Almost a year after becoming chief executive of Qualcomm, Paul Jacobs is finding himself playing the unwanted role of crusader, fighting for the cellphone standard his father and predecessor spread around the world.
“It’s different from what I expected,” says Mr Jacobs. “I came into it thinking, ‘OK, the holy wars [over standards for mobile telephony] are over, we’re going to go out and make peace with everybody and we’ll figure out how to build partnerships.’
“And then a few months into it, we’ve got a couple of interesting things going on.”
Mr Jacobs’ first challenge is that the European Commission, which has been arguing with Microsoft about the software company’s competitive position, might turn its attention to Qualcomm. Competitors and customers have complained the licensing fees for Qualcomm’s WCDMA technology for third-generation phones are excessive.
The second challenge is that Nokia, the biggest handset maker, is in litigation with Qualcomm as part of legal manoeuvres before a cross-licensing arrangement expires next year.
The issue could even force Mr Jacobs to split up a company that he and Irwin Jacobs – founder, chairman and his father – have built up to a market capitalisation of $73bn.
The rival standards for third-generation mobile telephony – WCDMA (Wideband Code Division Multiple Access) and CDMA 2000 – owe much to Qualcomm research. They also echo the earlier-generation battle between Qualcomm’s CDMA and the GSM (Global System for Mobile) standard for market share across the world.
Behind the litigation, the dispute with Nokia is focused on Qualcomm continuing to be able to incorporate Nokia’s GSM patents in its chips and for Nokia to likewise use CDMA patents in its phones as they try to straddle the two markets.
Mr Jacobs seems ready to play the same card his father considered when the cross-licensing deal was last negotiated in 2000 – he may split the company into separate licensing and chipmaking entities. That way, Nokia would lose the leverage of being able to block Qualcomm products that it says are infringing Nokia patents.
But it is unlikely he would go that far. “There’s huge synergy between having those two businesses together,” he admits, anticipating a settlement with Nokia. “We’re in discussions with them. Somehow, we’re going to end up resolving those discussions.”
Qualcomm is also in litigation with fellow communications chipmaker Broadcom, with at least six suits and countersuits filed against each other. In addition, the Korean Fair Trade Commission has visited Qualcomm’s offices in Seoul after a complaint by a Korean company.
But the complaints by Nokia, Broadcom, Texas Instruments, Ericsson, NEC and Panasonic to the European Commission represent a more serious threat. They are rooted in Qualcomm succeeding in getting its technology accepted as a key part of Wideband CDMA – the standard that Europe decided in the 1990s to adopt for third-generation phones.
Qualcomm expects 96m WCDMA phones to be sold worldwide this year, with more than half being bought by Europeans. The handset and chip makers allege Qualcomm is charging them excessive fees to license its technology while offering lower royalty rates to handset customers who buy chipsets exclusively from Qualcomm.
“They’re trying to renegotiate,” says Mr Jacobs. “Somebody said what happens with intellectual property licensing is that, in the beginning a manufacturer is happy about it because they get into a new market. As the market matures, they start looking at it as a cost. So then they’re unhappy about it.”
He also feels that competitors saw an opportunity when he succeeded Irwin Jacobs as chief executive on July 1 last year.
“I feel fairly strongly that some of our competitors looked at the fact that we were going through a management transition and timed this in the thought that we would all get distracted, and the fact of the matter is we have not.”
Revenues were up 34 per cent year-on-year for the March quarter at $1.83bn and profits rose 11 per cent to $593m. Qualcomm shares are up more than 30 per cent since he took charge.
And despite painting himself as the reluctant crusader, there are signs that Mr Jacobs is relishing future standards battles. Qualcomm has acquired Flarion, a company that extends its expertise in OFDM (Orthogonal Frequency Division Multiplexing), which could be the foundation of fourth-generation mobile.
It is also investing in a television delivery service for mobile operators named MediaFlo, which will compete with the DVB-H (Digital Video Broadcasting-Handhelds) standard in the US and Europe.
But Mr Jacobs argues that technology will ultimately resolve the debate over standards rather than governments or the courts, thanks to the regular doubling of transistor capacity described by Moore’s Law.
“Moore’s Law has allowed us to put so many different radios into the chipset that all these standards battles become sort of moot,” he says.
“The phone will just deal with it, and deal with it in a way that the consumer doesn’t have to worry about all this.”
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