Qualcomm CEO Jacobs Talks Candidly About Innovation and Strategy

Constrained by legal restrictions and zealously protected by their handlers, the CEOs of Fortune 500 companies are rarely enlightening when they make public appearances. But Qualcomm (NASDAQ: QCOM) CEO Paul Jacobs delivered a close approximation of candor this morning in what was billed as a keynote presentation at the Red Herring Global 100 summit, which is taking place this week in downtown San Diego. The presentation turned out to be a conversation with Red Herring publisher Alex Vieux, who began by saying he had different questions for Jacobs than the ones he had previously submitted to Qualcomm.

What I found insightful were Jacobs’ responses to questions about running a public company, which covered the gamut from the company’s evolving, less contentious intellectual property strategy to M&A plans to its R&D strategy and more (see below). In the end, Vieux observed that it’s “obviously a much bigger headache than it was five or 10 years ago.”

“I’ll tell my father that,” Jacobs responded wryly, referring to Qualcomm founder and chairman, Irwin Jacobs. Paul Jacobs started working at Qualcomm as employee No. 33 in 1988, after getting a doctorate in electrical engineering from UC Berkeley. The younger Jacobs’ work initially focused on writing software code to compress speech for digital communications systems, although he gained managerial experience overseeing new technology development. He was president of Qualcomm’s Wireless and Internet Group in 2005, when he was named to succeed his dad as CEO.

“When I got hired, the board said, ‘Oh, no one can replace Irwin,’ ” Paul Jacobs said. “We’re going to be a team. You go focus on the technology and these other guys are going to go off and focus on the licensing and IP [intellectual property]. And that just didn’t work out. You can’t do it that way.”

Vieux did not ask Jacobs how that situation had changed. But Qualcomm has engendered sometimes strident complaints in the wireless industry about the “exorbitant” payments required to license its technology. In response to a question about Qualcomm’s patent library, with 8,900 filed and issued patents, Jacobs said, “We are much more about working with other companies in the ecosystem today…In the old days it was this religious war. But the old companies that we had this religious war with, the Nokias and Ericssons of the world, are now are partners.”

 Jacobs also had interesting things to say on other subjects:

—On how Qualcomm can sustain its high profit margin, Jacobs said: “The key is to be differentiated and not commoditized. We have a large cash flow, and put billions of dollars into R&D every year. Our competitors are not able to do R&D the way we are…Over 40 percent of our R&D budget goes into things that won’t generate revenue for three or four years.”

—On Qualcomm’s corporate culture: “We have these two cultures at Qualcomm, the [business] execution culture in the chip business, and then the R&D culture. I used to say it was like the blood-brain barrier. It was very hard to get things from one side to happen on the other. With EV-DO, we were able to do that.” He was referring to “Evolution-Data Optimized,” one of two major industry standards for 3G wireless broadband, and the one that was developed primarily by Qualcomm.

—On whether Qualcomm plans to be “acquisitive” during the market downturn: “If there are opportunities to do something interesting because valuations are low…There definitely are areas where we are looking to fill in portions of our portfolio.”

—On whether he thinks the recession is going to last a long time: “Yes, although it depends on what you mean by a long time. Most people are saying one to two years, and that seems about right.” Another concern that Jacobs noted is the potential for inflation because of the tremendous amount of money that is being pumped into the economy.

—On the pluses and minuses of operating a public company, Jacobs says that as an engineer, “my fundamental passion is coming up with an idea, putting a team together, and driving toward the goal” of developing new technology. He indicated that becoming “the public face of the company,” appearing frequently on CNBC, and “personally certifying the financial results” was a minus, although he diplomatically said it was “ancillary to getting the technology out.” Along with that, Jacobs says is an apprehension that “something can happen down the line. You can have all the controls in place, and stuff is still going to happen, and you’re the one who is going to catch the heat for it.”

That part probably hasn’t changed much since his dad was running the company.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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