phones in the US, although so far Nokia is outsourcing that work to ODMs.

On a somewhat related note, Qualcomm CEO Paul Jacobs was quoted in Barcelona by CNBC as saying demand for smartphones remains strong. However, unlike his predecessor (Jacobs père), Jacobs fils is a perpetual optimist.

TI and InterDigital ally against Qualcomm

2009-02-17T00:13:00.000-08:00

In connection with GSM Mobile World Congress, TI and InterDigital have made announcements reflecting an alliance between them. The new development is helping InterDigital make its transition from being an IP licensing company (that a few rivals have called a patent troll) to a firm that makes 3G chips to subsume its IP.

Not surprisingly, InterDigital is more enthusiastic about the alliance than TI is. (It’s fun to read these tea leaves — as someone who ran a little company that did joint press releases with big companies — the message is pretty clear). InterDigital issued a press release trumpeting its W-CDMA (i.e. HSPA) modem option and how it works with the the TI OMAP 3 and OMAP 4 processors:

"We are pleased to be the wireless modem supplier for TI's advanced OMAP 3 platform. Our high performance HSPA modem offers instant mobile broadband connectivity, accelerating the development of compelling new applications," stated Mark Lemmo, Executive Vice President, Business Development for InterDigital. "Available as a 3G modem option, InterDigital's SlimChip MID Module has been pre-integrated with the Zoom OMAP34x-II MDP, allowing mobile application developers and OEMs to fully exploit the rich capabilities of this platform."

The press release goes on to quote Bill Crean, Strategic Marketing Manager, as praising “ The flexible architecture of the OMAP 3 platform allows it to easily connect to InterDigital's SlimChip MID Module.”

Meanwhile, the TI press release allows InterDigital space with other vendors who praise themselves and the OMAP 3. The only mention of InterDigital comes from InterDigital itself:

"We are pleased to be a wireless modem supplier for TI's advanced Zoom II mobile development platform. Our high performance HSPA modem offers instant mobile broadband connectivity, accelerating the development of compelling new applications," stated Mark Lemmo, Executive Vice President, Business Development for InterDigital. "Available as a 3G modem option, InterDigital's SlimChip MID Module has been pre-integrated with the OMAP34x-II MDP, allowing mobile application developers to fully exploit the rich capabilities of this platform."

Eleven months ago, blogger Vijay Nagarajan predicted on his own blog (and later on Seeking Alpha) that an alliance with InterDigital would help TI:

TI is the market leader for 3G application processors with its OMAP product-line. But it does not currently have a standard 3G baseband solution. The company’s OMAP roadmap merely has placeholders for future merchant ICs with 3G baseband. Its mammoth market share comes from custom chips it develops for Nokia and Motorola among others. This position is, however, challenged by the multiple sourcing trend that the handset vendors are now adopting. Left behind in the 3G baseband race, not only by Qualcomm but also by Broadcom, Infineon, InterDigital etc, TI is finding itself losing mobile share. The aggressive strategy and the niche product positioning by the competition is not helping its cause either.

So although Qualcomm has a unique combination of technologies, its rivals are able to ally to produce a competing combination. (We call this “open innovation.”) I don’t know how this will impact Qualcomm’s profitability in the long term, but it seems as though the increased competition isn’t going to help.

Qualcomm joins Symbian Foundation

2009-02-16T11:18:00.001-08:00

Cross-posted from OpenITStrategies

In advance of this week’s GSM Mobile World Congress, Qualcomm has joined the Symbian Foundation (as have HP and MySpace). Qualcomm of course is interested in supporting CDMA around the world, in addition to its dual mode 3G processors.

Rumors of Symbian CDMA support date to at least 2004. Nokia had once sponsored an adaptation of Symbian S60 to work with CDMA – presumably to gain access to the US market and segment where it’s had a relatively weak presence.

Back in 2005, MobileTracker reported that Nokia had won FCC approval for the Nokia 6638:

The FCC has approved (FCC ID QMNRM-18) the Nokia 6638, the first CDMA Series 60 phone. Visually, it looks just like the Nokia 6630 with the addition of a [very long] antenna. Since the 6638 is a CDMA handset, Nokia is most likely aiming for a US release.

The phone was compatible with Verizon’s two CMDA bands, 800 MHz and 1.9 GHz.But the phone apparently never made it to the market.

Qualcomm has already joined the Android Foundation. Apparently Qualcomm has worked on a Windows Mobile prototype that works on Qualcomm chips, and its chips power several BlackBerry models that are dual cdma2000/W-CDMA, including the Storm and the 8830 world phone.

Now Qualcomm has committed resources to the major smartphone operating systems — pretty much everything outside the iPhone. From now on, we’ll see how many operators and manufacturers use Qualcomm chips for their Android, Symbian or Windows Mobile smartphones.

Korea 3G finally shifts to W-CDMA

2009-02-13T00:01:00.000-08:00

For 2G, Korea was exclusively cdmaOne, the only country in the world where this was true. Operators quickly got into 3G by offering cdma2000 on their existing frequencies, but the government licenses specified W-CDMA for new 3G frequencies that (IIRC) were compatible with the Japanese selections. As with anything else in Korea, each round of choices was designed to protect (or at least help) the export efforts of Korean companies.

The website Cellular News reported Thursday that in Q4 2008, the total W-CDMA subscribers in Korea finally passed those for cmda2000: 16.5 million vs. 14.9 million. For me, this marks the end of an era for Qualcomm’s original success story in Korea, marred only by the periodic royalty complaints.

CDMA success brings Chinese royalty gripes

2009-02-12T08:55:00.000-08:00

Taking a page from their Korean counterparts, in the face of rapidly growing sales, Chinese cellphone manufacturers are airing complaints through local propaganda organs in hopes of lowering their contractually obligated CDMA royalties.

Last year, a reorg of China’s telecommunications industry brought dominant landline provider China Telecom the opportunity to offer 3G mobile services using Qualcomm’s cdma2000. On Wednesday, China’s official Xinhua news service reported good news for Qualcomm and its local licensees:

Under the stimulation of China Telecom's large investment and procurement this year, the growth of China's CDMA cell phone market will be great, said an industrial insider. Competition will heat up as many GSM mobile phone manufacturers are entering the CDMA field, he added.

China's CMDA cell phone market rebounded in the end of 2008 despite gloomy market conditions. According to statistics released by market research firm Sino-MR, sales volume of CDMA handsets topped 1.29 million during December 2008, up 33.6 percent year on year and 183 percent month on month, marking a five-year high.

However, the report ended with a complaint about the royalty rates

Insiders with China Telecom consider China an important market for CDMA business and expect Qualcomm to realize the market condition and give more supportive pricing. Qualcomm refused to comment.

When in 2000 Irwin Jacobs negotiated government permission for CDMA to be used in China, Qualcomm granted Chinese manufacturers the best rates in the world — around 2.65% as opposed to 5% for other makers. (Qualcomm neither discloses nor confirms its royalty rates).

In fact, this deal has brought continued griping by Korean manufacturers paying list price. The Korea Times has run one-sided stories since 2004 airing selective leaking by the unhappy manufacturers. For example, it ran a March 2004 story (no longer on their website) entitled “Qualcomm's Royalty Policy Angers Korean Chip Makers”:

U.S. chipmaker Qualcomm’s royalty policy has angered Korean manufacturers of code division multiple access (CDMA) phones as it charges lower rates to China than to Korea.

A local CDMA phone maker contends that Qualcomm gives a “subsidy” to Chinese exporters as it collects as low as 5 percent of handset prices in royalties from them. But the rate is 5.75 percent for Korean makers.

Korean cell phone producers, which pay a fixed 5.75 percent for export and 5.25 percent for local sales to the San Diego-headquartered firm, shoulder higher royalty burdens in both domestic and global markets.

According to a contract between Qualcomm and one of China’s leading handset manufacturers, which The Korea Times obtained exclusively, the royalty rates are 2.65 percent for local sales and 7 percent for offshore shipments.

However, the contract says the export royalty will be cut to as low as 5 percent after the three years immediately following the license effective date.

The deduction ranges from 5 percent to 6.5 percent, depending on quarterly export volume, but the Chinese firm is entitled to enjoy the low rates “if more than 100,000 such subscriber units (handsets) are sold in the applicable calendar (year)” in overseas markets.

The KT report said that Chinese manufacturers signed a 10-year agreement in “early 2001,” which would mean these deals will be expiring in 2011.

A review of Qualcomm’s 2001 press releases reveals this May 21, 2001 announcement:

Qualcomm Incorporated … today announced that it has signed a commercial license with ZTE Corporation, a leading manufacturer of telecommunications equipment in China. Under the terms of the royalty-bearing license agreement, Qualcomm has granted ZTE a license under Qualcomm's CDMA patent portfolio to develop, manufacture and sell cdmaOne™ and third-generation (3G) CDMA2000 1x/1xEV network equipment. The license grants ZTE the right to use Qualcomm's technology and integrated circuits to make and sell cdmaOne and CDMA2000 equipment in China and worldwide. ZTE becomes the first company in the People's Republic of China to enter into a commercial license with Qualcomm.

Additional manufacturers signed licenses in July and November, with the latter including Huawei. Another 17 Chinese firms signed in January 2002.

The Xinhua story seems designed to help Chinese manufacturers (or China Telecom) pressure Qualcomm to lower royalties on the current deals, or at least when the licenses come up for renewal in two years.

Interestingly, there is no complaining about the GSM royalty rate, which is also secret. One report estimated the rate at 2-10%. However, data from the various Sendo-related lawsuits put the number more like 10-13%, suggesting that single-digit GSM royalties are only available to firms with big enough patent portfolios to negotiate a cross-license. Thus far, only a few Chinese manufacturers have enough patents to possibly put them in the latter category.

MediaFlo hurt by DTV delay

2009-02-05T09:26:00.001-08:00

The House voted yesterday to delay the Digital TV transition by nearly 4 months. A majority of both houses have decided that America is not ready for a transition and thus a delay to June 12 is warranted.

However, delaying the end of analog transmissions (and thus the surrender of those broadcast bands) is also delaying the deployment of new services by the communications companies who paid for rights to those bands, especially in the various 700 MHz bands.

Although AT&T and Verizon own such spectrum, the company most ready to use its spectrum is Qualcomm with its Media Flo service licensed by AT&T and Verizon.

Qualcomm issued a statement Wednesday (although it’s not on its website), with the most complete summary in Telephony magazine:

We are disappointed with the passage of legislation extending the DTV transition date to June 12th. … Due to the investments we made, we were ready for a February 17th transition to provide our innovative FLO TV service nationwide immediately. We are encouraged that several Congressmen and Senators who supported the delay stated that this would be a one-time delay only. In light of the fact that the legislation, as amended and finally passed by Congress, allows TV stations to transition voluntarily between now and June 12th, we cannot determine the specific impact of the final bill's passage on our MediaFLO business.

Due to interference its service causes around (analog) UHF channel 55, Qualcomm will have to delay rollouts in Boston, Houston, Miami and San Francisco; its efforts to have these markets exempted fell on deaf ears.

It’s hard to predict the commercial impact of the delay. Qualcomm has been aggressively planning this rollout for five years, and its speed to market was intended to preempt rivals (at least in the US) from gaining a foothold in the (presumed) lucrative mobile multicast TV market.

Coding in space

2009-02-01T19:00:00.000-08:00

Local telecom industry veterans, particularly those who got a good dose of information theory in their EE degrees, understand why Andy Viterbi won his Shannon Award. All would know that Viterbi developed what (proved to be) the maximum likelihood decoding scheme for convolutional codes, which remained the state of the art until turbo coding came along.

Most would know that every GSM cellphone (let alone CDMA cellphones) includes a Viterbi decoder. Some might know that one of Qualcomm’s first products (and I believe its first semiconductor product) was a Viterbi decoder chip.

A few would recall that Klein Gilhousen led the group that designed the LMP (Linkabit Microprocessor) which was used to implement the Viterbi algorithm for the Dual Modem.

What might not be known — I didn’t know until I researched the back story for the book — is that before cellphones, chips and the dual modem, the first real application for the Viterbi decoder was for NASA deep space probes.

In the late 1960s, NASA was planning two competing families of space probes for mankind’s first visit to the outer planets. The communication challenges were among the most daunting in history, where (due to the inverse square law) the signal strength a billion miles away was faint, and power (from nuclear decay batteries rather than solar power) is minimal.

Theoretically, the application of Claude Shannon’s ideas (and coding theory) could provide as much as a 10 dB signal gain. MIT-trained academics worked with two different divisions of NASA, both using coding theory:

Pioneer 10 and 11: Codex of Newton, Mass. worked with NASA Ames to apply Fano decoding
Voyager 1 and 2: Andrew Viterbi, Joe Odenwalder and others — first as a UCLA contract and then as a Linkabit contract — worked with JPL to use concatenated decoding and the Viterbi algorithm.

My research on this led to chapters on MIT and NASA for the book, as well as changes to other chapters. However, I’ve stopped quoting an ETA for the book given (as a part-time job) it’s coming very slowly.
In the meantime, two years ago I wrote a paper for the Journal of Management Studies, in a special issue on technology commercialization. The paper, entitled “Commercializing Open Science: Deep Space Communications as the Lead Market for Shannon Theory, 1960–73,” was published in December after several rounds of review.

Errata (Feb. 4, 2009). I received an email from Andrew Viterbi with a correction to the paper that will be applied to the book:
the first Linkabit customer was the Naval Electronics Laboratory Center (NELC) in San Diego… NASA was the second, but never became a large customer.
Most universities subscribe to the journal, so the paper is available as online from a university IP address (DOI: 10.1111/j.1467-6486.2008.00807.x). Normally I post a PDF of the pre-publication Word document, but there were major changes after submission during editing the page proofs. However, I would be glad to email the published PDF to anyone who asks (at ).

Graphic credit: Brewster Rocket comic from Sunday, February 1, 2009. Note to Tim Rickard: Pioneer 10 was launched first, but Voyager 1 was actually the first manmade object to leave the solar system and the most distant space probe. So your aliens would first see the Golden Record rather than the Carl Sagan memorial plaque.

Qualcomm expanding CPU reach

2009-01-20T15:37:00.001-08:00

Qualcomm today spent $65 million to buy what’s left of AMD’s handheld devices division. The division, which made components for consumer electronics, was part of AMD’s 2006 acquisition of ATI. The acquisition included some technologies that Qualcomm previously licensed from AMD.

Apparently AMD plans to stay in the netbook market, where it competes with Intel’s Atom and also Qualcomm (which sells wireless chips today and promises Snapdragon someday). AMD continues to be struggling after its ATI acquisition, which largely failed.

Viral Tell Zone now largest US carrier

2009-01-12T12:22:00.001-08:00

Verizon has completed its acquisition of Alltel, making the CDMA carrier the nation’s largest, with 83.7 million subscribers and 28% market share. Verizon promised

Since Verizon Wireless and Alltel use the same technology platform, the vast majority of customers will be able to use their current handset after the transition to Verizon Wireless.

About 2.1 million subscribers across 105 (mostly rural) markes in 24 statets will be divested to meet antitrust concerns, with Verizon dumping a mix of Alltel, Verizon and Unicel (acquired last August) branded properties.

Verizon said it will integrate Alltel name, products, services and distribution in Q2. The LAT spotted a missed opportunity:

Sadly, that probably means slapping Verizon names on the Alltel properties, rather than some strange combination such as AllVerizon, Veritel or Allizon. Too bad they don't want to use an anagram of Verizon Alltel: the best one we could find was Viral Tell Zone, which seems fitting for a wireless company.

Qualcomm's progress on 3G and 4G notebooks

2009-01-09T08:01:00.001-08:00

In conjunction with this week’s Consumer Electronics Show in Las Vegas, Forbes has a long article on Qualcomm’s design wins for its Gobi chipset.

In 2007, it made an entrance with Gobi, a module that contains a Qualcomm chipset, global positioning system functionality and a modem that supports a wide range of third generation, or 3G, cellular networks.

That last point is Gobi's selling point. Its flexible modem enables users to connect to the Web anytime, anywhere, regardless of carrier technology. That's helpful in a world that toggles between two different cellular standards: GSM (Global System for Mobile communications) and CDMA (Code Division Multiple Access). It simplifies things for PC makers, too. "[Manufacturers] love it because it takes complexity out of the equation," says Dan Shey, a principal analyst at ABI Research. "Before, they had to stock a different computer model for each carrier."

In all, Forbes says five companies — Acer, Dell, HP, Lenovo and Panasonic — plan on releasing notebook computers using Gobi chipsets to provide 3G connectivity for mobile broadband users.

Since the Forbes article, two other companies announced new Gobi-enabled computers at CES: the $1000 OQO Model 2+ and Sony with its $900 P-series. Both are netbook-sized machines being sold at twice the price, and thus the vendors seem to be using Gobi as a way to sell a premium-priced computer.

The Gobi chipsets leverage Qualcomm’s strong relationships with carriers, enabling notebook makers to win certification of their 3G-enabled laptops based on a cellular carrier’s prior certification of Qualcomm’s technology.

Forbes warns, however, that dual-mode 3G may just be a small niche for global business travelers and not a consumer market. It also notes that Qualcomm’s 3G advantage — of being able to equally be able to support W-CDMA and cdma2000 (which it calls GSM and CDMA) goes away when we get to 4G when there’s only the GSM-inspired LTE. Qualcomm promises to upgrade Gobi for LTE.

(At one point it looked like WiMax might challenge LTE but now it’s clear that it won’t. That works out well for Qualcomm, which bet heavily against WiMax.)

When Qualcomm officially conceded two months ago that UMB is dead, I wondered what role Qualcomm will play in the future mobile industry, since for the first time since 1995 it doesn’t have a mobile phone standard of its own.

In 3G, Qualcomm has been aggressively exploiting the window of opportunity created by its 3G multimode expertise to create a premium-priced, differentiated product for notebook PCs. In the early days of 4G, Qualcomm will have a new opportunity to offer tri-mode chipsets — W-CDMA, cdma2000 and LTE.

However, in the long run, the 4G world will be one of a single standard with many entrants, including low-cost producers like Huawei. High competition for a standardized product equals commoditization, so Qualcomm will either have to compete at that level or find new ways to differentiate its products.

The San Diego-Israel mobile nexus

2008-12-10T01:25:00.001-08:00

This month, Levi Shapiro writes about the mobile phone startup industry in Israel. It calls back to mind the links between San Diego and Israel’s mobile phone industries.

Yes, CommNexus has run events involving Israeli companies. Yes, Andy Viterbi has an honorary degree from Technion and Irwin (and Joan) Jacobs have named the graduate school.

But as Levi notes, many young Israeli men learn about radios during their mandatory military service. Our interviews included a few examples:

One example was Bar-Giora Goldberg, who did his bachelor’s and master’s at Technion and spent a decade with the Israeli military doing spread spectrum, before taking a 1977-1978 sabbatical at Linkabit and coming back for good in 1980. He founded the first Linkabit spinoff (Sciteq), and worked with other local startups (including Peregrine Semiconductor) before cofounding Avaak.
Then there is Itzhak Gurantz, who also did his bachelor’s and master’s at Technion applying to the Berkeley PhD program while on reserve duty in the Army. He went from Berkeley (via a friend of Viterbi’s) to join Linkabit, and then on to start ComStream and Entropic, among other positions in the local telecom industry.
On our list — but not yet interviewed — is Eric Paneth, another Technion & Linkabit alumnus who is founding CEO of Orckit.

When I met Levi at the USC conference in August, he obviously had some mobile colleagues in San Diego, so I’m surprised he didn’t think these (or some other) connections worth mentioning. I guess I’m the historian and he’s consulting to firms trying to make a buck today.

Latest Broadcom/Qualcomm Skirmish

2008-11-18T16:03:00.000-08:00

This morning, the IP SIG of the telecom council had one of its occasional meetings to review major developments in IP law. IP is obviously very important to the local industry, whether it be Qualcomm’s patent licensing business model or Ron Katznelson’s current efforts to promote patent reform.

I couldn’t make the IP SIG, but on the agenda were three cases. One case was Broadcom v. Qualcomm. Which one? you ask — after all, there are so many. In this case, the lawyers talked about the case that brought findings of legal misconduct and forced Lou Lupin to fall on his sword. Another case scheduled for the IP SIG meeting was the ruling in Quanta v. LG, where the SCOTUS set new standards for doctrine of “patent exhaustion.”

As it turns out, the Quanta ruling plays a prominent role in Broadcom’s latest lawsuit against Qualcomm, filed October 8 in federal court. This filing is just the latest in itsongoing series of litigation intended to force Qualcomm to license its patents on terms that Broadcom finds acceptable: a royalty-free cross license.

When I saw the latest Broadcom v.Qualcomm case, I asked one of San Diego’s leading IP lawyers, USD professor David McGowan, if he would be willing to comment for this blog. I thought of David because he had analyzed the Quanta case for the leading patent blog. I already knew him because we’d met at an open source research conference, and we share a common interest (particularly in IP law) at the intersection of law and economics.

As a special guest commentary, here is Prof. McGowan’s analysis of the original Broadcom complaint. Paragraph numbers refer to the original complaint as filed in the Pacer database system.

Inexhaustible: The Latest Broadcom / Qualcomm Skirmish
By David McGowan
Lyle L. Jones Professor of Competition and Innovation Law
University of San Diego School of Law

Broadcom recently sued Qualcomm for a declaration that certain of Qualcomm’s alleged licensing practices misuse Qualcomm’s patents. The suit is both predictable and plausible in light of the Supreme Court’s recent Quanta opinion.

Based on Qualcomm’s description of its licensing practices, the district court’s decision will likely turn on how it resolves a question left open in Quanta. From an economic point of view I hope the court reads Quanta narrowly. Such a reading would tend to favor Qualcomm. There is a plausible formal case for Broadcom’s claims, however, so the case must be taken seriously.

The complaint alleges Qualcomm double-dips by charging handset manufacturers a royalty on both chipsets and handsets. Qualcomm may earn chipset royalties through sales to handset manufacturers or from licenses to competing chipset manufacturers such as Broadcom. It also charges a royalty directly on handsets.

Broadcom claims the Quanta case holds that a patentee may not charge downstream royalties beyond the first sale of its technology. This claim implies Qualcomm may either charge handset manufacturers a royalty for the handset or for a chipset (directly from Qualcomm or indirectly from Broadcom) but not both. Broadcom is asking the court to declare that it need not pay royalties to Qualcomm when Broadcom sells chipsets to handset manufacturers who pay Qualcomm royalties on handsets. (¶5)

Broadcom alleges Qualcomm’s double dipping drains from the industry money that could be used to foster innovation and competition. I find this claim implausible. Qualcomm innovates and there is no general reason to favor innovation by Broadcom or handset manufacturers over innovation by Qualcomm. This complaint raises distributional issues, not questions of dynamic efficiency.

Broadcom also alleges Qualcomm’s licenses reduce competition. It offers two theories in support of this claim. The first is that Broadcom must either take Qualcomm licenses or risk infringement action. That theory is doubly flawed. It confuses an effect on a competitor, Broadcom, with an effect on competition generally and it has nothing to do with the double dipping claim, which is the only one to which the Quanta holding might apply. If Broadcom operates under a cloud of infringement that is because Qualcomm has exclusive rights in its inventions not because of its licensing model. Only the serendipitous fact that the licenses were negotiated before Quanta was decided offers Broadcom any maneuvering room here, and that is a legal not an economic point.

The same points hold for the allegation that Qualcomm’s practices deter entry and increase costs. (¶29) That charge would be no different if Qualcomm suppressed all manufacturing other than its own and took all its royalties in chips. It seems to me a charge against the patent system rather than tiered licensing.

The second theory is that Qualcomm licenses favor its products over competitors’ products. Little is said about this claim so it is hard to know what to make of it. At one level it is not clear why Qualcomm would want to do this. Its patents mean it can obtain revenue by royalty from Broadcom or sale to handset manufacturers. Economically it should be indifferent between the two revenues streams. Indeed, if Broadcom is a lower-cost producer than Qualcomm, the latter would maximize profits by charging a high royalty rather than producing itself.

The complaint also refers to Qualcomm using its patents to leverage royalties, and leverage may be what the second theory has in mind. (¶24) It is not clear what Broadcom means by this reference. The facts alleged do not support the typical leverage claim, which is that a firm with market power in one market will use it to extend the duration of power in that market or to extend its power to another market. Rather, this appears to be a case in which single monopoly rent theory has a lot of force.

If handset manufacturers must practice Qualcomm inventions they must deal with Qualcomm, which implies some royalty. It does not imply an infinite royalty, however (Qualcomm wants handset sales so it is in its interest to set a royalty that allows handset manufacturers competitive returns on their investments). Still less does it imply that Qualcomm would earn less charging a single handset royalty than charging a royalty on both handsets and chipsets.

Chipsets and phones are close complements used in a fixed ratio. Basic rational actor assumptions imply Qualcomm will get as much money as it can; they also imply Qualcomm can get that amount at any level of production (either chips or handsets) and cannot get more by charging x at one level and y at another.

Here is a simplified illustration supporting the latter point. Suppose it is the dominant strategy for handset manufacturers to set prices at the average reservation price consumers place on the handset (given the cost of a contract with a carrier). Let’s say the average reservation price is $10, handset manufacturers need to earn $6 per handset, and the only input cost is chipset royalties. In theory QC could charge $4 as a handset royalty or charge $3 for a chipset and $1 as a handset royalty (or $2 and $2, of course). What it could not do is charge $3 for a handset royalty and $2 for a chipset royalty. (There are various qualifications to this logic in the antitrust literature but BC’s complaint does not seem to implicate any of them.)

No doubt this analysis is too crude to capture all the facts of the case. One would need to know the deal structures better than I do to offer more precise analysis. The analysis does raise significant questions, however, which the complaint does not answer.

It is hard to say what is likely to happen. Quanta dealt with an unconditional license and Qualcomm has said its licenses are expressly conditional. The Court did not rule on such licenses. The district court therefore is not bound to rule for Broadcom. If one read the Supreme Court as sending the signal that patentees should only be able to engage in one transaction per product, though, one could extend Quanta to reach the result Broadcom seeks.

As I mentioned I favor the narrow reading. I approach the problem this way. First, as a default matter, do we expect parties or courts reach more socially efficient bargains for the exploitation of inventions? In my view, both economic theory and experience favor parties as the default bargainers. Living markets as they do, they have much better information and much keener incentives to get things right than a generalist judge faced with unfamiliar information spun vigorously by competing advocates.

Second, should courts deviate from that default? The answer may be yes but only if there is a good reason. Absent such a reason the arguments favoring the default rule carry through. In some cases (price fixing for example) there will be an economic reason to abandon the default but there seem to be no such reason here. In other cases precedent might compel a court to abandon a default. Here it does not because the licenses at issue seem to be materially different from those at issue in Quanta. (Nothing in Quanta calls the default itself into question.)

Third, if there is no substantive reason to abandon a sensible default position and precedent does not require abandonment should a court abandon it? To me the question answers itself. Once you get the default right, in my view, you need a reason to move away from it, and there is no such reason here.

Admitting the obvious: Qualcomm knifes UMB

2008-11-15T20:06:00.000-08:00

Admitting the obvious, CEO Paul Jacobs told analysts Thursday that Qualcomm is giving up on UMB. The Reuters story (referenced by Unstrung) is the only account I could find:

NEW YORK (Reuters) - Qualcomm Inc, seeking to cut costs in the face of slowing demand for cell phones, has stopped developing a next-generation wireless technology called Ultra Mobile Broadband.

The wireless chip maker will put its resources into a rival high-speed technology called Long Term Evolution, which some of its major customers, such as Verizon Wireless, have backed, said Qualcomm Chief Executive Paul Jacobs.

As I noted in April, Qualcomm’s hope of getting its UMB adopted died when one of its two major cdma2000 customers in the US, Verizon Wireless, went with LTE.

It’s funny how Qualcomm chose to announce this. The only 2008 press release mentioning UMB is a February announcement of their planned UMB/LTE chipsets (presumably now LTE only). In a (Qualcomm-enabled) search for UMB on the Qualcomm website, 6 of the first 15 links went to missing documents (presumably pro-UMB marketing materials that have now been removed). I grabbed the various UMB white papers (still there) for posterity.

The 2006 annual report (from December 2006) predicted UMB would be commercialized in 2009. In March 2007, Qualcomm announced a “complete solution” for UMB in time for CTIA.

With UMB dead, tweaks to EVDO will not be enough to justify keeping 3GPP2 alive forever; given their overlapping membership, perhaps they can negotiate a friendly takeover by 3GPP. At some point, the raison d’être for CDMA Development Group will also disappear.

As I also noted in April, early cdmaOne (then IS-95) fan (then Vodafone CEO) Arun Sarun urged the industry to favor LTE over WiMax. Qualcomm is in the odd position — for the first time in more than 15 years — of not having its own horse in the mobile standards race, but instead watching its previous rivals duke it out.

Still, Qualcomm’s new alliance is clear. With HSDPA/USDPA, Qualcomm has been contributing to improvements in W-CDMA and getting closer to the 3GPP telecom crowd, and now with the Nokia patent dispute settled, Qualcomm is a respected (and perhaps even respectable) figure in Sophia-Antipolis.

Meanwhile, Qualcomm is like Nokia in that it would just like Intel and WiMax to go away or find a tiny niche (like small-town last-mile distribution). Most of the world’s carriers are in the same camp. The one obvious exception is Qualcomm’s other major CDMA carrier, Sprint, with a huge bet on WiMax (bankrolled by Intel). I wonder if we will see other evidence of increasing distance between Qualcomm and Sprint.

Conversely, Qualcomm is proudly providing the chip for T-Mobile’s new gPhone. Perhaps Qualcomm will gain enough WCDMA/LTE share to make up for the shrinking CDMA market.

The Reuters story also said Qualcomm hopes to use its (ARM core) Snapdragon CPU to expand revenues beyond cellphones to pocket computers or laptops. This seems like a tough slog, as PC sales are also expected to decline and many firms (beyond Intel) will be trying to gain market share in anything that needs a CPU.

Valuing the Nokia settlement

2008-11-10T11:10:00.000-08:00

On TheStreet, Marerk Fuchs dissects Qualcomm’s quarterly results released Thursday — specifically the higher than expected Q4 and the lower than expected predicted earnings for Q1.

His conclusion? Analysts are overlooking the boost from a onetime $560m payment by Nokia (as part of their patent settlement) and that without it, Qualcomm’s revenues have already started to decline.

According to its Q3 filings, Nokia is paying Qualcomm $2.3b (or $2.5b) in back and prepaid royalties.

In its earnings call transcript (as reported by Seeking Alpha), CEO Paul Jacobs said that Qualcomm received a $2.5b payment in October. He explained the profits as follows:

The agreement includes among other things, the non-refundable upfront payment of $2.50 billion received in early October. Ongoing royalties and the assignment of patents valued at $1. 8 billion and recorded in intangible assets.

At the end of fiscal 2008, unearned revenue attributable to the upfront consideration of the Nokia agreement was $3.9 billion, which will be recognized over the approximately remaining 14 year term of the license agreement. The value of the patents assigned to us last month will be amortized on a straight line basis to licensing cost of sales over their estimated useful life of approximately 15 years. The fourth quarter of fiscal 2008 includes six quarters of revenue amortization and the resumption of royalties for the second half of fiscal 2008.'

I have not seen anyone do a model of this to see how it compares to what Qualcomm would have received at list price. Nokia clearly bought down its royalties by assigning patents to Qualcomm, and also by its promise of non-assertion of its patents against Qualcomm. (In the rest of the world, we call that a cross-license).

I haven’t seen anyone analyze the value of the patents Nokia assigned (or won’t assert) to Qualcomm. Nokia and Qualcomm were spending lots of money on economic and IP experts, so perhaps with their current truce, there aren’t many expert left interested in studying this — or maybe just no one left being paid to study this.

MetroPCS, Leap finally form alliance

2008-11-08T09:08:00.000-08:00

A year ago, San Diego-based Leap Wireless rebuffed the attempt by its younger rival MetroPCS to buy it. The two firms together are still smaller than the #5 carrier, Alltel, although they would technically leap to #5 with 8+ million subs if they merged because Alltel is becoming part of Verizon Wireless.

It seemed like the decision not to merge was driven by Leap’s pride. It is possible that they were worried about the disruption and risks of a merger, but both firms’ need for economies of scale was compelling.

However, with the Big 4 offering unlimited service plans earlier this year — directly competing with the Cricket/MetroPCS raison d’etre — their need for scale is even greater. Both companies need buying and operating efficiencies, plus the ability to offer roaming to their customers.

Although we’ve been an all-CDMA household for nearly 10 years, roaming is the main reason our household has not switched to Metro or Cricket. We split our time between San José (where Metro has been prominent for years) and San Diego (where Leap finally began offering service in December 2006).

The roaming issue is now solved. In September, the two firms agreed to settle their litigation, swapped spectrum and also agreed to a 10 year roaming deal. The two firms lack the scale to get decent terms from Alltel, Sprint or Verizon.

The other shoe dropped this week. On Thursday, the two firms announced that customers with all but their lowest priced plans can roam for free to the other’s network. The deal covers 300 markets.

However, the two carriers lack a national footprint, without New York, Boston, Chicago or Washington, DC. (No subscribers from the new Obama administration). MetroPCS does plan to enter Boston and NYC next year.

The roaming deal is a good mid-term expedient for both carriers. They are particularly well positioned to sell to sell to college students (or low income types) who lack a landline and thus need an unlimited use wireless plan for the lowest possible price.

Motorola Android phone?

2008-10-20T14:47:00.001-07:00

Business Week reports that Motorola is showing its prototype Android-based phone to carriers, but it’s not due until at least April. The project is staffed in the Bay Area by employees of Good Technology, the push e-mail company acquired by Moto in January 2007.

GigaOM notes that incoming Moto handset CEO Sanjay Jha has good ties to Google from his time as COO of Qualcomm. (Qualcomm chips are in the first gPhone from ATC).

While the timing would support Motorola’s planned jettisoning spinoff of its handset division, Forbes speculates that due to the financial crisis, Motorola may have to push back the date.

Hat tip: Kevin Maney in Conde Nast Portfolio.

Verizon picks BlackBerry over gPhone

2008-10-09T00:31:00.000-07:00

Beyond merely selling various commodity Korean phones, Verizon Wireless needed a phone to compete with the iPhone and the recent T-Mobile G1 (aka gPhone). They went with the new BlackBerry 9530, which many see as an iPhone killer.

Many have said that the BlackBerry (“Storm”) has Qualcomm inside, but strangely, there is no Qualcomm press release this week to correspond to the one it issued two weeks ago with the G1 intro.

The 9530 supports the widest available range of 3G networks: EV-DO on two bands of cdma2000 networks, as well HSDPA/HSUPA or EDGE on five different bands of GSM or W-CDMA service. Those specs exactly match the Qualcomm MSM7210A, a new chip at the heart of more than a dozen new phones released this year.

At least one site claims the phone uses a Marvel PXA930, but Marvell doesn’t claim the phone either. The PXA930 is in the BlackBerry Bold, but since it doesn’t support cdma2000, the association is implausible.

Interestingly, the Verizon Wireless parent Vodafone will not be carrying the 9530, but the non-CDMA BlackBerry 9500. That means that Verizon subscribers can roam to Vodafone in Europe (as with the BlackBerry 8830), but Vodafone subscribers have to roam to one of Verizon’s competitors when they come to the US.

The LG-Samsung store

2008-10-05T15:26:00.000-07:00

Once upon a time, Verizon Wireless was America’s largest cellphone carrier. Today it remains a close second to AT&T — 26.2% vs. 27.5% of America’s 265 million subscribers.

Wandering by the mall Saturday, it struck me that Verizon has become the country’s largest sales agent for two Korean cellphone makers — Samsung and LG.

A decade ago, CDMA phones (then with Sprint PCS or AirTouch), were mostly made by Qualcomm. Soon Motorola started making CDMA phones, and were joined by a number of Japanese makers like Sharp and Kyocera (after it bought out Qualcomm’s handset business in 1999) who adapted the designs they made for the two Japanese CDMA carriers, KDD and IDO (who later merged to form KDDI).

At two Verizon booths on Saturday, there were a handful of smartphones from Palm, Motorola and some Windows Mobile clients. But almost everything else was either from Samsung (#2 in the world) or LG (#5).

Of course, the reason that these two Korean makers are dominating CDMA phone sales is the 1991 decision of Korean industry to adopt CDMA, later ratified by the Korean government. Korean carriers went live with CDMA in 1996, at almost exactly the same time as Hong Kong and the U.S. were also rolling out their first 2G CDMA systems.

Of the top 5 handset makers, Nokia once gave up on CDMA and has recently made a token effort to renter the market. #3 Motorola has all sorts of problems with its mobile phone operations, and its weakness in CDMA phones is just a reflection of its larger problems. #4 Sony Ericsson — with only a minimal presence in the US — gave up on the North American CDMA market five years ago, but still sells CDMA phones in its home market of Japan.

Statistics say that Motorola retains its lead at 35% of the US market — the combined share of #2 and #3 Samsung (18%) and LG (17%). The Q1 2008 stats showed Nokia in 4th at 8%, RIM (North America’s leading smartphone maker) at 5th, just ahead of Sanyo (Sprint’s major handset supplier).

However, I’m curious who’s buying all those Motorola phones, because I don’t see many on sale at the mall. Around here, I do see the Motorola Razr with teens and adults alike, but with adults I more often see smartphones like the iPhone, Treo or Blackberry.

Teenagers and college students seem to favor texting phones with the slide-out keyboard like the T-Mobile Sidekick; here the LG VX9800 and Samsung Glyde help Verizon stay competitive for these customers. That Verizon uses BREW for its downloadable apps means that these LG and Samsung phones have Qualcomm inside.

Andy gets his medal

2008-10-05T01:31:00.001-07:00

Last week, Andrew Viterbi got his National Medal of Science. The USC Viterbi School marks the event with a press release and a video.

UCLA issued a press release for another Linkabit founder, Len Kleinrock, who also get his medal the same day. It doesn’t mention Viterbi, who was a UCLA professor before leaving to run Linkabit.

At least MIT — where both men got their master’s degree in EE — mentions both men equally, as does the White House press release.

Paul loves his gPhone

2008-09-27T09:57:00.001-07:00

Qualcomm was one of the major cosponsors of Google’s Open Handset Alliance when it was announced last November. Qualcomm had not previously joined other mobile phone Linux efforts, such as LiMo (driven by Vodafone) and LiPS (once driven by France’s Orange).

This week, CEO Paul Jacobs was all smiles with the announcement of the T-Mobile G1, with Google’s Android OS and a Qualcomm MSM7201A processor. Of course, Taiwanese maker HTC has been a longtime and loyal buyer of Qualcomm chips. HTC exactly fits Qualcomm’s business model, which allows new (and presumably less capable) entrants to compete with large vertically integrated incumbents.

Google leverages the same market entry process. HTC doesn’t have the ability to design its own smartphone architecture to compete with the iPhone or Blackberry or various Nokia smartphones. Instead, it has produced probably the widest range of Windows Mobile devices. With the long-rumored G1, HTC is demonstrating its commitment to an open innovation sourcing of technology rather than to Microsoft per se.

Both firms thus have an interest in empowering new entrants, thus increasing handset competition and reducing the power of incumbents. Otherwise, their business objectives are quite divergent.

Google wants its software component to be a commodity so it can make money on another part of the ecosystem, i.e. ad-supported web applications. Qualcomm (like Microsoft) has spent billions on component R&D so it can make money selling those components.

And, in fact, Google has made sure that Qualcomm will not have an exclusive role in supplying Android hardware components. Google wants to commoditize the entire mobile Internet stack, except of course for its near-monopoly on key web applications. So Android adoption is a clear win for Google but has risks for Qualcomm.

One interesting opportunity, not yet tapped, is when will there be a CDMA phone enabled by Android. RIM is selling its Blackberry to all carriers, but otherwise the most exciting smartphones are GSM only: iPhone with AT&T, the G1 (so far) with T-Mobile, and Nokia (perhaps someday) selling to both.

The OHA was launched last November with the two weakest US carriers — T-mobile and Sprint, with the two major US carriers holding out. A month later Verizon also joined in, so three of the four Big Four (and both of the CDMA carriers) are in OHA.

Whatever the Android platform’s pizzaz relative to the iPhone, in the CDMA world it would be a dramatic step forward except for the most hardened Crackberry addict. A quick Google search suggest that all has been quiet since last December on what Verizon plans, although there’s been considerable speculation about Sprint’s needs and hopes to ship an Android phone.

As a loyal Sprint customer going back to more than a decade (and Sprint's cooperation with Cox to deploy CDMA in San Diego), there’s a huge pent-up demand for a good smartphone on their network Will it make it in time for Christmas? I guess we’ll find out soon.

Changing the nature of sound

2008-09-08T09:22:00.000-07:00

Through an odd set of coincidences, in the last 12 hours I read about two US tech companies that appear to have used digital communications technology to differentiate themselves. The common thread is their use of digital signal processing in portable handheld device to make sound better — possibly better than the original. Although neither of these is a San Diego firm, they both fit the broad brushes of the digitalization of communications that I’ve been studying in our planned book.

Since I bought my first audio cassette deck as a college student, the goal was to find a recording device that minimized the damage done in the recording process, i.e. the new noise that was allowed to intrude into the analog signal. I owned three cassette decks connected to my stereo from 1975 until I had enough CDs to give up on cassettes during the early 1990s.

While DAT and minidiscs were around since the 1980s, I bought my first digital recorder to record interviews replacing a series of portable cassette recorders the size of a paperback book. The Olympus DM-1 was among the earliest of the Olympus digital recorders, whose main attraction (at least for me) the ability to electronically back up research interviews.

But this morning I saw a link to the Zoom H2, a well-reviewed digital recorder from 26-year-old Samson Technologies. The H2 is a low-cost, miniature version of its earlier Zoom H4 portable digital recording studio.

What I thought was clever about the H2 was not the four-track recording for garage bands, but the use of the DSP and the four mics to electronically create different microphone response patterns — two different simulated stereo cardioid patterns, plus a symmetric omnidirectional patterns. Once upon a time we would buy different mics for different goals, but now (as with synthesized guitar amps) this can all be done electronically.

For my use in interviews (as opposed to recording my “band”), what surprised me was that they didn’t simulate a highly directional mic pattern, but maybe that’s a firmware upgrade. Still, with a street price of $170 it’s far more recorder at less money than what I bought five years ago from Olympus.

The earlier notice was one of those obscure, self-promoting trade magazine articles, in this case in IEEE Computer. The article by Lloyd Watts, founder/CTO of Audience Inc., talked about the challenges of reducing three different types of background noise you hear from cellphone callers. As with the H2, the solution combines multiple mics, a DSP and clever algorithms.

While Audience is interested in selling a specific chip (the Audience Voice Processor), the broader implication is that the ITU’s P.835 standard for noise reduction now accurately tests for the challenges of stationary, quasistationary and nonstationary noise sources. Cellphones reflecting this improved sound fidelity are shipping in Japan and Korea, and presumably will spread more broadly over the next few years.

Nokia re-enters CDMA market

2008-09-06T22:27:00.000-07:00

After settling its licensing dispute with Qualcomm, Nokia has re-entered the North American CDMA market with its new phone, the Nokia 6205 being sold by Verizon. The phone was actually introduced in June as a Batman movie tie in.

Because Nokia doesn’t know how to make CDMA phones any more, it outsourced design of the Nokia 6205 to an offshore ODM. PhoneNews.com speculates the phone was made by TechFaith, a Qualcomm- and Intel-backed startup that also makes phones for Kyocera and NEC.

It seems like a small scale entry by Nokia, which forecast declining market share in 2008 as it seeks to preserve margins in the face of brutal price cutting by rivals. The risk is that Nokia — which is a premium brand in Europe — will signify a low-quality, low-end product in the US, as it did 20 years ago when it was the Radio Schak house brand.

All Linkabit founders get their National Medal

2008-09-02T09:21:00.001-07:00

Later this month, two-thirds of the Linkabit founders will receive a National Medal of Science. With an earlier award, this means all three founders will have received one of the National Medals for lifetime achievement.

Andrew Viterbi will be among eight honorees scheduled to receive the award Sept. 29 in a White House ceremony with President Bush. Viterbi, the former JPL researcher and UCLA and UCSD professor, is of course the inventor of the Viterbi algorithm, widely used in all digital cellphones. He also advanced digital satellite communications as a co-founder and CTO of Linkabit and Qualcomm. He retired from Qualcomm in 2000, and since then has invested in startup companies through The Viterbi Group.

Also receiving a medal will be Leonard Kleinrock, the UCLA professor who was a cofounder and associated with Linkabit for several months when it was founded in 1968. Instead, he went back to working on his packet switching MIT doctoral thesis to ARPA secure routing requirements. This included getting the UCLA interface message processor (IMP) up and running, and using it to send the first e-mail message in October 1969.

The two men join the best known Linkabit (and Qualcomm) founder, who received the National Medal of Technology from President Clinton in 1994.

Although the award nominations are administered by the National Science Foundation, sometimes there are political overtones to presidential awards in the sciences and arts. Irwin and Joan Jacobs have been major contributors to Democrat candidates and causes at the national level (including Bill Clinton), even if their San Diego political involvement was aligned against teachers and pro-reform education candidates aligned with then-SDUSD superintendent (and certified Friend of Bill) Alan Bersin.

Viterbi’s honor by Bush is certainly not for his fundraising prowess. Campaign reports as of Sept. 1 show that since 2000, Viterbi has given slightly more than $100,000 to Democrat (mainly Senate) candidates and associated committees. The notable exception of Senator Norm Coleman (R-Minn.), who’s facing a GOP primary challenge prior to his general election challenge by comedian Al Franken. Kleinrock has only one $500 contribution to the 2006 Democratic Congressional Campaign Committee.

Certainly all three men had already proven that they deserve this national recognition, including being named Fellows of the IEEE and elected members of the National Academy of Engineering. Viterbi and Kleinrock in particular have received numerous awards for technical achievement in communications engineering, including the Marconi Prize.

Qualcomm cuts Nokia a deal

2008-07-24T15:28:00.001-07:00

Qualcomm and Nokia were due to go to trial Wednesday on their longstanding dispute of how much Nokia will pay Qualcomm for CDMA (mostly W-CDMA) patent royalties. The dispute began in April 2007 when their 2001 patent license agreement expired: Nokia stopped paying royalties, Qualcomm filed for binding arbitration, the two sides started negotiation, and when that failed they prepare for trial. While Nokia’s previous royalty rate was not disclosed, Qualcomm’s standard royalty rate is normally estimated at 4-5% of product cost.

Last night I heard on the radio that Nokia and Qualcomm had settled their dispute. Sure enough, last night (early Thursday in Espoo) they issued a joint press release:

Nokia and Qualcomm today announced that they have entered into a new agreement covering various standards including GSM, EDGE, CDMA, WCDMA, HSDPA, OFDM, WiMAX, LTE and other technologies. The agreement will result in settlement of all litigation between the companies, including the withdrawal by Nokia of its complaint to the European Commission.

Under the terms of the new 15-year agreement, Nokia has been granted a license under all Qualcomm's patents for use in Nokia mobile devices and Nokia Siemens Networks infrastructure equipment. Further, Nokia has agreed not to use any of its patents directly against Qualcomm, enabling Qualcomm to integrate Nokia's technology into Qualcomm's chipsets. The financial structure of the settlement includes an up-front payment and on-going royalties payable to Qualcomm. Nokia has agreed to assign ownership of a number of patents to Qualcomm, including patents declared as essential to WCDMA, GSM and OFDMA. The specific terms are confidential.

The timing of the settlement was forced by both the trial (which was scheduled to be webcast) and Qualcomm’s scheduled Q3 earnings release and conference call.

I’ve been looking for something — anything — that provided specifics on the deal, but there was almost nothing. The earnings call was rescheduled to 5am PDT today (not that I would have gone), but neither the WSJ nor Seeking Alpha has posted a transcript. Thus, I’ve attempted to make my own estimates of the numbers.

The WSJ quoted a Lehman analyst as saying that Nokia would have paid $600 million in royalties in 2008 under the old deal. The 2007 royalties were estimated at $400-500 million (alternately, $250-400 million net after). At one point, Nokia offered 20% of their prior royalty rate, part of their goal to cap total WCDMA handset royalties at $5/unit.

Translating from euros, Nokia sold $36.6 billion in mobile devices in calendar year 2007. Due to plummeting handset prices, handset revenue growth in 2007 was only 1.3%, but sales of 437 million units meant unit growth of 26%.

I only saw two pieces of hard information: QCOM CFO William Keitel said (in his slides) that the settlement would be worth 7-13¢/share in FY 2008 (ending Sept 28) and 20-28¢/share in FY 2009. Based on 1.62 billion shares outstanding, that’s $113-211 million (net after) this year and $324-454 million next year.

Since there’s an “up front” payment — plus all the missing royalties from Q3 and Q4 of 2007 — it’s not clear why the 2007 payment is lower than the 2008 payment. The only two explanations I can think of are a) payments have been deferred past Sept. 30 or b) the value of the patents assigned are large enough to materially reduce payments. (Keitel said some of the improved net income was due to reduced legal costs, but my guess is that the savings are no more than $50m/year pretax out of an an annual legal bill of $200m/year).

While Nokia’s payments translate to revenues for Qualcomm Technology Licensing, and presumably to pretax income. After tax income is going to be less: the average (not marginal) tax rate for 9 months of FY2007 was 19.4%, while the marginal tax rate for California corporations is 43.84%(35% fed + 8.84% state). The 2007 10-K (with a 26% marginal tax rate) makes it clear that the marginal tax rate is mainly lower due to foreign earnings tax treatment. (I would expect payments from Finland would thus have a tax rate lower than 26%).

At a 26% marginal tax rate, then Keitel’s numbers would translate to payments of $438-614 million in FY2008. Those numbers sound comparable to the 2007 estimates — suggesting that Qualcomm got most of what it wants. However, other numbers suggest a different tale.

This morning, Qualcomm noted that WCDMA sales continue to explode, with 173 million devices in 2007 now estimated to be 274 million in 2008. (IDC quoted 1,150 million handsets sold in 2007). Qualcomm reports the rate of growth for WCDMA devices is 58% worldwide, 49% in Europe (where Nokia is strongest), 45% in Asia (outside of China, and 114% in the rest of world (mostly Americas, where Nokia is losing share).

Nokia doesn’t break down what % of its handsets sold in 2007 are WCDMA, but even if we assume Nokia’s handset revenues are flat in 2008, the shift from GSM to WCDMA handsets should increase the number of Nokia units paying Qualcomm royalties by at least 40%.

Qualcomm’s major licenses undoubtably have a most-favored-nation clause, and so Qualcomm would do anything in its power to avoid setting a precedent. Both companies have made it impossible to do an apples vs. apples comparison, and so the actual terms (probably visible through Qualcomm’s FY2009 10-K) won’t be known for years.
The bottom line? Even with a strong hand, Qualcomm offered Nokia something to settle. If the reported numbers are accurate, my hunch is that (avoid setting a precedent) the valuation of the IP licensed and transferred by Nokia was used to implement a 15-35% reduction in the near- term royalty payments. The financial impacts in the out years would depend on assumptions that even the two parties don’t fully understand.

Because of Qualcomm’s eagerness to go to arbitration — and what I know from studying their business model for almost a decade — I do not believe the (unsubstantiated) claim that Qualcomm cut its rate to 2%. With MFN, Qualcomm won’t be making a dramatic cut to its royalty rate, but we don’t know if (or how much) of a royalty Qualcomm pays to use Nokia patents in its chipsets.

With its concessions, Qualcomm got a 15 year revenue stream from 40% of the world’s handset market. It also won an important precedent: Nokia will pay royalties on two 4G technologies (LTE and WiMax) where Qualcomm royalty position is far less certain than for WCDMA. The rest of the industry (with the possible exception of China) will eventually follow/.

Both stocks rose on the resolution of the uncertainty. RCR Wireless News notes that the settlement will allow Nokia to re-enter the US CDMA market. A Citigroup analyst speculates that Nokia may buy Qualcomm (instead of TI) chips.

I have met a number of Nokia and Qualcomm people in my research. In some ways they are fairly similar, and (other than the money) they seem like they should be able to work together (which makes it like Qualcomm & Broadcom, but unlike Nokia and InterDigital). So when Paul Jacobs says he expects the two companies to work together, I think that’s both realistic, and will also be very good for the future of the wireless industry.

Best deal in town

2008-07-04T19:47:00.001-07:00

This is off-topic but is something I wanted to share with my only San Diego audience of my four blogs.

One of the best kept secrets for North County parents is the City of Oceanside summer surf camp. It follows the normal day camp model — a few adults, mostly teen camp counselors — except that the kids spend all day at the beach surfing.

The program runs from 8-3 every day (except July 4th) north of the Oceanside Pier. At the end of the week the kids have a surfing contest at three levels (beginning, intermediate, advanced) judged by the counselors, who award small prizes and consolation prizes donated by local surf shops (e.g. a surfing poster).

This week was the third year in a row that our daughter did the camp, and she’s always had a great time. We encouraged some of her friends from San Pasqual to do it and the two kids also had a great time this week. Our neighbor in Oceanside can’t get his teenager to do it, but his nephews spend two weeks every year in the program. The program is open to residents and non-residents ages 8-16 who can pass a rudimentary swim test.

The best thing of all his the price — $135/week for a 7-hour camp — cheaper than daycare and a heck of a lot more fun. Unlike Carlsbad, Oceanside does not surcharge out of town participants in its recreation programs. The city has a pretty terrible website — with only last year’s brochure up as a PDF — but the Aquatics Department will mail out a form if you call them (760-435-5235).

Photo: winner of the Oceanside swim camp July 3rd intermediate competition.

Broadcom to Qualcomm: say uncle

2008-07-01T12:11:00.001-07:00

This week I’m at the meeting of the University-Industry Development Partnership, a two-day conference up at UCI that’s trying to focus on university-industry collaboration. Because of our location, there has been some local color (besides the weather).

Interestingly, UCSD Connect is prominent here — everyone acknowledging (at least in its heyday) it as the global model of university-industry cooperation for tech startups. For example, one of the sessions was a discussion of how UCI is making a two-day conferencea second attempt to replicate Connect: this second attempt appears both to be more successful, and also to have improved on the Connect model in a couple of ways.

Another local speaker was Dr. Henry Samueli, a former UCLA and UCI engineering professor who co-founded Orange County’s largest and most successful electronics company: Broadcom. From his Broadcom billions, Samueli donated money to name the UCLA and UCI engineering schools and buy the Anaheim Ducks.

Samueli was chairman of the board of Broadcom until he stepped down May 15 due to accusations of stock option backdating. (He resolved the accusations last week with a plea bargain leading to a fine and probation).

Samueli talked about the company’s growth from its founding in 1991, its IPO in 1998 and its current run rate of nearly $4 billion/year. The engineering professor described an attitude towards corporate culture and engineers sounded very similar to that of Jacob and Viterbi’s two companies:

Hiring the best and brightest engineers is what it’s all about. If I had to pick one thing about being a successful technological innovator, it’s hiring the best and brightest technologists.

His discussion of an open communication, achievement-motivating culture also sounds exactly what we heard about Linkabit.

Its R&D intensity is about 20%, or $800 million year in R&D. As I speculated earlier, it’s far more D than R:

It’s almost all product development in the near to mid term. Almost no basic research can be afforded in that budget — only a tiny bit.

Despite this focus on development rather than research, Broadcom has aggressively patented its technologies. The number of granted patents rose from 456 in 2003, to 824, 1627, 2625 and now 3300 in 2007. He proudly pointed to an IEEE Spectrum article on patent impact using statistics compiled by the consulting firm 1790 Analytics.

For San Diego readers, the biggest interest in Broadcom is its patent infringement suit against Qualcomm that it won 18 months ago. Frankly, I thought inappropriate (and off topic) to ask about the lawsuit, but someone else did.

When asked about the issue of patent cross-licensing, Samueli said that it had many cross-license agreements. Earlier, he had noted that Broadcom would prefer to have a situation where patents were not a factor — that Broadcom could race to be first without regards to patents.

Cross-licenses thus fit Broadcom’s goal: as Samueli said, “You go do your thing and we go do our thing and leave each other alone — and rely on innovation to keep you ahead in the marketplace.”

Cross-licensing does not (of course) include Qualcomm: “We’re having these issues with Qualcomm — we’re trying to get to that point.” Obviously, Qualcomm issuing a royalty-free cross license would destroy their business model, so there is no way to reconcile to fully satisfy both sides.

Photo credit: 2006 photo of Samueli from the Los Angeles Times.

TI and Qualcomm in rare agreement

2008-06-27T21:15:00.001-07:00

As part of its push to take over the mobile phone world, Intel has its sights set firmly on Qualcomm and TI. Despite their fierce rivalry for device market share — and a bitter fight over CDMA and W-CDMA patents — this is one place where (to a limited degree) the enemy of my enemy is my friend.

Bloomberg quotes Intel CEO Paul Otellini as recognizing the growth potential of mobile devices. Intel is trying to create a brand new segment distinct from smartphones — which it calls mobile Internet devices — where it hopes its Taiwanese OEM partners can enter without major competition from Nokia et al.

As Bloomberg reports:

“I'm skeptical -- that business is tough,” said analyst Bill Gorman at Pittsburgh-based PNC Institutional Investments, which owns 10.8 million Intel shares, according to data compiled by Bloomberg. “There is very difficult entrenched competition. Qualcomm continues to push state of the art; TI is going to remain a major player.”

Intel, the Santa Clara, California-based company whose products are the brains in more than 75 percent of the world's PCs, says only devices with chips based on those complex processors can run the Internet properly because the software at the backbone of the Web was written for computers.

Otellini predicts PC makers will buy Intel chips for new handheld computers, a market Texas Instruments and Qualcomm say their handset customers are exploring. Once he's won over mini- computer buyers with the new product, called Atom, Otellini plans to court phone makers as Intel creates less power-hungry models.

Somehow, I don’t quite see it. Even though Nokia and Intel are de facto cooperating on a Linux variant for these mobile internet devices, this is a frontal assault on Nokia’s 40+% market share for mobile phones based on ARM microprocessors.

Also, the claim that web browsers require an x86 processor to surf the web is silly. Communications bandwidth is going to be the limiting factor — unless you’re teaming up with Adobe to populate the mobile Internet with millions of compute-inefficient, Flash-infested web pages.

Next, there is the assumption that TI and Qualcomm will sit still. As the article notes, both are making more powerful cellphone processors — respectively with their OMAP and Snapdragon processor families. I suspect Otellini’s braggadocio will cause them to redouble their efforts.

If you're think you've heard this song before, you have. As the article notes, to enter the mobile phone market last time Intel spent $5 billion from 2000-2006 and only got about 10% of its money back. Thus far, Intel’s efforts to diversify away from the PC have been unsuccessful.

Given these obstacles — including the fierce opposition — I’d bet against Intel reaching $5 billion in mobile phone revenues by 2015. But I wouldn’t bet the house on it, and would only offer about 3:2 odds against Intel.

British standards for essential 3G patents

2008-06-16T12:57:00.000-07:00

As decided last December, the ruling by the High Court of Justice for England and Wales on Nokia v Interdigital Technology Corp (2007) will have a major impact on how patents are licensed (and enforced) in mobile phone standards. Although the ruling is technically only binding in the UK, I believe the findings will impact the various patent lawsuits involving InterDigital (IDCC), Qualcomm (QCOM), Nokia (NOK), Broadcom (BCOM) and others holding (or seeking to avoid paying royalties on) mobile phone patents.

InterDigital declared to ETSI that various patents were essential for implementing the W-CDMA standard, but (as with all ETSI declarations) this self-determined essentiality was not independently verified. My interest here is not the SD telecom book, but a series of papers I’m doing with Rudi Bekkers on W-CDMA (aka UMTS) patents.

In this case, Nokia sued to have 29 InterDigital patents declared not-essential to W-CDMA. Nokia had previously won in English courts in an earlier case involving InterDigital’s GSM patents. This is all part of a larger strategy by Nokia to get out of paying any royalties to InterDigital.

Of the 29 “essential” patents, Nokia dropped its challenge to one patent, InterDigital conceded that 21 were not essential, did not defend three more, leaving four patents contested at trial. The judge, Sir Nicholas Pumfrey, ultimately ruled that only one patent was partially essential.

When the ruling by Sir Nicholas Pumfrey was released Dec. 21, 2007, InterDigital spun the ruling as a victory, but clearly InterDigital ended up telling the world (including current and potential licensees) that 27 of 28 patents patents declared essential to W-CDMA actually aren’t.

The findings are all covered in the ruling by Lord Justice Pumfrey, but I learned what it really meant from a forthcoming law review article:

Myles Jelf and Michael Stevenson, “Nokia v IDC: an essentially English judgment,” Journal of Intellectual Property Law & Practice, 2008, Vol. 3, No. 7, pp. 457-460. doi: 10.1093/jiplp/jpn084

The authors are not a party to the case, but attorneys at Bristows in London; they do a commendable job of explaining the findings in a style accessible to an IP-knowledgeable engineer or businessperson. A preprint copy of their article was posted May 21 to the journal website.

The article notes the contribution of the decision in deciding essentiality, providing a process for its evaluation, and even procedural precedents about to run such litigation. To quote the authors:

The overall approach adopted by the Courts appears to be as follows:
Start out with the patent in one hand and the relevant standards in the other.
Consider the correct construction of the patent, entirely independently of the standards, through the eyes of the skilled person.
...
Consider to what extent the claim construction put forward corresponds with what is specified in the standards ...
...[D]ecide whether what is properly required by the standards falls within the language of the claim, as understood by the skilled person.

But (the authors argue) the contribution of the ruling goes beyond the process of determining essentiality to setting a standard for essentiality and providing procedural precedents about to run such litigation. I defer to the article for a more complete discussion of the ruling’s interpretation and implications.

Before he was promoted to become Lord Justice of Appeal last November, Pumfrey gained a reputation for handling complex patent cases. He drew from degrees in both physics and law that he earned before becoming a barrister in 1975, as well as three years as junior counsel in the UK patent office. But he was known more broadly for his expertise in IP law, ruling (for example) last year on a trademark case involving a transvestite beauty pageant.

Tragically, Pumfrey died three days after the ruling was published of a massive stroke he suffered on Christmas Eve. The judge, aged 56, apparently had a weight problem. Pumfrey was well-regarded for his specialized expertise and will be missed by his peers.

Photo credit: Sir Nicholas Pumfrey, from the Times of London January 3, 2008 obituary.

Viterbi's honorable mention

2008-06-11T08:45:00.000-07:00

Andrew Viterbi, co-founder of Linkabit and Qualcomm, was one of four finalists for the biennual Millennium Technology Prize, which is awarded

to inspire and recognize innovations that can provide answers to the challenges of our time, promoting both the quality of human life and sustainable development.

The two previous winners of the prize invented the blue LED (which makes DVDs possible) and the world wide web (which makes reading this blog possible).

Brad Smith in Wireless Week explained how Viterbi’s 1967 publication of the Viterbi algorithm (allowing maximal signal/noise ratio on convolutionally encoded signals) changed the telecommunications world.

This morning in Helsinki, the Technology Academy of Finland. awarded the prize of €800,000 to another finalist, Robert Langer of MIT. Here’s the citation

Professor Robert Langer's innovations have had a significant impact on fighting cancer, heart disease, and numerous other diseases. His work has also brought about significant advances in tissue engineering, including synthetic replacement for biological tissues such as artificial skin. Over 100 million people a year are already using advanced drug delivery systems and this number is rising rapidly. In the future, tissue engineering may revolutionize medical treatment that could affect millions of other individuals. "Tissue engineering holds the promise of creating virtually any new tissue or organ," said Professor Langer.

Viterbi and the other finalists were awarded €115,000, which Viterbi previously said he’d donate to charity. Obviously this is still a high honor, crossing over from an industry-specific award to one recognized more broadly by society.

Vaudeville performers had a maxim: Never follow an animal act or a child act. So I guess I’d say that you don’t want to be a finalist against someone who’s curing cancer.

Swimming in the empty WiMax pool

2008-06-09T11:58:00.000-07:00

The news is all abuzz with the announcement of a planned patent pool for WiMax to be called the Open Patent Alliance. (The announcement is coming at the WiMax Forum in Amsterdam). I still see nothing to recant my earlier observation that WiMax is likely to have little or no impact on mobile wireless in the US or most of the rest of the world.

Part of the problem is that there are few new faces. The alliance is anchored by Clearwire and Sprint (who are building a US WiMax network) and Intel, the main funder of WiMax for the past five years. It also includes Alcatel-Lucent, Cisco and Samsung.

Noticeably absent are the three largest 3G IPR holders: Nokia, Ericsson and Qualcomm, as well as Motorola. The ComputerWorld coverage was breathlessly foolish:

Motorola and Qualcomm would still be allowed to join, even though they are not expected to attend on Monday, said one person familiar with the discussions. He said the principal function of the group will be to open up WiMax patents held by various vendors to make licensing of future products for networks a cleaner and faster process. Most of the major patent holders have already signed on, he noted.

But the Wall Street Journal article reported a flat rejection by Qualcomm, which has never joined any patent pool: "Qualcomm has consistently preferred to negotiate license agreements bilaterally.” That’s also been Motorola’s policy in the past, too.

The WSJ tries to be optimistic about the development:

A group called MPEG LA, for example, offers standard royalty rates for licensing patents associated with video compression. Patent pools are "tremendously important," said David Balto, a Washington, D.C., lawyer who handles patent and antitrust issues.

MPEG LA is one of the rare examples where all the major parties got together beforehand and formed the pool. Due to conflicting interests of licensing IP and selling hardware, this rarely happens in telecom. For 3G, the patent pool includes the nearly irrelevant players, which (except for Intel) is true of the WiMax proposal.

Another optimistic WSJ expert quote:

Larry Goldstein, a patent lawyer who wrote a book on patent pools, said the WiMax group could reduce the number of licensing deals to be negotiated even if some patent holders don't join. "It can cut down on the onerous negotiations and cut down on the overall royalty rate," he said.

Notice “can” and not “will.”

The claim that the patent pool covers “most” of the patent holders might reduce transaction costs, but if it doesn’t have “most” of the patents, it will have negligible effect on the overall royalty rate, unless the small patent holders pass on the transaction cost savings to licensees.

What % of the WiMax patents are owned by Intel (the main patent holder in the alliance) vs. the four major holdouts? And since the latter are moving aggressively to migrate 3G cellular carriers to WiMax’s main competitor, LTE, what incentive do they have to cooperate with Intel to reduce licensing costs?

The WSJ article quoted an analyst predicting similar patent rates for both LTE and WiMax. That seems pretty plausible, since there is a heavy overlap in the patent holders between both technologies. Someone like Qualcomm will say “we’re charging 5% for use of our technology, whether for LTE or WiMax.”

There is only one scenario that I could see the pool significantly cutting WiMax royalty rates: if Intel successfully uses it as a club to force cross-licensing by the holdouts on more favorable terms. Motorola might be loathe to give up on Sprint — one of its larger customers — but neither Nokia nor Ericsson has sold many phones through the struggling carrier. Qualcomm also has yet to announce WiMax support in its planned LTE chipsets.

Last week, an Intel executive floated the idea that WiMax and LTE should be merged into a unified OFDM-based standard. I guess that’s what you say if you can hear the stamped bearing down on you.

(BTW, the WiMax proponents are now calling it WiMAX. I guess they didn’t call it WIMAX because they know that reporters would ignore the request, as they do for QUALCOMM.)

Schadenfreude

2008-06-05T23:55:00.000-07:00

Last month, the SEC sued Broadcom’s two founders, Henry Samueli and Henry Nicholas, alleging phony accounting in connection with incentive stock options. Today, the feds unsealed an indictment of Nicholas — charging stock price manipulation, using and distributing drugs and hiring prostitutes for his employees and customers. (Of course, Nicholas denies the charges).

The stock option accusations are not unusual for tech executives, and there are even a few that seriously argue that this is mostly an accounting issue not worthy of felony prosecution. But the sex-and-drugs accusations (stemming from a disgruntled ex-employee’s complaint) are just plain weird, more suitable for a pro athlete than a tech executive. This is complete with the report that (since April) Nicholas has been at a celebrity rehab center in Malibu. No such accusations have been leveled at Dr. Samueli, Nicholas’ former UCI professor who used his Broadcom wealth to endow two engineering schools, UCI and UCLA.

Clearly the course cases will be a major distraction for the company’s founders if not its management. Given all the problems Broadcom has created for Qualcomm, such a distraction would be welcomed by at least some Qualcomm employees and shareholders.

The German word for this is Shadenfreude, although I think the original Qualcomm executive team would have too much class to even hint at it in private. As for the current CEO, I’ve had no direct contact from which to judge; perhaps the best indicator would be how many elbows he throws in his notoriously competitive basketball games.

China will/won't allow cdma2000

2008-06-01T22:55:00.000-07:00

Back in November 2000, I needed a case to teach political risk. So I wrote one about Qualcomm's on-again, off-again relationship with the Chinese government and state-owned carrier China Unicom — the one that eventually allowed Unicom to offer cdmaOne 2G mobile phone service in China. (My teaching case “Qualcomm in China” was used to flesh out the China portion of Dave Mock’s Qualcomm book).

Last month, the Chinese government unveiled a master reorg of telecommunications carriers is realigning six companies to three, each of which will have a wireline and mobile operation. China Unicom will be broken up, and its CDMA operations sold to China Telecom (the dominant wireline carrier) while its GSM network will be sold to China Netcom. One estimate places the value of the CDMA network at $13-15 billion.

But after that, nobody can agree on what’s happen — which exactly makes the point of the original case that a lack of policy transparency creates high risk and uncertainty for Western firms operating in China.

Among the disputed predictions that are the source of so much speculation:

Will it create real competition for China Mobile, which with nearly 400 million subscribers is the world’s largest cell phone operator? An expert interviewed by the FT said “There will be no way to create a real three-way fight – China Mobile will still be the big one standing alone” but the market pummeled China Mobile shares on the assumption that it will have real competition.
Supposedly having three carriers means three 3G licenses will be issued, solving a long-standing problem in Chinese telecom policies. Some say (as has been long predicted) it will happen in time to showcase Chinese wireless technology for the 2008 Olympics, but others say it won’t happen until 2009.
Many say it clears the way for every carrier to deploy TD-SCDMA, but TheStreet speculates that all three types of 3G will be deployed: TD-SCDMA with China Mobile, W-CDMA with China Netcom and cdma2000 with China Telecom. With this plan, CT would have a huge time to market advantage because the cdma2000 upgrade is faster and cheaper, while China Mobile would deploy the least proven technology (one it has been trailing for several years).
Reportedly one expert claims that China will skip 3G to 4G (see the comments on this post). It would certainly make sense technologically — allowing China to skip a generation of infrastructure development and giving its manufacturers a huge leg up on 4G equipment deployment. The problem is that the comment is attributed to Willie Lu, a prolific wireless researcher who is well connected and well trained (although a lousy webmaster), but a 4G promoter based in America who speaks for himself and not the Chinese government.

So will there be a TD-SCDMA? Will Qualcomm make any money from it? As with a year ago, everything is still up in the air.

Qualcomm is notoriously secretive in disclosing its royalty terms, which makes it difficult for researchers like me but also leaves it vulnerable to accusations of violating the non-discriminatory part of RAND patent licensing terms. One report I thought curious was an account Friday that claimed that China Telecom signed a deal with Qualcomm to pay CDMA royalties at 4%.

Reviewing my notes from the Qualcomm in China case, it’s clear that report is wrong. The list price for QCOM’s patents is known to be in the 4-5% range. I reported back in 2001 that on behalf of Unicom and its suppliers, the Ministry of Information Industry (MII) negotiated Irwin Jacobs down to 2.65% for handsets and 1% for infrastructure. So there’s no way the MII-led reorg will cause China Telecom to pay 4% royalties for Unicom’s existing 2G network.

Leap: pride before the fall?

2008-05-17T00:11:00.000-07:00

Last September, Leap rebuffed MetroPCS’s proposed merger, in which the younger rival proposed exchanging 2.75 shares of PCS for every 1 of LEAP. In one sense, Leap’s decision seems smart, because its shares are still worth more than Metro’s offer — at Friday‘s close, the offer would have been worth $59.76 but the stock ended at $61.09.

However, both shares are down (PCS down 24%, LEAP down 27%) since the deal was announced last Sept. 4. The relative market caps remain the same, but now Metro is worth $7.6b vs. $4.2b for Leap.

But the more serious problem is that the four major carriers have gone to unlimited service plans — which was the whole point of Leap’s Cricket service (later copied by MetroPCS). Yes, the Big Four want $100/month while Metro wants $40/month (unlimited voice, text messaging and voicemail). But they’ve been forced to respond with a family plan promo: two lines for $35, three for $30, or four for $25 ($100 total — get it?). Cricket is about $5/monh cheaper for comparable plans, and its roaming minutes are less than half the price of those for Metro (but only sold in bundles).

Still, the big boys are heading towards unlimited minutes. If Leap and Metro don’t build a national footprint soon, they’ll be toast. They need to move before the industry shifts from voice to data (since their customers and equipment are not well suited for data). Sprint is in too much trouble to buy either one, leaving only Verizon as a potential buyer

Leap and Metro are as compatible as two carriers could be (other than the bad blood between them, and the fact that Metro is based in Texas). In addition to similar business models and demographics, they also use Qualcomm’s CDMA networks (unlike the Sprint-Nextel nightmare) in 1900 MHz and soon 700 MHz.

The foot prints are nicely complementary, as the original MetroPCS offer made clear. From a personal standpoint, both carriers individually are useless, but together my wife and daughter (and maybe I) would jump for their California coverage. MetroPCS has the Bay Area, Sacramento Bakersfield, LA and. and Las Vegas; Cricket has San Diego and central California (Fresno to Modesto) as well as Reno and (soon) Las Vegas.

The two are starting to build out redundant coverage, so the savings from the combination are going down. Now that the 700 MHz auctions are over, speculation is that negotiations will resume. But then speculation about merger talks was spreading in December and October, too.

Asked twice during the analyst call earlier this month, MetroPCS Roger Lindquist neither confirmed nor denied an interest in resuming merger talks. He didn’t deny it, because it would have no credibility; but he didn’t confirm it, to avoid raising expectations of any near term solution.

At the beginning of the year, FierceWireless predicted that the merger will take place in 2008. So far, two other predictions are bearing out (spinout of the MOT handset division, and merger of Sprint and Clearwire WiMax properties), and the year is not quite half over.

Qualcomm inside ... personal navigation devices

2008-04-15T12:10:00.001-07:00

Nikkei Electronics Asia compares the push of both TI and Qualcomm to go beyond cellular phones to personal navigation devices (the rest of us call them GPS receivers). What's different from cell phones is that GPS is mandatory but cellular reception is not.

In competing with Marvel, Frescale and others, NEA concludes that Qualcomm is better suited for those PNDs that require cellular capabilities. However, TI offers a higher performance solution for the vast majority that do not require cellular connectivity.

Still, Qualcomm’s entry with the QST1000, QST1100 and QST1105 suggest a growth path forward for Qualcomm. The challenge will be to offer competitive products that are not strictly tied to its knowledge of cellular radios.

Qualcomm on 4G sidelines

2008-04-03T00:25:00.001-07:00

As if we needed any more evidence, this week’s CTIA has made it official: the 4G race is down to LTE vs. WiMax, the 4G solutions respectively chosen by Verizon and Sprint, Qualcomm’s two largest US customers.

The CTIA pavilions were emphasizing the two technologies. LTE (the successor to GSM to W-CDMA) is racing to catch up with WiMax, and might even be available next year.

Beating the drum for LTE at CTIA was Arun Sarin, who at Pacific Telesis (then AirTouch) was one of the earliest CDMA backers. Now CEO of Vodafone (and part-owner of Verizon), as a CTIA keynoter he asked the industry to line up behind 3GPP’s LTE and not Intel’s WiMax.

No longer in the running is Qualcomm’s UMB, which was more or less marked for dead after losing Verizon and Sprint. It’s technically possible that Japan’s KDDI could choose UMB, but I don’t know why.

With UMB gone, after dissing WiMax, Qualcomm is clearly in the LTE camp. The MDM9xxx series chips announced in February all support LTE; the CDMA chips also support UMB, but now it’s not clear who will use it.

UMB is the 4G technology based on Flarion’s OFDMA. If UMB fails, it’s not clear what Qualcomm got for its $800 million purchase of Flarion. But then it depends on how many Flarion patents are required to implement the OFDMA LTE.

Exit strategies by San Diego firms

2008-01-29T00:42:00.001-08:00

I was quoted heavily in Sunday’s story in the UT on the origins of the San Diego telecom industry. The interview was done last July with Kathryn Balint, who apparently left the UT in August.

Despite the lag, I still stand by what I said then. The only problem is that the book on the local telecom industry, Digitizing Communications, is moving forward but running behind schedule.

One of the points I made (also made by Martha Dennis) is that local firms are being acquired rather than seeking an IPO as has happened with so many famous Silicon Valley companies. The companies need liquidity — or must have it to fulfill promises made to VCs — and thus take the best route available.

For the book, I sat down this afternoon and tried to update our record of public San Diego-based telecom companies. (The definition of “telecom” here is as loose as possible, including defense electronics and computer networks).

Company	Exchange	Ticker	Market Cap†	Remarks
Qualcomm	Nasdaq	QCOM	$64.5b	S&P 500 stock
Leap Wireless	Nasdaq	LEAP	$2.7b
ViaSat	Nasdaq	VSAT	$624m	S&P 600 Small Cap stock
Novatel Wireless	Nasdaq	NVTL	$507m	S&P 600 Small Cap stock
Maxwell Technologies	Nasdaq	MXWL	$173m
Dot Hill Systems	Nasdaq	HILL	$159m
Entropic	Nasdaq	ENTR	$82m
One Voice	OTCBB	ONEV	?	Quoted 0-1¢/share by various sites

† Market cap at 4pm EST Monday, according to WSJ.com

This does not include companies that were acquired after IPO (like Applied Digital and Copper Mountain) or moved to SIlicon Valley after a local IPO (both AMCC and Copper Mountain). Remec IPO'd but eventually liquidated itself. I gave up on making sense of the Woody Norris companies (American Technology Corp., Norris Communications/e.Digital, Jabra).

As it turns out, the use of acquisition (rather than IPOs) as an exit strategy seems to be becoming more the norm, even in Silicon Valley. As I remarked this morning after Nokia bought Trolltech, IPOs are becoming more scarce in software. It may turn out that the roaring 90s was the last rush of startup-to-IPO miracles; very few San Diego companies made it before the 2001 NASDAQ crash, fueled by the end of FCC’s policy fantasy known as the CLEC.

I remember when Charlie Jackson sold Silicon Beach to Aldus back in 1990. Charlie told me he’d been planning on doing an IPO, but the markets weren’t favorable. Charlie did it again later with FutureWave and Macromedia — although the FutureWave sale was an opportunistic exit with the invention of Flash.

Of course, Linkabit also exited via acquisition (by M/A-COM), but after the new owners mucked it up, Irwin Jacobs and Andy Viterbi didn’t make that mistake a second time.

EV-DO live and kicking

2008-01-17T20:05:00.000-08:00

Several years ago, Mac users wanting to use EV-DO modems had rely on third parties to provide support and drives. But this week’s Macworld Expo suggests that the demand for the Mac has gone mainstream enough to earn direct support from the two major US CDMA carriers.

Verizon Wireless was demonstrating three Novatel Wireless EV-DO (Rev A) modems: the USB720, the USB727 (which takes a microSD memory card), and ExpressCard V740. Sprint has the 727 (which it calls the "Ovation U727”) and a Sierra Wirless AirCard 595U. As the names suggest, all but the V740 are USB devices — which is good since the MacBook (and new MacBook Air) don’t have ExpressCard slots.

Sprint was demonst the PHS300S Wi-Fi hotspot by CradlePoint Technology. You stick one of their USB EV-DO cards into its port, and then you have a Wi-Fi device that supports 4 CPUs. The obvious application is a construction work site — or perhaps a trade show or street fair where you need credit card clearing. I could also see it used at a vacatio home, if you had a wired family that couldn’t get by without Internet coverage.

EVDOInfo.com — the original Mac third party support for such products — seems to be still acting as a reseller of these products, even if it’s no longer the only source. (Its website seems to be finicky, but its sister site 3Gstore is still alive).

Qualcomm and Nokia truce?

2008-01-15T14:37:00.001-08:00

Nokia has a new EV-DO capable CDMA phone that has passed FCC certification. This means that it could once again sell phones to the majority of the US market that uses CDMA, beyond the low-end 2135 candybar sold by Metro PCS.

Nokia would have a hard time shipping a new UC CDMA phone given the expiration of its patent license with Qualcomm. On the other hand, this would be consistent with the UT report that the two parties are trying to bring all pending IPR disputes to resolution in a single venue.

Still, the one dissonance comes from CEO Paul Jacobs in a Bloomberg interview:

Jacobs, 45, said Qualcomm is not making any progress in its talks with Nokia, the world's largest maker of mobile phones, in another dispute. The companies are at odds over how much Nokia should pay to use Qualcomm technology under a new licensing agreement, a dispute that has spilled over into several court cases.

``Though we keep talking to them, there hasn't been a lot of movement,'' said Jacobs. A legal victory will be needed to bring the two sides closer together, he said.

In other words, both sides hope to win in court, and neither will be willing to compromise until the courts say who has a better hand. With appeals, that could be another two years.

Two facets of San Diego's healthy economy

2007-12-24T22:00:00.001-08:00

Two reports came out last week that suggest (at least to me) that the San Diego high-tech economy is doing better now that housing affordability is getting back to more normal levels.

The first story was covered by Tuesday’s U-T, which noted that the median sale price of a San Diego County home had dropped to $440,000 in November, off 15% from the peak of $517,500 exactly two years earlier. An accompanying graph shows that prices had returned almost exactly where they were in March 2004 in nominal dollars (actually lower after adjusting for inflation). Rather than gloat, the Voice of San Diego’s resident housing bear used the occasion to predict even further price drops.

Both the U-T and VoSD speculated about how to interpret the much more rapid price drop today versus 15 years ago. In the 1990s, middle class machinists and other General Dynamics and Rohr workers were getting laid off as California paid the peace dividend. Some dumped their houses quickly to follow their jobs to Arizona or Colorado, but the rest hung on, hoping prices would return to their 1991 peak.

Economists have long observed that real estate prices are rapidly marked to the market on the way up, but are “sticky” on the way down — as homeowners hold their house off the market rather than accept a lower price than their reference price. That’s why I graduated form Point Loma High. My parents moved out of San Diego in December 1963, but couldn’t sell their house due to an aerospace recession so they rented it out; by the time prices had come back in spring 1967, my parents were looking to move back to San Diego — so we went back to our home in Point Loma.

The correction in housing prices (however painful for speculators and highly-leveraged first-time homebuyers) will be healthy for the San Diego high-tech economy. For a while, it looked as though San Diego housing prices were approaching the stratospheric levels of Silicon Valley or New York. The problem is, local wages wouldn’t support such prices — San Diego wages and housing prices have always been lower than Los Angeles. When I moved to Silicon Valley in 2002, San Diego prices were rising to Silicon Valley levels, but now at $440k, they are only slightly more than half the Santa Clara County/San Mateo County average of $800-820k, and thus about the same ratio as during much of the 1980s and 1990s.

As it is, housing costs have been a challenge for the San Diego high-tech economy for more than 20 years. Back in 1983, San Diego was up against Austin to land the Microelectronics and Computer Technology (MCC) R&D consortium, but lost due to quality of life issues — primarily housing costs (there’s no beach in Austin, while the climate is considerably harsher). With MCC, Austin won the second largest concentration of semiconductor R&D and manufacturing in North America.

The second story was that the state Department of Finance Wednesday released its estimates as to the net population changes in California for 2006-2007. Newspapers in San Jose and Los Angeles wrote up stories on their respective population shifts. The U-T website (don’t know about the dead tree version) carried only the AP’s generic California population trend story, which notes California’s population is up 11.5% since 2000, at 37.7 million placing us behind Poland but ahead of Canada. The state’s three largest counties — LA (10.3 million), SD (3.1 million) and OC (3.0 million) — now contain 44% of the entire state population.

All the stories noted that California is gaining population because births exceed deaths, and immigration from foreign countries exceeds the net out-migration by Californians to other states. The stories also noted that the fastest growing county is Riverside County (and the rest of the Inland Empire), up 3.3% from July 2006 to July 2007. Of course, the common denominator for both domestic migration patterns is housing affordability: equity-rich Californians feeling to cheaper parts of the state, or to other states.

Looking at the state’s raw numbers, 38 of California’s 58 counties had a net in-migration. However, the out-migration (led by 114,638 fleeing L.A. county) meant that the state overall lost 88,761 people to the rest of the U.S. But with 9 people coming from overseas for every 4 moving inland, the net effect is that the state continues to grow.

The in-migration estimates for San Diego County made it 4th in the state, with 2,982 new residents from elsewhere in the U.S. It was second overall (after Riverside) in terms of total net immigration (foreign and domestic) with a gain of 16,049.

My guess is that much of the in-migration to San Diego is from elsewhere in California, whether from LA, Orange (21,935 people leaving) or the Bay Area (all but 2 counties losing population). Again, housing affordability must be a key factor. Of course, this doesn’t say anything about jobs, but (except for retirees) people follow jobs and housing.

I don’t know why the U-T didn’t think the numbers were worth studying. Back when I was a beat reporter, we welcomed the chance to take some hard data like this, spice it up with a few quotes to come up with an easy story about the state of the local economy.

Qualcomm’s temporary reprieve

2007-09-14T11:15:00.000-07:00

Qualcomm has succeeded in re-opening the pending International Trade Commission ban on imports of Qualcomm chips that the ITC found impinged on Broadcom’s patent. It had seemingly lost the fight for good when the US trade representative refused to override the ITC on August 6.

As reported, the US Court of Appeals for the Federal Circuit agreed to hear Qualcomm’s appeal of the ITC order, and on Tuesday stayed enforcement of the ITC ban on handsets containing Qualcomm’s chips (but not the ban on Qualcomm’s chips). The surprise victory — in time for the Christmas selling season — is the first Qualcomm success since they changed legal counsel a month ago.

Reading the appeals brief (graciously provided by the UT), there were some interesting points:

Qualcomm was joined in its appeal by five handset makers (Motorola, Samsung, LG, Kyocera, Sanyo) and two carriers (AT&T and T-Mobile). Verizon was absent because they cut a side deal, but Sprint was conspicuously absent; AFAIK most of the Sanyo phones imported into the US are sold by Sprint. That the GSM carriers are the ones supporting Qualcomm suggests how well they have done in cracking the W-CDMA market.
The appeals court’s ruling suggests that they are leaning towards reinstating the Administrative Law Judge’s finding that banned import of Qualcomm’s chips but not phones containing those chips — since the phone makers were not parties to those proceedings and thus not found to have infringed Broadcom’s patent. Broadcom had asked that phones also be banned, and the ITC (unlike the ALJ) agreed with Broadcom.

The one thing that’s not clear from the findings is the status of the Qualcomm work-around to avoid infringing the patent that Broadcom bought in 2002. If Qualcomm were manufacturing chips today that did not infringe on the Broadcom patent, presumably it could import them. So is the work-around not yet ready to ship because (as they reportedly testified) it’s taking 18 months to develop? Or, under the exclusion order, does Qualcomm have the burden of proof to show that their new product is non-infringing?

Technorati Tags: Broadcom, patent infringement, Qualcomm

InterDigital sells Apple a 3G license

2007-09-08T00:05:00.000-07:00

Apple has licensed InterDigital’s patent portfolio for a rumored $20 million plus royalties. One estimate (reported by Reuters) estimates the deal being worth $56 million ($2 million/quarter) over 7 years.

Of course, Apple’s US iPhone is limited by the Cingular’s 2G (aka “2.5G”) slow EDGE network, so even at the new cheaper price many US buyers are hoping for a HSDPA version. But analysts agree that a European iPhone will require a 3G phone.

Presumably Apple will need a license from Qualcomm’s larger patent portfolio. One way would be to use Qualcomm’s 3G chipset. The existing iPhone has an Infineon GSM/EDGE chip, but thus far Infineon has not been a factor in HSDPA/USDPA RF chips. Other than Qualcomm, thus far the main suppliers of WCDMA chips are Nokia and Ericsson — but it’s not clear how either side of the deal would feel about selling using such chips for a competing product.

Technorati Tags: 3G, Apple, iPhone, patents, InterDigital

Cricket-eating MetroPCS

2007-09-04T15:54:00.000-07:00

As rumored at the time of their April IPO, MetroPCS is today offering to buy San Diego-based Leap Wireless, operator of the Cricket mobile phone service.

Both are “all you can eat” CDMA carriers, and both are adding subscribers at far above the national rate (45% and Leap — a 1998 Qualcomm spinoff — got their first, but its growth was long stalled due to poor timing of buying expensive equipment (with expensive vendor financing) near the peak of the bubble, eventually resulting in recapitalization through bankruptcy. MetroPCS came along in 2002 and has had an uninterrupted run of success over the past five years.

With its concentration on major metro markets, MetroPCS is slightly bigger overall, while Leap has more licenses in more cities. Both have roaming problems — lacking the coverage of a Verizon or even a T-Mobile. But the Leap has partially addressed that by clustering nearby markets (like Albuquerque, Santa Fe, Las Cruces and El Paso or Phoenix-Tuscon), to solve the most likely roaming needs of a subset of customers.

The MetroPCS investor presentation shows the combined markets covered by the two firms, including a strong cluster of licenses in California. Together the two firms would have licenses (if not coverage) in nearly all of the top 25 and top 200 markets.

The two are obviously stronger together, and MetroPCS (ticker: PCS) is bigger than its prey, with a $10 billion market cap vs. $5.5 billion for Leap (ticker: PCS). Other than prior bad blood over alleged patent infringement, executive egos and layoffs at Leap’s San Diego headquarters, it seems like all that’s left is haggling over the price. Red Herring notes that investors bid prices above the offering price in anticipation of a better offer, despite the efforts by Metro’s CEO Robert Linquist to convince the market that the Leap stock price has included an acquisition premium since April.

The only thing that went beyond the normal range of hyperbole is that the merger creates “a fifth national wireless carrier.” As of June 2007, the combined companies would have barely been the sixth largest carrier in the US with 6.2 million subscribers, versus 12.2 million for Alltel and 6.0 million for U.S. Cellular. (Both CDMA carriers). So while MetroLeap might have more licenses, it would have rather thin penetration.

If they pull it off, the more important question may be: what’s the endgame? The one thing protecting MetroLeap from being squashed like a bug is that the big boys can only compete on price by cannibalizing existing revenues, something they are loathe to do. So who would be the next MetroLeap merger? Would either Alltel or U.S. Cellular be willing to shift to a flat-rate model to enable a nationwide attack on the big four? And since the national market has consolidated from six to four carriers (or perhaps 5½ to 3½), can the market really support another national carrier?

Technorati Tags: CDMA, Leap Wireless, MetroPCS, mobile phones

The forthcoming Qualcomm blog

2007-08-18T00:01:00.001-07:00

Qualcomm is running a survey about its website on its website. What was most interesting were the last two questions:

Do you see a need for a message board or a blog on QUALCOMM.com?
     ( ) Yes
     ( ) No

If QUALCOMM.com did offer a blog, what type of information would you like to see? (check all that apply)
     [ ] Executive blog
     [ ] QUALCOMM media updates
     [ ] QUALCOMM technology news
     [ ] General technology news

My question is: why? Is Qualcomm working on a blogging policy? Is CEO Paul Jacobs going to start blogging like Sun Microsystems’ CEO, Jonathan Schwartz? What benefit would such a blog bring?

The only executive blog that I find plausible is that of Bob Sutor, the IBM VP for standards and open source. How many employees are in his chain of command? 10? 100?

Conversely, does anyone believe that a CEO writes his own blog? Would this be the best use of time for the CEO of a Fortune 500 company with billions in revenues and 8,500 employees?

Is this hypocritical? I’m a tenured faculty member, managing 0 people, trying to flog a book. Given Paul’s total compensation (not counting stock options) was $2.7 million last year, my opportunity cost must be less than 5% of his.

Technorati Tags: Qualcomm

Throw Lou under the bus

2007-08-14T15:22:00.000-07:00

How is Qualcomm going to deal with investor dissatisfaction over its recent legal troubles? Monday its general counsel, Lou Lupin, resigned for unspecified personal reasons.

A graduate of Stanford law, Lupin had been with the company since 1995 and general counsel since October 2000. But after last week’s terrible legal news — not only the final ITC decision but a stringing rebuke over misleading a Federal court — it was clear something had to happen. As the LA Times reported:

“It’s not a big stretch to guess that Lou took the hit,” said Mark McKechnie, a telecommunications equipment analyst with American Technology Research. “Qualcomm was a bit embarrassed the court held against them essentially for misconduct.”

Whether he fell on his sword or was pushed, Lupin’s action gives Qualcomm’s CEO some badly-needed breathing room.

As an added bonus, Qualcomm named a famous interim counsel from its bench: Carol Lam, the famous (and somewhat controversial) former U.S. Attorney for the Southern District of California. Fortunately for Qualcomm, Lam today is best known for being fired by the Bush administration (thus winning sympathy with Bush-hating judges) and not for anything she did or did not do as U.S. Attorney. Every U.S. news story seemed to mention this, as in the UT account:

Carl Tobias, a professor of law at the University of Richmond, said Lam, 48, will be a benefit to Qualcomm because she is well-respected in the legal community. He said many see Lam's ouster as U.S. attorney – part of the Bush administration's controversial firing of eight U.S. attorneys – as a “raw deal.”

“Mostly she enjoys a really good reputation,” he said. “That fact could help improve the confidence of the judges.”

Judicial sentiment notwithstanding, the change of counsel is not going to change Qualcomm’s dependence on enforcement of patents and patent royalties as the cornerstone of its IP-based business model, nor the determination of its various major rivals — Broadcom, Ericsson, Nokia or TI — to reduce or eliminate paying such royalties.

In particular, nothing in the change of counsel (whether with Lam is the interim or permanent replacement) will make Nokia any more willing to negotiate an end to the current standoff, in which it has been shipping CDMA phones without paying Qualcomm royalties for the past 4 months.

While a change in counsel is not a change in management or a change in Qualcomm’s business model, it could change three things: Qualcomm’s legal strategy, how well that strategy is executed, and the advice that the top executives are getting. While Lam isn’t a patent attorney, perhaps she will end the rash of miscalculations (or poorly executed courtroom strategies) that brought the company to this point.

Technorati Tags: Qualcomm

Unable to escape the shadow

2007-08-12T09:35:00.000-07:00

Qualcomm CEO Paul Jacobs has had a really bad year. The company’s biggest customer, Nokia, stopped paying royalties until it gets a better deal. It keeps losing course cases to Broadcom. And there are rumblings among some investors who say he must go.

In a CNN interview published Friday, Jacobs admitted that he may never escape the shadow of industry legend and Qualcomm co-founder Irwin Jacobs:

Q: You joined the company established by your father in 1990, in your late 20s. Was there ever an issue for you, do you think, about whether or not to join the family firm?

Jacobs: Oh sure. I was trying to make a decision about whether I wanted to be a professor and go into academia or actually go into industry but you know that I decided I loved having the ability to see my ideas turn into products that other people were using, so that led me to go into industry and I figured that, if I was going to do that, Qualcomm was the best place to go.

Q: As you say, your father's an icon, he is a bit of a legend really in the industry, which makes it all the more difficult for you. How or when do you remember that you thought to yourself I am out of his shadow, I am my own person running this company now?

Jacobs: Oh I don't think that I will ever feel that way. I think he will always cast some shadow. I mean he is the person who built the foundation for the business and it is really up to me to take that platform and take it to the next level.

The last line of Moses’ stone tablets notwithstanding, I have been known to envy the successful tech executive who was in the right place at the right time. Perhaps here’s the cure.

It’s hard to see how one could envy Paul Jacobs, who will always be compared to Irwin Jacobs, an impossible act to follow. Yes, it’s tough for the children to measure up (think Ford or Motorola). But even without the nepotism charge, successors to a larger-than-life founder are but a pale imitation (think Apple or HP).

Jacobs fils can’t win. If he does “take it to the next level,” everyone will take Qualcomm’s continuing growth for granted or credit its initial trajectory. If it falters on his watch — whether the problem is maturation or incipient problems not visible at the time of the 2005 handover — shareholders and employees (and perhaps family) will say it was his fault.

On the other hand, Paul Jacobs doesn’t really have an alternative. This is the job he’s been training for for 20 years, and it’s been in the works since mid-2000 (with employees pointing to the (aborted) split between QCT and QTL as a plan to make Jacobs a CEO). There is no graceful way to give up reins of the company, unlike say the founder CEO who decides to become CTO. As Jacobs notes, this is really the only company he can work for in industry: he certainly can’t quit and go work for a competitor. Meanwhile, his older brother Gary been toiling since 1999 as a social entrepreneur, so even that domain would invite comparison.

It’s clear that the only thing Jacobs can do is to tough it out. Since most of the problems seem to be legal, the key thing would be to hire the best patent attorney around, both to retaliate against rivals and to give advice as to how to change the business decisions.

Technorati Tags: Paul Jacobs, Qualcomm

Strike three for Qualcomm

2007-08-06T22:29:00.000-07:00

Qualcomm Monday lost its longshot appeal to overturn the ITC ban on importing QCOM chips that infringe a Broadcom power saving patent. Basically the USTR said she wasn’t going to overturn a decision reached through the normal administrative process, no matter how big the impact.

There’s no way to spin this. Qualcomm lost, it’s bad for Qualcomm, it’s bad for Qualcomm’s future market share, it’s bad for Qualcomm’s patent-based business model, and it’s bad for Qualcomm’s customers. Sure Qualcomm still hopes to appeal the patent validity but that seems even less likely to succeed.

Qualcomm pulled out all the stops, commissioning bigshot economists (The Brattle Group) to say that the ban will cost consumers billions. Now it will be interesting to see if that proves to be true (since both Brattle and Qualcomm will lose credibility if it doesn’t).

About the only good news for the home team is that (after more than a year) Qualcomm finally has a workaround to avoid infringing the patent.

Despite their huge win, it’s hard to believe much in the Broadcom press release, which seems more about threatening Qualcomm’s shareholders and customers (to increase pressure for a settlement) than actually commenting on the legal ruling. Quoting General Counsel David A. Dull, the press release proclaims:

“According to the IEEE Spectrum, Broadcom possesses one of the world’s most powerful semiconductor patent portfolios,” Mr. Dull said.

Let’s see. Since when is a magazine article an authoritative source of how important is a company’s patent portfolio? “One of” could refer to top 20. Even if it was “top 1,” what proportion of the patents relate to mobile phones? And how does this relate to the relevance of Broadcom’s portfolio to Qualcomm’s products, or the relative importance of the Broadcom and Qualcomm 3G patent portfolios?

I could go on. Broadcom still thinks it will get $6/chip from Qualcomm until patent 6,714,983 expires. Qualcomm obviously has no intention of paying — perhaps hoping to find some outside entity to put a reasonable value on the patent.

As best I can tell, the patent in question was invented by employees of Intermec Technologies of Cedar Rapids Iowa more than 12 years ago, and the patents were acquired by Broadcom as part of 150 patents it bought for $24 million from Unova in 2002. (Apparently the Wall Street Journal reported this in June, as did the Seattle Times. It took me longer to write this paragraph than it took me with Google to identify the Cedar Rapids inventor of the patent as working for Intermec and tie those patents to the Broadcom/Unova deal). Buying patents makes Broadcom a savvy investor and a clever patent troll, not an innovative company.

Still, Broadcom is winning under the current rules. Qualcomm was first sued by Broadcom in May 2005, and seems to have consistently underestimated the business consequences ever since. If I were a large institutional shareholder (or a customer like Verizon, Sprint or AT&T), I would ask what Qualcomm has been doing for the past two years. A smart lawyer, R&D manager (or CEO) would have ordered a full re-examination of all Qualcomm products to see if they might infringe any of the Broadcom patents claimed, to make sure that a work-around was forthcoming.

Six months ago, Qualcomm appointed a recently retired U.S. Attorney to be VP and legal counsel. If she can’t change their luck, it would seem as though some more significant management change would be due.

Technorati Tags: 3G, Broadcom, patent infringement, Qualcomm

InterDigital entering the product business

2007-08-06T21:33:00.000-07:00

David Mock — author of The Qualcomm Equation — on Tuesday summarized the stock analyst recommendations on InterDigital Communications. InterDigital is one of the larger WCMDA patent holders — along with Qualcomm one of the few companies whose WCDMA business model is about patent royalties.

The difference is that Qualcomm decided not to spin off the chip-making business (after it settled its last patent dispute with Nokia 5 years ago) and thus it has two major divisions: QTL (technology licensing) and QCT (fabless chips for CDMA, cdma2000 and WCDMA).

I had not realized that IDCC’s business model is based on large one-time settlements. Here’s how Mock explains it:

Revenue. On average, analysts look for InterDigital to report $52 million in revenue this quarter, way below the $297 million last year, but that number was inflated with a one-time gain.

Earnings. The average analyst expectations vary wildly but average out to a $0.01-per-share loss for the quarter. …

Significant one-time settlements have anchored the bulk of InterDigital's past revenue.

What was really really fascinating was the S&P summary of IDCC’s financials:

Margins	12/05	03/06	06/06	09/06	12/06	03/07
Gross	69.7%	73.1%	88.4%	89.2%	89.4%	88.7%
Operating	12.1%	21.9%	66.9%	68.7%	70.0%	68.5%
Net	33.5%	38.2%	53.7%	54.8%	46.9%	46.3%

I do not give stock advice — especially (after riding Iridium all the way down) to myself. So I don’t offer any opinion about the IDCC prospects, only the observation as someone who studies the telecom industry (and mobile phone patents) that the IDCC revenues and profits are among the most variable (some would say erratic) in the industry.

Motley Fool’s readers are very bullish on the stock. But from what I’ve seen, the stock has a cult following like a lot of other thinly traded stocks. IDCC is tiny compared to other 3G telecom suppliers. Qualcomm is #317 on the Fortune 500, with Motorola #61; Samsung is #63, Nokia #135 and Motorola #152 on the Forbes Global 2000).

Now IDCC wants to get into the baseband ASIC business for 2G and 3G phones — making IDCC’s business model an exact copy of Qualcomm’s. (I suppose the Qualcomm loyalists would say “a pale imitation of Qualcomm’s.”) While depressing margins, this should smooth out revenues and give somewhat of an insurance policy against patent problems going forward.

But, as Mock points out, that will put them into direct competition with Qualcomm, TI and Broadcom. Even with foundries, I would imagine such chip design is complex, and its three major rivals have a big headstart. As the newcomer, it will be interesting what sort of competitive advantage IDCC will have to offer.

Technorati Tags: 3G, business models, patents, semiconductors

Qualcomm: Broadcom doesn’t want to deal

2007-07-28T22:59:00.000-07:00

A little bit more came out this week about the Qualcomm-Broadcom impasse, during the Qualcomm quarterly earnings call. Dow Jones reported:

Jacobs, speaking during a conference call to discuss its quarterly report, said Broadcom wants its customers to be exempt from paying Qualcomm licensing fees for a large chunck of its intellectual property portfolio as part of a settlement.

"That is unacceptable," Jacobs said. "We continue to believe the rulings are wrong."

President Steve Altman said that Broadcom is arguing that since it is exempt from licensing fees, it's customers should be, too.

But David Rossman, who heads of up intellectual property litigation for Broadcom, said, "a solution with Qualcomm will not eliminate their licensing program."

Obviously we’re not getting the whole picture about what’s being offered behind the scenes — but clearly Qualcomm believes that settling on the current terms would undercut its business model.

Technorati Tags: Broadcom, patent infringement, Qualcomm

We’re #1! We’re #1!

2007-07-26T01:35:00.001-07:00

Finally some good news for Qualcomm. As Information Week reports:

Its legal troubles notwithstanding, Qualcomm has supplanted Texas Instruments(TXN) as the world’s leading supplier of integrated circuits for mobile devices, according to data from market research firm iSuppli.

This reshuffling marks the end of, or at least a pause in, Texas Instruments' long reign at the top of the mobile semiconductor market. The first quarter of 2007, according to iSuppli senior analyst Francis Sideco, “marks the first time that TI has not occupied the leadership position in this area since iSuppli began tracking handset market share in 2004.”

iSuppli credits Qualcomm’s monopoly on EV-DO chips (where TI is not currently supplying product) as well as its W-CDMA chips. Of course, TI’s CDMA line traces back to its 2000 acquisition of San Diego-based Dot Wireless for nearly $500 million.

So this is certainly good news for TI. At some point I do need to figure out one discrepancy: everyone has been listing TI as tops in the mobile phone IC market. However, ARM-licensed microprocessors are in more than 80% of all mobile phones being sold (one figure has it above 95%), so who could have more market share than that? So yes, TI is a licensee of ARM and today some of its most popular products are the OMAP application processors containing both a C55x DSP and an ARM9 core.

TI’s own claims are:

today the company has the majority of market share in GSM/GPRS mobile devices.
Additionally, more than half of 3G WCDMA handsets use TI basebands, and
even more use OMAP applications processors.

There’s a double counting problem here: obviously one company could have a majority share for the baseband processor and another majority for the application processor (unless it’s a dual-core processor). There’s even a potential triple counting of share between an IP licensee like ARM, a fabless semiconductor company like Qualcomm and a foundry (like IBM or TSMC used by Qualcomm); it’s only double counting (ARM and TI) for TI which makes its own chips.

Graphic: courtesy Fujitsu.

Technorati Tags: mobile phones, Texas Instruments, Qualcomm, semiconductors

Broadcom cracks CDMA front

2007-07-19T19:42:00.000-07:00

In their fight against Qualcomm, Broadcom scored an amazing victory today. They got Verizon Wireless to pay a $6/unit royalty up to $200 million every phone Verizon sells using Qualcomm chips.

Qualcomm turned down a similar deal three weeks ago because it could cost $2 billion. Instead, Qualcomm was reportedly hoping for a $100 million fee plus a future cross-license. (The Bloomberg article claims Qualcomm offered a royalty-free cross-license, which would be dramatically out of character for either Qualcomm or the industry).

For six patents, Broadcom could be making more per CDMA phone than Qualcomm makes (~ 5% of the price) for more than 1,500 patents. Of course, Verizon gives Broadcom another $200 million with which to sue Qualcomm (or perhaps even file more patents that block Qualcomm). (We do not know whether Verizon still has to pay the royalties if Broadcom’s patent claims are somehow dismissed or settled.)

If the Americans bought 143 million new phones last year, then Verizon’s 26% share would sell the 33 million phones in about a year before royalties were paid up. (It might take a little longer because royalties are capped at $50 million/quarter).

I’m guessing that Verizon — in a neck-and-neck market share war with the iPhone-equipped AT&T (27% share) — feels this would be a bad time to let its number #1 rival gain an advantage in new handsets and thus customer additions. This shows how much Verizon is willing to pay for certainty. It also means that Verizon no longer has a reason to support Qualcomm’s appeal of the ITC decision.

This is a very dangerous time for Qualcomm: if it loses the ability to charge royalties for firms that hold any 3G or GSM IPR, then it would probably lose the majority of its patent royalties (and as much as half of its net income). Nokia, Broadcom and others are hoping this will happen, and right now Qualcomm’s enemies are more powerful than its allies. For a decade, Qualcomm’s IP business model has counted on having the facts and IP law on its side, but the last year or two has reversed that trend.

Technorati Tags: Broadcom, patent infringement, Qualcomm, Verizon