Qualcomm Then and Now—Will the Next 25 Be as Innovative as the Last 25?

8/24/10Follow @bvbigelow

It has been 25 years since seven former Linkabit employees met at Irwin Jacobs’ La Jolla home and founded a startup company to provide digital communications services. They saw their venture at the time in terms of QUALity COMMunications, and agreed to call the new company Qualcomm.

Since its beginnings in July 1985, Qualcomm has become a global pioneer in digital wireless technologies—especially with its proprietary Code Division Multiple Access (CDMA) innovation in cellular communications—the world’s biggest mobile chipset provider, an $11 billion technology giant, and the largest company in San Diego. So Qualcomm has something to celebrate as the company marks its 25th anniversary on its website, and in events that have included appearances by Irwin Jacobs and his son, Qualcomm CEO and chairman Paul Jacobs.

Qualcomm’s success has been extraordinary by any measure, but especially in San Diego, where few technology and life science companies grow from seed-stage startups all the way to Fortune 500 goliaths. Whether by accident or design, San Diego operates more like a greenhouse nursery, where cultivated seedlings are usually sold after attaining a certain size, and in many cases transplanted or consolidated out of town.

Xconomy invited some of our top editorial advisors, or Xconomists, along with other wireless experts to offer their thoughts about the technology breakthroughs and other factors that enabled Qualcomm to flourish over the past 25 years—and whether the wireless giant can accomplish innovation on the same scale in the next 25 years. Here are their thoughts, and we invite you to join in the dialog:

San Diego Xconomist Ramesh Rao, Director of the San Diego Division of the California Institute of Telecommunications and Information Technology and Qualcomm Endowed Chair in Telecommunications and Information Technology at UC San Diego.

Xconomy: How did Qualcomm get to 25 years?

Ramesh Rao: “They got going as a serious wireless player very early in the S-curve of mobile communications. There was a lot of spectrum yet to be released all around the world at ever-greater auction prices, fueling the demand for ever-more efficient radios. Communications has universal appeal for billions of people on the planet, if it can be made sufficiently low-cost. So all that created a positive virtuous cycle.”

X: What were their key innovations or stratagems?

RR: “Strong focus on hard-core technical innovations. Seeking out and hiring the very best people and investing in the community to ensure a strong supply of talented engineers. And they have a strong suite of intellectual property.

X: What do you see for Qualcomm in the next 25 years?

RR: Qualcomm has to decide if they will stick with radio innovations as their core competency or evolve much more organically, like IBM. The challenge with venturing into newer spaces will be the (cultural) change in the mindsets of the highly talented radio systems folks they have assembled so very, very well over the years.

Boston Xconomist Mark Lowenstein, Managing Director of Mobile Ecosystem, former Vice President of Market Planning and Strategy at Verizon Wireless.

Mark Lowenstein: “Qualcomm has successfully placed its bets across multiple aspects of wireless technology, preventing it from being the “one trick pony” that has been the downfall of other tech firms with shorter life-spans…Qualcomm is to wireless what Intel is to the PC industry.

ML: “[Qualcomm's] key innovations were around spread spectrum technology, which is the foundation behind CDMA, but now also other, related air interfaces. Qualcomm has also put more dollars into pure R&D than nearly any other wireless firm. By acquiring a company called Flarion and through its own R&D, Qualcomm has also pioneered work around OFDM [Orthogonal Frequency Division Multiplexing], which we are seeing in the development of latter day 3G and now 4G technologies. A key aspect of its strategy has been to sell its intellectual property as a royalty, so for the vast majority of phones sold, Qualcomm receives a royalty payment. This aspect of Qualcomm’s strategy has also been controversial, in that the company has been criticized for charging excessively for royalty payments. Also, some of its intellectual property claims have been challenged, and the company has been and continues to be involved in numerous patent disputes.

ML: Over the next 25 years, “more than just about any other ‘pure play’ wireless company, Qualcomm is well-positioned to benefit from the continued growth in wireless. It has patents that will provide it with royalties across most 3G and 4G wireless technology interfaces. In addition to having its finger in multiple ‘pies,’ it continues to develop best-of-breed processors, giving it continual design wins. Qualcomm also has been remarkably prescient in developing chipsets for a large spectrum of devices. For example, its Snapdragon chips are in many of the new Android devices being sold today. The firm has been successful in continuing to attract top engineering talent.

“Qualcomm has also not been afraid to make large bets, to help develop and foster new market opportunities. It made a big bet on BREW, which helped seed the initial market for wireless data. It spent nearly $1 billion on MediaFLO mobile TV. Not one of its major success stories, but it does recognize that high-end multimedia services should not compete with traditional wireless spectrum. It is now making similar bets on machine-to-machine (nPhase) and mobile health.

“As for risks, the competitive playing field has intensified. Qualcomm is already getting a smaller share, albeit of a bigger pie. Then there is the continued pressure on royalty payments. And some of its bigger bets—MediaFlo (mobile TV), Firethorn (mobile banking), for example—might not work out. The machine-to-machine market is one of the major opportunities in wireless over the next several years—it represents a significant opportunity for Qualcomm. But the firm is going to have to adapt its business model and learn how to play in a very fragmented market if it is going to be successful in M2M.

Yan Hui, Founder and CEO, San Diego-based AirHop Communications.

Yan Hui: Three things come to my mind in explaining Qualcomm’s success since 1985: 1) Their technology vision, 2) Their business vision, and 3) Their willingness to adjust to market change.

“On their technology vision, CDMA existed before Qualcomm, but they were able to take that technology from mostly academia to commercial. Not only that, they created a whole new generation of wireless network [infrastructure] from that vision, with a lot of technology innovation along the way. On their business vision, Qualcomm’s business innovation played an equally important role, if not more, as technology innovation. Qualcomm created the new IP licensing model, which helped them financially to beat the competition. On their willingness to change, CDMA was a huge success. But along the way, they have tried other things, and some failed. But they know it is important to adjust to the market and they have been really quickly in adjustment compared to some well-established companies.”

YH: On the next 25 years: “The wireless industry has entered a new era thanks to the iPhone, which ushered us from a ‘no killer-app’ period into an age of bandwidth shortage. Our industry started realizing that 20 years worth of wireless research becomes insignificant in front of the data tsunami that today’s wireless network is not capable of handling. Another powerful trend is the convergence of content providers and operators. As such, it creates a huge opportunity for innovation in both technology and business models. Given its roots, Qualcomm is in a unique position to become the leader in this new mobile Internet era. They have invested in a number of ‘new’ areas such as mobile application processor, display, and femtocell chip. It will be interesting to see how they will be able to win in these areas.”

Hiep Pham, founding CEO of TipCity and Widcomm (acquired by Broadcom in 2004).

Hiep Pham: Qualcomm has made incredible progress over the last 25 years. The company was based on the core technology for wireless, then products (devices and networks), then solutions and applications. The ownership of core technology gave Qualcomm many advantages: revenues from its intellectual property, development of new and enhanced products ahead of the curve (time advantage), and of course the ability to leverage their current customers for future products. We are already passing the first phase of wireless products (where CDMA core technology can give great value). The next phase of wireless product development will be focused more on solutions and applications. Once again, Qualcomm has done an excellent job of acquiring new technology, including Snaptrack in 2000, LCD display technology, software, the Iridigm acquisition in 2004, and they have integrated these technologies to create a single chip solution for mobile and laptop devices. The company also hires new talent, which helps them to

develop their own microprocessor (Snapdragon) to compete with Intel. But Qualcomm’s future revenue will be impacted as the device market matures and the unit price gets lower.

HP: Qualcomm’s future will have more challenges in the next 25 years then the past 25 years. The company will almost certainly be there 25 years from now. However, they need to show sustainable growth in revenues, and this means they need to continue to innovate. Qualcomm has tried a few big ideas that seem to make sense: FloTV, if it is successful, is a great business since the business model is based on subscriptions and the revenue per user will increase every year (we love this model). But FloTV is losing money now. Brew is another platform where

Qualcomm wants to share revenues (with developers like Apple) on mobile applications; the progress in Brew is very limited and it is losing its value as more and more smart phone developments bypass this platform. To have sustainable revenue growth, Qualcomm needs to

come up with new products that can add significant revenue in the next few years and these products need to be in the pipeline now (to contribute to the current revenue). However, it looks like none of them are showing signs of promise currently.”

San Diego Xconomist Duane Roth, CEO of Connect, the San Diego nonprofit organization for technology and entrepreneurship, and founding CEO of Alliance Pharmaceutical.

Duane Roth: Qualcomm is positioned for the long term, as their primary focus is on defining new wireless technologies versus building products or services under the Qualcomm brand. By focusing on being the innovator, they stay at the leading edge in defining and patenting new enabling technologies to be applied by their product development and delivery service partners. I see Qualcomm flourishing in the next 25 years for a number of reasons: First they are in the center of the platform for communications for the next several decades—especially in the area of real time/ all-the-time information, including medical data and monitoring (global utility for health care delivery of the future), personal security, etc. Second, their business model is their strength and longevity—define the technologies that enable their partners to deliver the services. Finally, they are well-managed, with a great value system instilled by their founder.

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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