San Diego Telecom Industry

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