Headquartered in San Diego, USA, Qualcomm, a leading chipset deeloper and pioneer of CDMA technology, has come a long way since it was founded in 1985. Today, a Fortune 500 company, with operations in over 20 countries and 400 million CDMA subscribers riding on its technology, the company is clearly riding an upward trend, and earning a major part of its revenue from royalties on patented products.
The Asia-Pacific region is a key part of Qualcomm’s expansion strategy, given that it is the fastest growing telecom region in the world. India and China account for a large chunk of the growth. With over 46 million CDMA subscribers and counting, the CDMA industry in India accounts for about 30 per cent of its wireless market.”Despite being a late entrant in the Indian wireless space, CDMA technology has witnessed exponential growth and is currently expanding at well over 60 per cent,” says James Person, chief operating officer, CDMA Development Group.
Given the rapid growth of CDMA in the world’s fastest growing telecom market, India figures prominently in Qualcomm’s expansion plans. “The strategic importance of the Indian market for Qualcomm is extremely high given the current growth rate in the Indian telecom sector,” says Kanwalinder Singh, president, Qualcomm India and SAARC.
While the company has been present in India since 1996, more recent work started in 2002 and accelerated in 2004.Today, with R&D centres in Bangalore and Hyderabad and business offices in Delhi and Mumbai, the company has clearly grown from strength to strength.R&D is an important component of the company’s investment plans. “We invest approximately 18 to 22 per cent of our global revenues in R&D,” says Roberto Padovani, CTO, Qualcomm, Inc.
While the company continues to invest in R&D, it is also investing in acquisitions.For instance, Qualcomm acquired Airgo Networks, a Wi-Fi semiconductor vendor, in December 2006 and Flarion Technologies, developer of Orthogonal Frequency Division Multiplex Access (OFDMA) technology, in 2005.
With these acquisitions, Qualcomm has added to its patent portfolio. The company has acquired OFDM patents from Airgo to add to its own as well as those secured by its acquisition of Flarion. It has also acquired an extensive patent portfolio for spatial multiplexing multiple-input-multiple-output (MIMO) technology from Airgo.
“In India, we acquired Spike Technologies in 2004 which is now the Bangalore R&D centre. It brought us chipset expertise which enabled us to take our chipset capabilities to lower geometries. Recently we have also acquired an IP-based multimedia system (IMS) software firm, Qualphone, which has a presence in the US, Italy and India. This acquisition will help the company accelerate the delivery of multimedia-capable solutions on top of the emerging IMS architectures,” says Singh.
ABI Research principal analyst Stuart Carlaw notes that “With Qualcomm’s history of integration, these acquisitions provide a very logical precursor to a highly integrated series of cellular chipsets that incorporate both 802.11n and Bluetooth.Outside the cellphone, Qualcomm now effectively owns a stake in the Bluetooth market that will enable it to expand into the consumer electronics environment with greater ease due to the growing profile of Bluetooth in the gaming and music player markets.”
It is set to make India one of its major hubs for developing mobile applications using its BREW platform. BREW is a platform that enables application developers, publishers, content providers, device manufacturers, operators and customers to use Qualcomm’s technology to build applications for mobile devices.
It is also aggressively working towards introducing data capabilities such as e-mail access on low-cost handsets. Education is another segment where applications will be developed for the Indian market. To address the enterprise market, Qualcomm is pushing forward BREW for the business portfolio. CDMA-based operators including Reliance and Tata Teleservices plan to deploy these solutions on their networks.
The company is also working on introducing low-cost handsets. Says Singh: “Qualcomm has worked towards making highly functional chips affordable. Today we have succeeded in manufacturing a $25 CDMA handset. This is a big milestone for the company and we are glad that we achieved this target at the onset of the next level of growth in the rural areas. It has been a great journey for the last three years, from an $80 CDMA handset to a $25 one.”
Qualcomm is amongst the top investors in India along with companies like Nokia, Samsung, Motorola, Dell and British Telecom. The company is planning to increase its exposure in the Indian market and intends to enhance its R&D centre in Bangalore to take on full-scale design.
However, the first few months of 2006 were particularly trying for the company with Nokia cancelling its plans to form a new company with Sanyo Electric to make CDMA devices based on Qualcomm’s technology, and its decision to taper down R&D of CDMA products by 2007.
In addition, in June 2006, Reliance decided to adopt GSM technology as the limited use of CDMA technology and the high royalty charged by Qualcomm was becoming unaffordable for both the company and its customers. Similar demands by Tata Teleservices, and the Department of Telecommunications’ concern over the fact that Qualcomm claims a higher percentage as royalty from India gave increased legitimacy to Reliance’s demands. “The company needs to reconsider its stand on royalties as the majority of the new subscribers will be low-end users and royalty imposed on the cost of each handset will hit the service provider,” says Sourabh Kaushal, industry manager, ICT practice, Frost & Sullivan.
However, maintaining their stance that India’s problems with CDMA are not an issue of technology or high cost, the company ruled out rationalisation of royalties on handsets sold in India. At the same time, it held out an olive branch to Reliance by offering bulk discounts on royalty and suggesting certain benchmarks in terms of subscriber base.
Qualcomm has also been in discussions with handset manufacturers for reduction in handset prices based on large volumes.It will invest 7 per cent of all the royalty earned in India to set up a research centre in Chennai.
In September 2006, in keeping with its intention to help domestic manufacturing, Qualcomm signed its first commercial CDMA2000 subscriber unit and modem card licence agreement with Himachal Futuristic Communications Limited (HFCL). “We are looking for many OEMs in India,” says Singh.
Under the terms of the worldwide, royalty-bearing agreement, Qualcomm granted HFCL a patent licence to develop, manufacture and sell CDMA2000 subscriber units and modem card products. The royalties payable by HFCL were at Qualcomm’s standard worldwide rates, which are approximately 5 per cent of the cost of the CDMA handset. But despite royalties, the handset prices are expected to reduce by 45 per cent due to savings in import duties.
Qualcomm has recently signed another CDMA2000 subscriber unit and modem card licence agreement with DigiBee Microsystems, Inc. It has granted the company a patent licence to develop, manufacture and sell CDMA2000 subscriber units and modem card products.DigiBee will initially focus on products for the Indian market. The royalties payable by DigiBee are at Qualcomm’s standard worldwide royalty rates.
Meanwhile, the recent launch of ultra low-cost handsets which have the Qualcomm MSM 6000 chip and Qualcomm single-chip (QSC) family of products by Reliance Communications has proved very beneficial for Qualcomm on two counts. With Reliance claiming to have sold a million handsets beginning at Rs 777, within a week, Qualcomm has reportedly made about Rs 38 million at the rate of 5 per cent. Second, the availability of low-cost CDMA handsets will alleviate some concern over the lack of competitiveness of CDMA over GSM due to the lack of availability of low-cost handsets.
Qualcomm is now looking to build a consortium of telecom firms to get into mobile TV in the country. The consortium will include content firms and broadcasters.The task would be to build a MediaFlo network, create content relationships and manage the network. MediaFlo is a proprietary air interface technology that sits atop a telecom network, which will help in costeffective deployment of mobile TV. “We are in discussions with a few interested companies for telecom content and network domains,” says Singh.
Globally, Qualcomm has posted higher quarterly profit and revenue, and has raised its estimate for full-year earnings banking on strong demand for its chips for mobile phones with high speed internet connections. This is despite the fact that the company will not be able to record royalty payments from Nokia due to disputes over technology licensing.
It lifted its forecast for full-year revenue to a range of $8.4 billion to $8.7 billion from its earlier target of $8.1 billion to $8.6 billion.
Qualcomm’s net profit for the quarter ended April 1, 2007 rose to $726 million from $593 million during the same period last year. Its revenue rose from $1.83 billion a year ago to $2.22 billion.
However, while Qualcomm is seen as a key beneficiary of rising demand for advanced cellphones, there is investor uncertainty about its legal battles. The potentially costly stand-off with Nokia over a technology licence contract that expired earlier this month has been a key concern.
Meanwhile, continuing with its technological developments, Qualcomm recently launched a new chipset solution. The chip is designed to expand mobile broadband smartphones beyond the enterprise segment into mainstream consumer markets, and make the smartphone more affordable and available to an increasing number of subscribers by enabling sub-$200 mobile broadband smartphones.
The chip could enable a wide range of new services such as video sharing, photo sharing, VoIP and real-time gaming with a wide range of hardware and software capabilities. Sampling is scheduled for the third quarter of 2007, with devices based on this solution expected to be in production by the first quarter of 2008.
With next-generation wireless communications emerging as the most important technology of this millennium, Qualcomm is clearly on the right track. “The company is technologically very sound,” says Kaushal. It is focusing strongly on emerging markets and intends to gain a firmer foothold in the Indian market.
