San Diego to WSJ: what about us???

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.

Atheros purchase continues shift north

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

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

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

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

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

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

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

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


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.