Qualcomm, Inc.

founded: 1985

Contact Information:

headquarters: 5775 morehouse dr.
san diego, ca 92121-1714 phone: (858)587-1121 fax: (858)658-2100 email: [email protected] url: http://www.qualcomm.com

OVERVIEW

Listed on the Standard & Poor's 500, the Fortune 500, and the Fortune e-50 Stock Index, San Diego, California-based Qualcomm is a leading provider of wireless technology chips. The firm holds more than 600 patents. Qualcomm's efforts to position its Code Division Multiple Access (CDMA) technology as a standard in the wireless industry paid off in the mid-1990s when cellular service providers began to embrace CDMA, considered one of the most efficient ways to allow wireless technology users to share airwaves without interference. Licensing CDMA technology to firms like Samsung, Kyocera, and LG Electronics accounts for more than one-third of revenues. Qualcomm also develops satellite-based tracking systems.

COMPANY FINANCES

Throughout the 1990s, sales for Qualcomm grew explosively. Less than $200 million in the early 1990s, revenues reached more than $2 billion in 1997. After climbing to $3.3 billion in 1998 and peaking at $3.9 billion in 1999, sales fell to $3.1 billion in 2000 and to $2.6 billion in 2001. Earnings also skyrocketed during the 1990s, growing from $12.1 million in 1993 to a record $670 million in 2000. That year, earnings per share reached a noteworthy 21 percent. However, Qualcomm posted a $548.7 million loss in 2001. Stock prices, which had jumped from a high of $49.75 per share in 1999 to a high of $200 per share in 2000, fell to a high of $107.81 per share in 2001.

ANALYSTS' OPINIONS

Although Qualcomm stock tumbled in 2001, as did the stock of most major telecommunications technology players, analysts pointed out that its per share price remained significantly higher than many of its rivals. According to an October 2001 issue of Forbes, "That owes largely to Qualcomm's extensive and pricey portfolio of patents on a wireless transmission scheme known as CDMA (code division multiple access). Analysts estimate the firm collects a 4 percent royalty on the cost of a cell phone, reaping profits on a big share of the 400 million cell phones sold every year." Rather than continuing to rely on licensing fees, however, some analysts believe the firm must expand its chip sales, particularly in Europe, if it wants to continue growing.

HISTORY

Irwin M. Jacobs and Andrew Viterbi, both graduates of the Massachusetts Institute of Technology (MIT), created a company called Linkabit in 1968. Based in San Diego, California, the new firm sold digital communications processing equipment. Jacobs and Viterbi began working to develop satellite communications applications for the television industry. Sales in 1980 reached $100 million and employees exceeded 100,000. Linkabit merged with M/A-COM that year to create M/A-COM Linkabit., and company activities included developing cable television and data transmission technology.

In 1985, believing that wireless communications would prove to be a boom market in the near future, Jacobs and Viterbi left M/A-COM to create Qualcomm, Inc. Initially, the pair worked on developing digital satellite communications technology into commercially viable products. In the late 1980s, Jacobs and Viterbi decided that the trucking industry would benefit from advances in wireless, long distance communications, and they began working on a wireless messaging and tracking system that would allow trucking companies to monitor trucks along their routes and allow drivers and dispatchers to communicate with each another. The new system was dubbed OmniTRACS, and it linked with existing communications satellites to offer access across North America. Drivers were outfitted with keyboards, terminals, and software that allowed them to contact dispatchers via a massive network managed at the Qualcomm's headquarters in San Diego.

The OmniTRACS system proved highly successful and Qualcomm eventually created similar satellite-based systems for use in Canada and Europe. Qualcomm completed its initial public offering in 1991. The trucking industries in both Brazil and Japan ordered OmniTRACS systems in 1992. The following year, Fleet Owner magazine named Jacobs "The Man Who Changed Trucking."

Jacobs and Viterbi then began to eye the U.S. cellular phone industry, which had started to develop in the 1980s. In fact, nearly 300,000 Americans were using cellular car phones in 1985. Jacobs and Viterbi believed that digital signals, which converted the electrical signals used by conventional telephones into the zeros and ones used by computers, would replace the early analog transmission technology adopted by the cellular industry. As a result, they turned Qualcomm's focus to creating a new standard for cellular technology. However, cellular technology developer Ericsson, based in Sweden, convinced the Cellular Telecommunications Industries Association (CTIA) to adopt its cell phone standard, called time division multiple access (TDMA), in 1989. TDMA parceled phone conversations into data chunks that were transmitted, one at a time, over specific radio frequencies. Although time division multiple access (TDMA) was more efficient than the analog system, it proved to be less so than the code division multiple access (CDMA) standard developed by Jacobs and Viterbi. CDMA assigned codes to every phone call. These coded calls were then divided into ten different data chunks and transmitted at the same time across all available cell phone channels. In fact, CDMA proved twice as efficient as TDMA and nearly 10 times as efficient as analog systems.

In 1990, both NYNEX and Ameritech agreed to adopt code division multiple access (CDMA) technology. Eventually, Qualcomm convinced the Cellular Telecommunications Industries Association (CTIA) to consider making CDMA a cellular phone standard. Because the infrastructure necessary to implement CDMA simply did not exist at that time, Qualcomm decided to conduct its initial public offering in December of 1991. The firm used the $53 million it raised to create a base station and an extensive network system for CDMA.

Jacobs and Viterbi also explored other technologies in the early 1990s. In 1991, the firm released its Eudora email software, which secured users over the next five years. It also began working with Loral Corp. on a satellite telecommunications system called Globalstar.

Sales of OmniTRACS doubled in 1992. The following year, the trucking industry in Mexico requested the OmniTRACS system, as did J .B. Hunt, the largest U.S. truckload hauler. It was then that the Cellular Telecommunications Industries Association formally adopted code division multiple access (CDMA) as a cellular standard in North America. As a result, three regional Bell companies and Alltel Mobile Communications ordered CDMA handsets and infrastructure equipment. In addition, leading telecommunications companies began to conduct tests of CDMA service, and firms in Korea and the Philippines placed CDMA orders.

CDMA made its official debut in 1995. By July, 11 of the 14 largest U.S. telephone carriers had adopted CDMA. Twelve of the world's largest cellular phone companies, such as Motorola, Inc., NEC Corp., and Sony Corp., each paid Qualcomm $1 million to license its CDMA technology. Six leading telecommunications equipment makers, including AT &T Corp. and Northern Telecom, paid $5 million to gain rights to manufacture CDMA network equipment.

Along with licensing the CDMA standard, Qualcomm also began to manufacture its own wireless phones. However, Qualcomm's ties to the CDMA standard undermined its competitiveness as a cellular phone maker because rivals tended to manufacture phones for each cellular standard. By the middle of 1997, more than half of all digital wireless systems under construction used the CDMA standard. Sales that year more than doubled to $2.09 billion. Legal wrangling between Ericsson and Qualcomm over the adoption of CDMA as an industry standard came to an end in 1999 when the two companies agreed to license one another's technology. The following year, Qualcomm sold its cellular phone operations to Japan's Kyocera Corp. The Chinese government granted permission for Qualcomm and China Unicom to establish the first CDMA network in China in 2001. The firm reached a similar deal with Vespers, based in Brazil.

FAST FACTS: About Qualcomm, Inc.

Ownership: Qualcomm, Inc. is a public company traded on the NASDAQ Stock Exchange.

Ticker Symbol: QCOM

Officers: Irwin M. Jacobs, Chmn. and CEO, 66, 2001 base salary $936,557; Anthony S. Thornley, Pres. and COO, 54, 2001 base salary $529,241; Franklin P. Antonio, EVP and Chief Scientist, 48; Roberto Padovani, EVP Chief Technology Officer

Employees: 6,500

Principal Subsidiary Companies: Qualcomm, Inc. operates offices in 17 countries, including the United States.

Chief Competitors: Competitors to Qualcomm include Nokia, Ericsson, Motorola, and other leaders in the wireless technology industry.

STRATEGY

When Qualcomm was ready to release its first version of the OmniTRACS satellite-based vehicle tracking system in 1988, the firm's founders decided to demonstrate the new technology directly to those who would have the authority to make such a purchase. To this end, they invited 300 trucking industry leaders to San Diego to demonstrate OmniTRACs. The marketing tactic paid off when Wisconsin-based Schneider National, Inc., a leading U.S. long haul trucking firm, ordered an OmniTRACS system a few months after the presentation. Because Schneider operated a fleet of more than 5,000 trucks, the contract proved to be worth $20 million. As a result, Qualcomm's revenues grew to $32 million in 1989.

Marketing tactics were at the core of Qualcomm's success with CDMA as well. While Jacobs and Viterbi were working on developing the new cellular phone standard in the late 1980s, rival Ericsson convinced the Cellular Telecommunications Industries Association (CTIA) to adopt its new cell phone standard, time division multiple access (TDMA). This proved to be quite an obstacle for Qualcomm. Not only had the CTIA found another standard, Qualcomm had yet to test CDMA, leaving many authorities convinced it was nothing more than a theory. Despite the lukewarm response he got while presenting CDMA to the CTIA, Jacobs began to make presentations to companies like Nynex, Bell Atlantic, Motorola, and Nokia, hoping to convince them to fund testing of CDMA, which would demonstrate its superiority over TDMA. Eventually, Pacific Telesis offered $2 million to fund a CDMA trial. In fact, by the end of 1989, Jacobs had secured roughly $30 million to create trial CDMA networks in San Diego and New York City.

While testing the quality, capacity, and reach of the CDMA networks, Qualcomm continued to aggressively market CDMA to industry leaders. In 1990, both NYNEX and Ameritech agreed to use the CDMA standard. The following year, Nokia, Motorola, and AT&T agreed to fund additional testing and development of CDMA networks.

A successful November 1991 test of Qualcomm's CDMA technology, accomplished in conjunction with 14 international and domestic cellular service providers and equipment manufacturers, prompted the CTIA to consider adopting CDMA as a standard. Two years later, CDMA was officially named a North American wireless communications standard by CTIA. Marketing efforts continued in the mid-1990s as the new networks were actually built. In the late 1990s and early 2000s, Qualcomm began promoting CDMA in areas such as Asia and South America by agreeing to form partnerships with leading wireless service providers there.

CURRENT TRENDS

The growing popularity of the Internet in the late 1990s prompted many wireless service providers and manufacturers to begin creating technology that offered wireless access to the Internet. In 1998, Microsoft Corp. and Qualcomm created Wireless Knowledge, a wireless Internet access technology joint venture. Two years later, Wireless Knowledge became a wholly owned subsidiary of Qualcomm after Microsoft sold its stake in the venture back to Qualcomm. In the early 2000s, Qualcomm developed Binary Runtime Environment for Wireless (BREW) software, which allowed for access to all sorts of Web-based and electronic business applications via wireless devices.

PRODUCTS

Along with licensing its CDMA technology, which accounts for nearly one-third of sales, Qualcomm also sells integrated circuits and systems software. In fact, various CDMA-based technology products account for more than half of Qualcomm's revenues. Wireless and Internet systems and services—such as Globalstar, OmniTRACs, Eudora email, and BREW software—bring in 20 percent of sales.

CORPORATE CITIZENSHIP

Along with encouraging volunteerism among its employees, Qualcomm also makes cash and non-cash donations to non-profit organizations focused on math and education, arts and culture, and health and human services. The firm also awards a "Young Women Who Mean Business" scholarship annually.

CHRONOLOGY: Key Dates for Qualcomm Inc.

1985:

Jacobs and Viterbi found Qualcomm

1989:

Qualcomm releases its first version of CDMA

1991:

Qualcomm completes its initial public offering

1993:

The Cellular Telecommunications Industry Association adopts CDMA as a North American wireless communications standard

2000:

Kyocera Corp. acquires the cell phone operations of Qualcomm

GLOBAL PRESENCE

Qualcomm operates offices in Argentina, Australia, Brazil, China, France, Germany, India, Indonesia, Israel, Italy, Japan, the Netherlands, Russia, South Korea, Thailand, the United Kingdom, and the United States. The firm has struggled to push its CDMA standard in Europe as most wireless firms there have chosen

HUMBLE BEGINNINGS FOR QUALCOMM

In 1985, when Irwin Jacobs and Andrew Viterbi founded Qualcomm (the name was a combination of the words "quality" and "communication"), they based their operations above a pizza restaurant located in a strip mall. Within four years, the firm had landed more than $15 million in defense contracts.

the General Packet Radio Service standard in favor of paying what they believe are hefty CDMA royalties to Qualcomm. Roughly 35 percent of Qualcomm's sales take place in the United States while another 35 percent happen in Korea. Other countries account for the remaining 30 percent.

SOURCES OF INFORMATION

Bibliography

qualcomm, inc. home page, 2002. available at http://www.qualcomm.com.

"qualcomm hits the big time." fortune, 15 may 2000.

"qualcomm's dr. strangelove." the economist, 17 june 2000.

williams, elisa. "when the chips are dow." forbes, 29 october 2001.

For an annual report:

on the internet at: http://www.qualcomm.com/ir/annualreport/ar2001

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. qualcomm's primary sics are:

3633 radio and tv broadcasting and communication equipment

6794 patent owners and lessors

also investigate companies by their north american industry classification system codes, also known as naics codes. qualcomm's primary naics codes are:

334220 radio and television broadcasting and wireless communications equipment manufacturing

334290 other communication equipment manufacturing

513322 cellular and other wireless telecommunications