Becoming: Qualcomm

Qualcomm Headquarters

“In the search for innovative excellence, set aside the stories of Intel, Microsoft, and IBM. They have had their day. Shun the likes of Sony, Cisco Systems, Nokia, and NEC. They still fall short... an American company called Qualcomm is the best technology company in the world today.”

George Gilder, in his foreword to The Qualcomm Equation[i]

In 2018, semiconductor manufacturer Qualcomm generated revenue of $22.73bn. The firm has two primary revenue streams: Qualcomm Technology Licensing, focusing on licensing the company’s intellectual property, and Qualcomm CDMA Technologies, primarily focused on the sale of its semiconductors.[ii]

For a company of such massive revenues, Qualcomm remains relatively unknown. Its success is a result of it occupying what the Economist once called: “the most toothsome of sweet spots in one of the fastest-growing industries the world has ever seen.”[iii] Below are some of the takeaways about how it reached and then maintained that so-called sweet spot:

Focus on cash cows
For reasons which were part necessity, part design, Qualcomm spun off its handset division in 1998. At a time when the mobile telephone market was still in its infancy, the company was getting out. It spun-off its hardware production unit to Ericsson, instead deciding to focus on its cash cows: its lucrative chip manufacturing and intellectual property assets.[iv]

The move was warmly greeted by the stock market. The following year, in 1999, the stock price of Qualcomm grew faster than any other – 2,619% in a 12-month period.[v] The move away from headsets was also significant for another reason: It showed shareholders that the company was focused on innovating and generating returns, rather than wasting time in more glamorous parts of the industry.

Qualcomm lobbied key stakeholders about the effectiveness of its technology

At the outside of the age of mobile communications, several different technologies had the potential to become the industry standard. Chief among these technologies were TDMA (time-division multiple access) and CDMA (code-division multiple access), the latter of which was advocated by Qualcomm.

In 1989, at a time when industry standards were being drawn up, the CTIA[vi] and TIA[vii] endorsed TDMA. Upon hearing of the endorsement, Irwin Jacobs, Cofounder and CEO of Qualcomm visited the FCC. Officials at the FCC informed Jacobs that despite the endorsement, operators could use any technology as long as it didn’t interfere with existing analog networks.[viii]

Within months, Qualcomm had convinced Pacific Telesis (PacTel) of the benefits that CDMA held over TDMA. With over 100,000 subscribers, it was already becoming too large for TDMA technology. It invested in Qualcomm, providing it with the funds that it needed to build a network, whilst benefitting from the technology itself.[ix]

By convincing PacTel – and numerous others - of the benefits of CDMA, Qualcomm was able to become a pioneer, if not an inventor, of CDMA. With an industry standard established, it was then able to begin innovating several of the improvements in CDMA, building its patent profile in the process, which subsequently became the firm’s major source of revenue.

In a crowded field, Qualcomm has been vigilant in protecting its patch

The extent to which Qualcomm jealously guards its patch is best exhibited by the fines it has paid to antitrust agencies across the world since the beginning of the 21st century. Between 2001 and 2016, these fines amounted to an average of nearly $1 billion per year, or about 5% of the company’s annual revenue.

In one of the higher profile cases, it was alleged to have been paying Apple to use its chips in its mobile devices. It has also been accused of licensing its intellectual property to hardware markers, charging them a percentage of the total selling price of their devices.[x] As recently as March 2019, the company won a lawsuit against Apple for infringing its IP.[xi]

The field of mobile technology has been a battle field for intellectual property; Microsoft alone noted in 2013 that it had fought over 3,000 patent infringement battles in the previous year.[xii] Qualcomm, (perhaps because it was founded by MIT academics) realized the importance of IP to its success and has always aggressively guarded its patents accordingly.

[i] Mock, D. (2005). “The Qualcomm Equation: How a fledgling telecom company forged a new path to big profits and market dominance.” AMACOM Publishing.

[ii] https://seekingalpha.com/article/4227933-qualcomms-challenges-may-get-worse

[iii] Economist (2000). “Qualcomm’s Dr. Strangelove.” The Economist, June 15th, 2000.

[iv] Mock, D. (2005), p. 145

[v] https://www.sandiegomagazine.com/San-Diego-Magazine/September-2010/A-Qualcomm-Quarter-Century/

[vi] Cellular Telecommunications Industry Association

[vii] Telecommunications Industry Association

[viii] Mock, D. (2005), p. 60.

[ix][ix] https://www.telenor.com/wp-content/uploads/2012/05/T05_3-4.pdf#page=24

[x] https://www.economist.com/business/2018/01/27/qualcomm-is-fined-for-anti-competitive-practices-again

[xi] https://www.business-standard.com/article/news-ani/apple-to-pay-usd-31-million-to-qualcomm-in-patent-dispute-119031801121_1.html

[xii] https://www.theinquirer.net/inquirer/news/2280686/microsoft-claims-it-has-settled-3-265-copyright-infringement-cases-in-a-year