Qualcomm Inc. and Chinese firm China TechFaith Wireless Communication Technology Ltd. announced they would form a new venture, TechFaith Software China Ltd. (TechSoft), to develop software applications for wireless devices. The deal is worth up to $35 million in cash and in-kind contributions from both partners, though Qualcomm would not disclose its specific contributions. TechSoft initially plans to focus on developing applications for 3G CDMA mobile phones.
While Qualcomm works closely with handset makers that utilize the firm’s chipsets, this is the first partnership in which Qualcomm has invested directly in a handset designer and software developer, according to Qualcomm.
The companies said the joint effort would serve the Chinese market as well as global markets. Product development and manufacturing in China is crucial to foreign investors due to the country’s import quotas and tariffs that make it difficult to compete with Chinese products. Further, Chinese labor costs facilitate lower price points, making products destined for other markets competitive in price.
“I don’t mind saying it: Qualcomm is involved in Chinese partnerships because China is the biggest wireless market in the world,” said Jeremy James, senior director of corporate communications for Qualcomm. “And, because it is a major goal of the Chinese government as well as Chinese companies to serve not only the Chinese market but to provide wireless technology on a global scale, it’s a logical place to invest. That explains our interest in China.”
“I’m not suggesting that our interest in developing the technical base in major, technically oriented countries-India is another example-is exclusive to China,” James said, carefully deflecting anyone’s intent to read between the lines. “I’m also not characterizing what future announcements we might make [by making such a statement.]” Qualcomm, James said, performs research and development work in India and the United Kingdom, sometimes through acquisitions and sometimes through cooperative agreements.
“Our goal is to do what we can to drive and accelerate the deployments of 3G CDMA technologies globally, whether it’s CDMA2000 EV-DO or the W-CDMA/HSDPA path,” James added. “We see this investment as enabling that larger strategy.
“This investment is about driving features based on our chipsets and the usability of those features. You see that TechFaith, among other things, is about the usability of the user interface,” James concluded.
The level of investment reflected in this announcement is minimal by Qualcomm’s standards but it is strategic, according to Ittai Kidron, a wireless analyst at CIBC World Markets Corp., which was involved in TechFaith’s IPO. In terms of software development, “Qualcomm is another voice in the crowd, and it’s a big crowd,” Kidron said.
Qualcomm’s historical relationship with TechFaith-a small stake prior to the Chinese firm’s IPO, according to Kidron-simply ensured that the Chinese handset developer would include Qualcomm’s proprietary technology in its development efforts, and that, in turn, more Chinese handset original equipment manufacturers would use the Qualcomm platform rather than competing platforms. Chinese OEMs turn to TechFaith, one of the largest of several handset designers in that country, for basic design work. So far, that relationship is on track to bear fruit, the analyst said.
“They’re doing pretty well,” Kidron said. “The most important platform TechFaith would use in 3G would be a Qualcomm platform.”
Despite its Qualcomm partnership, TechFaith is playing all sides in the global market, as it develops user interface software for GSM/GPRS and W-CDMA/HSDPA networks, CDMA EV-DO networks and China’s TD-SCDMA technology.
As for the announcement of the partnership creating TechSoft, James’ themes echoed remarks made by principals at both companies at their joint press conference last week.
“TechFaith has always striven to shorten manufacturers’ time to market and to lower development costs, thereby helping to drive the growth of wireless technology in China and around the world,” said Dong Defu, chief executive of TechFaith.
Qualcomm announced in June 2003 that it intended to invest up to $100 million in early- and mid-stage Chinese companies engaged in CDMA-based product development, and TechFaith became the San Diego-based chip maker’s first independent handset design partner in China in April 2004. TechFaith, then less than two years old, reciprocated by signing a CDMA modem card license agreement with Qualcomm for cdmaOne and CDMA2000 1x/EV-DO modem cards.
James declined to provide any details on how far along Qualcomm is in its intent to invest up to $100 million in Chinese partnerships, noting that the $35 million deal to create TechSoft represented undisclosed terms for both partners. RCR
