Chip maker calling on new CEO
Few companies have benefited more from the explosion of the wireless market and the increasing sophistication of cellphones than Qualcomm Inc.
The San Diego semiconductor and telecommunications company is the world’s leading designer and seller of chips used in smartphones and tablets. It also generates billions of dollars of revenue by licensing its massive portfolio of wireless technology patents to manufacturers.
Qualcomm’s clients include Apple Inc. and Samsung Electronics Co., the two leading smartphone manufacturers, plus most of the world’s major technology companies: Google Inc., Cisco Systems Inc., LG Electronics Inc. and Nokia Corp., to name a few.
A pioneer of mobile Internet products, Qualcomm catapulted into the tech industry’s forefront with microchips that powered Verizon Wireless networks and mobile phones. Sprint Nextel Corp. also based its network and phones on Qualcomm’s CDMA cellular technology.
Today, the company’s chip technology allows wireless phones to access the Internet, stream video, take photographs, play music and navigate city streets with GPS.
Founded in 1985 by Irwin M. Jacobs and six others, Qualcomm made its first CDMA cellular phone in 1989 and went public two years later.
The company collects licensing fees -- a little more than 4% of the wholesale cost of a phone -- from mobile handset makers for using the firm’s technology in their handsets.
“I view us to be synonymous with wireless technology now. We had the vision early on and were able to execute it,” said Bill Davidson, Qualcomm’s senior vice president of investor relations.
“When you think about everything you can do on your phone today, that was Qualcomm that really drove the way,” he said.
The latest
There’s going to be a significant change at the top for Qualcomm.
Paul E. Jacobs, the company’s chief executive since 2005 and son of the founder, is stepping aside March 4. He will be succeeded by Steve Mollenkopf, who has spent nearly 20 years at Qualcomm in a variety of leadership roles, including head of the company’s chipset division.
“Under his leadership, Qualcomm became the world’s largest mobile chipset supplier and the global leader in LTE technology,” the company said in a December announcement about Mollenkopf’s promotion.
Jacobs will assume the role of executive chairman and will continue to guide the development of new technology, the company said. He also will remain an employee of the company, guiding its strategy and direction.
“At its heart, Qualcomm is a company of inventors and entrepreneurs, and I’m excited by the opportunities that lay ahead as we continue to push the boundaries of technology in mobile and beyond,” Jacobs said.
Accomplishments
Qualcomm got its start in the summer of 1985 when seven technology veterans met at Irwin Jacobs’ San Diego home and decided to use their combined expertise to build a communications company.
Today, Qualcomm holds 84,000 patents as part of its licensing portfolio. In its most recent fiscal year, ended Sept. 29, the company reported a profit of $6.9 billion on revenue of $24.9 billion.
Its patents also cover some of the technology used in phones and networks owned by AT&T; Inc., T-Mobile USA and carriers worldwide, giving the company additional royalties and putting the company’s brand in nearly every pocket and purse in the United States and globally.
The company is looking particularly for stronger growth in emerging markets -- mainly China, Brazil, India and Russia -- where smartphones do not have nearly the same penetration as they do in North America and Europe.
Qualcomm also will benefit from gadget fanatics who constantly upgrade to the newest, most advanced devices.
“You go to any electronics store, the quality of what’s going into a phone now is amazing,” Davidson said. “And it’s limitless where it can go.”
Challenges
Competition is fierce in the chip business. And things are getting more competitive for Qualcomm.
Taiwan company MediaTek Inc., a leading chip supplier for Chinese smartphones, is looking to boost its presence in the United States. It opened a new office in San Diego -- in full view of Qualcomm.
Broadcom Corp. in Irvine, as well as Intel Corp. and Spreadtrum Communications Inc. have been longtime rivals.
But Qualcomm still dominates the cellular baseband processor market, garnering 66% of the money spent on those processors, according to a report by Sravan Kundojjala, an analyst with Strategy Analytics. The report said MediaTek has 12% of that market and Intel 7%.
Qualcomm is facing additional challenges. A Chinese telecommunications trade union said it has asked economic regulators in China to crack down on Qualcomm for antitrust violations.
The group is seeking to reduce the amount that Qualcomm charges for licensing its patents.
Davidson said the company has been told the investigation is confidential.
“I can acknowledge it, but beyond that can’t really say anything,” he said.
Analyst views
Thirty-six analysts rate Qualcomm stock as a buy, eight suggest holding it and two say it’s time to sell. On average, analysts believe the stock will be trading at $81.11 a share in 12 months.
“While we do not like to question [Qualcomm], given its unrivaled ability to predict, the head winds seem to be mounting in 2014,” analyst Tom Sepenzis of Northland Capital Markets said in a recent research note.
“The high-end of the smartphone business is weakening, and growth will now come primarily from emerging markets where cost is the key,” he said.
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(BEGIN TEXT OF INFOBOX)
The company: Qualcomm Inc.
Headquarters: San Diego
Ticker: QCOM
Employees: 31,000
Leadership: Paul E. Jacobs, chief executive since 2005
Fiscal 2013 revenue: $24.9 billion
Fiscal 2013 net income: $6.9 billion
Stock price: $76.28 at Friday’s close
52-week range: $59.02 to $76.75
P/E ratio: 15, based on estimated fiscal 2014 earnings
Quarterly dividend: 35 cents, a current yield of 1.8%
