Qualcomm Inc. may be ready to sell off its handset division as competition in the cdmaOne handset
business intensifies and costs increase.
Sources say Qualcomm is in discussions with Siemens Wireless Terminals
concerning the sale of Qualcomm’s cdmaOne handset division. Qualcomm and Siemens declined to
comment.
Qualcomm initially entered into the Code Division Multiple Access handset and infrastructure business to
promote the technology. Qualcomm was successful in developing and securing a number of patents to cdmaOne
technology for use in mobile systems and pushing its acceptance into the market, but other vendors that signed royalty-
bearing agreements with Qualcomm were behind in the technology’s development. Qualcomm had the expertise and the
chipsets to enter the handset market first, and through its partnership with Sony Corp., was the sole provider of
cdmaOne handsets for more than a year.
Today, the cdmaOne handset market is becoming crowded as major
vendors like Nokia Mobile Phones and Motorola Inc. are beginning to sell volumes of cdmaOne handsets. In addition,
Asian vendors are flooding into the market and driving prices down.
Analysts say the digital handset business is
becoming more scale-driven, requiring shorter product cycles and increased marketing costs, and other vendors have a
greater market presence and deeper pockets than Qualcomm. Handset vendors like Oki Telecom Inc. and Siemens
already have bowed out of the cdmaOne market, unable to keep their cost structures intact as handset prices
fall.
Qualcomm’s other divisions, like the infrastructure business, may be on the sale block as well, speculate
analysts. Many of the company’s divisions will come under intense competition going forward. The San Diego-based
company already has reorganized its infrastructure division and OmniTracs division and spun off operating interests to
Leap Wireless International Inc.
“The operating model doesn’t make sense,” said one analyst who
declined to be named. “They could make more money as an ASICs and royalty company.”
Jane Zweig,
vice president with Herschel Shosteck Associates Ltd. in Wheaton, Md., agrees. Her firm has predicted for nearly a
year a sell-off would occur.
“The ASICs division is successful,” said Zweig. “Qualcomm is about
R&D, CDMA developments and chips … Chips are a revenue-generating unit. Almost everyone licenses their
chips.”
Indeed, Qualcomm indicated in a recent Securities and Exchange Commission filing that it believes it
has a significant advantage over other existing and potential manufacturers of CDMA ASICs. The company recently
introduced its fifth-generation ASIC chipset for cdmaOne handsets, featuring data rates greater than 64 kilobits per
second. DSP Communications Inc., LSI Logic Corp., VSLI Technology and PrairieComm Inc. have license
arrangements with Qualcomm to sell ASICs, yet none have come to market with a commercial cdmaOne
chipset.
Through September, Qualcomm shipped about 25 million ASICs to cdmaOne handset manufacturers
worldwide. A substantial portion of the sales have been made to international customers, primarily South Korean
vendors. Analysts say Qualcomm should enjoy significant headway in the ASICs business for many years.
Industry
experts also say selling off the handset division would remove any barriers for Qualcomm in selling ASICs chipsets to
other handset vendors.
“Because Qualcomm sells ASICs to its own handset competitors, any competitive
move the company makes in the handset business is viewed cynically,” said Matt Hoffman, handset analyst with
Dataquest in San Jose, Calif. “As Qualcomm faces more competition in the ASICs segment, they may need to
remove any barriers to being a supplier in that space.”
For Siemens, purchasing Qualcomm’s handset business
would bring it back into the North American market it desperately wants a piece of on the infrastructure and handset
side. The company is pulling its Global System for Mobile communications handset product line out of North America
after the first quarter, citing cost factors. Earlier this year, the company decided to scale back its efforts in cdmaOne
technology after announcing it planned to introduce a cdmaOne handset in the first quarter of 1998. It moved its R&D
project back to Germany.
“North America is critical to Siemens, and we are not exiting the business,”
Kristine Ryan, public relations manager for Siemens, said in December. “We only have one GSM phone, and
GSM is a small piece of the (domestic) wireless market.” Key executives remain in Richardson, Texas.
