Qualcomm Gains China’s Backing for Wireless Standard

Qualcomm Inc. said it won China’s official backing for a wireless standard on which the country’s No. 2 provider of mobile service, China Unicom Ltd., plans to base a nationwide network.

China’s Ministry of Information Industry, the government body responsible for communications strategy and policy, endorsed a Jan. 28 agreement between China Unicom and Qualcomm in a memorandum of understanding signed today.

Qualcomm stock surged $7 to $90 on Nasdaq on Monday, its highest closing price since May.

The backing is China’s latest step toward adopting the code division multiple access, or CDMA, wireless standard that Qualcomm developed and that runs about 65 million cell phones worldwide.

While a competing wireless technology, GSM, has already secured a base in China, officials in that country have repeatedly flip-flopped on CDMA, expressing a commitment to that wireless protocol and then backing off at the last minute.

At various times this year, officials at San Diego-based Qualcomm thought they had made major progress in breaking into the mammoth China market. But negotiations in China have taken numerous detours, which is one reason why Qualcomm’s stock has been whipsawed by nervous investors.

“Now I am optimistic,” Qualcomm Chief Executive Irwin Jacobs said in Hong Kong, where he’s attending ITU Telecom Asia 2000, an industry gathering. “The next step, of course, is for Unicom to be placing orders with manufacturers to build out infrastructure and then there will be a market.”

Qualcomm needs to secure China’s backing to sell its wireless chips and license CDMA technology for use in the world’s fastest- growing market for cell phones. China, with 65 million mobile subscribers, is expected to become the world’s biggest cell phone market within 10 years, ahead of the U.S.

Qualcomm, which holds valuable patents covering CDMA wireless technologies, has announced plans to spin off its phone-chip business and revert to its roots as a research and development firm. Then, Qualcomm’s revenue will stem mainly from royalties, which will remain robust only as long as CDMA-based phones and wireless network equipment continue to be made and sold worldwide.

To make the CDMA network more attractive to business customers, China Unicom’s parent, China United Telecommunications, plans to add features such as high-speed data transmission.

As part of Qualcomm’s push into Asia, the company will establish a development center in China that will focus partly on the development of equipment and applications for so-called third-generation, or 3G, mobile services, Jacobs said.

So far, Qualcomm hasn’t participated in testing 3G equipment in China, he added.

“We’ve been working with a number of manufacturers to support their manufacturing of both infrastructure and subscribers’ equipment,” Jacobs said.

China Unicom’s customers more than doubled to 10 million by September from 4.2 million at the end of 1999. It expects to have 29 million GSM customers by 2002.