Qualcomm is not in TROUBLE – Peaks and Valleys

Implications: Qualcomm has proven to be one of the most innovative and strongest wireless technology companies in the last 20 years.  None of which makes a hoot of difference with might happen in the future not unless you believe the past is a guide to the future.

Analysis:  Since Irwin Jacobs turned over the reins of leadership to his son Paul, things appear to have been rocky.  In other words, son, Paul, has not done a good job.  At least that is what some folks will imply or even say outright.

However, I will beg to differ.  During the transition period between the two Jacobs, the wireless industry had been going several simultaneous transition periods:  

-    First, cellular service had matured into a full blown commonplace communications tool.  No longer were we seeing news articles about whether or not cellular would continue to grow or whether or not cellular was a fad.

-    Second, the industry was exiting a period of enormously high growth.  You may recall, analysts were critical of Qualcomm for not spending its stash of cash buying up wireless Internet wannabees and other Internet companies.

-    Third, during the downturn Qualcomm was being criticized for not spending money on buying up distressed companies.  Later on, Qualcomm was praised by the same critics for showing restraint because many of the companies that were being promoted as great buys collapsed.  Gosh, I would love being an analyst; just as long as no one was keeping a scorecard.  Only kidding.  People have got to earn a living.

-    Fourth, the wireless industry was suddenly propelled from being mostly a hardware-driven business with some software into a software-driven business with less emphasis on network hardware.

-    Fifth, the wireless industry was suddenly moving into the world of smarter handsets; thanks to the software and the chips.  Qualcomm did not do well making and selling handsets; they just were not cool or sexy looking – but they worked.  However, working right does not necessarily mean consumers are going to buy the handset.  Apple’s iPhone is an example of genius product packaging.

-    Sixth, the wireless industry was pushing its way into the Internet and multimedia business.  Qualcomm’s response was MediaFlo; a good 3 years before mobile media became commonplace talk.

This transition period was over a number of years from the end of the1990s into the early 2000s.  Guess what; managing your way through this is not a cakewalk.  If it were easy, anyone could be a CEO.

Qualcomm has had its share of mistakes.  Qualcomm is accused of being arrogant.  However, it has never been accused of being stupid.  Before analysts start kicking this old dog called Qualcomm, keep in mind it still has life.

Despite the company’s losses in the court room, the company still has cash and market position that it can leverage in the future.  The company makes most of its money in intellectual property (IP) licensing.  The IP licensing business will not go away; however, it is possible that the business will not make as much money.  This means Qualcomm needs to focus on growing new lines of business.

The recent agreement between Qualcomm and Nokia to consolidate the multiple lawsuits is a good thing.  This action is an indication that the parties are trying to get this matter done and over with so both companies can move on.  This does not mitigate the impact of the decision(s) that will come from the resolution of the lawsuit(s); however, it does mean they will likely spend less time in court.  In other words, one year versus 10 years in court.

What Qualcomm is facing is a new period of transition.  Assuming Qualcomm’s management team is up to the task the company should be able to hold its own.  I am sure many of Irwin Jacobs’ “guys” are in the process of retiring or have retired over the years, but the company does understand the concept of succession management.  In other words, corporate executives line up and train the next generation of executive mangers.  Of course, in this day and age of corporate executive firings it is difficult to imagine any executive training someone who can replace them, especially when the lifespan of most executives seems to be about 18 months.

Some folks believe that Qualcomm has not exactly been loudly overt about its intentions.  I disagree.  Qualcomm has been up front about its intentions and actions.  The company is openly active in the following areas:  

-    Location and Presence
-    M-Commerce
-    Content Delivery
-    Connectivity

From the time of the 2001 meltdown to date, Qualcomm has made a number of strategic acquisitions, which have included Flarion (resulted in the creation of MediaFLO), Xiam, and Firethorn.

The company’s actions have forced a sea change in the way the company itself.  Back in the 1980s and early 1990 manufacturers like Motorola and Lucent made and sold plain old telecom equipment.  Qualcomm’s entry into the business turned licensing into a business.  I recall Qualcomm’s entry into wireless as a major turning point in the wireless industry.  I recall seeing a startup showing up at standards meetings an industry event with massive carrier support an then suddenly the startup was leading the all next generation development.  The company changed the rules of the vendor game.

When you look at Qualcomm’s acquisitions within the last 7 or 8 years you might see a set of disjointed actions.  However, I see a company that was and still is embedding itself in this new mobile media environment.  Qualcomm sells its technology and licenses its technology to other vendors so that carriers like Verizon and AT&T can use the MediaFLO network.  Xiam is a provider of software solutions for the marketing of digital content.  Firethorn is a provider of software solutions that integrates application-based financial and retail transactions.  Firethorn is currently working with Wachovia, Citigroup, and Verizon Wireless.

Qualcomm’s current actions have placed in smack in the middle of the new content driven wireless industry.  The company has found new markets for its licensing business and its chip business.  I have said in the past that I believe Qualcomm’s MediaFLO network also positions the company in the content creation business.  Imagine Qualcomm providing the media industry with the tools necessary to create content.

At the end of the day, Qualcomm has the following going for it:  

-    Cash
-    Market penetration
-    Embedded capital (equipment) in carriers’ networks today
-    Intellectual property Emerging businesses – media, etc.