Our CDMA patents are sound says Qualcomm

Qualcomm Wireless and Internet Group President Paul Jacobs says the company's many CDMA (code division multiple access) related patents are sound and that Qualcomm won't fall into the mire of litigation that sometimes faces companies which derive income from licensing their intellectual property.

Speaking at the 3G World Congress in Hong Kong this month, Jacobs says Qualcomm's patents have been tested in court with most rulings going in its favor.

"We have more than 100 licensees -- our patents are pretty well established."

Qualcomm owns most of the worldwide patents on the CDMA technology that powers Telecom New Zealand Ltd.'s 027 mobile network and its new CDMA2000 1X network, to be launched next month.

Qualcomm is presently deriving revenue from CDMA -- and will do from CDMA2000 1X-EV -- via Lucent, the licensee which is building Telecom's network. "Carriers don't pay us directly," Jacobs says. "They buy their equipment through vendors and, depending on the licensing terms with the vendor, Qualcomm gets a percentage."

After beginning as a handset, wireless infrastructure and chipset business, Qualcomm in the late 1990s and 2000 to 2001 re-invented itself as an intellectual property company, spinning off its handset and infrastructure business. "We realized you need scale to make handsets -- if you do it right you can make a lot of money, but it's very hard."

While it was necessary for Qualcomm to be in the handset business in its early days, it got out in 2000, selling to Japan's Kyocera Corp. By then, the infrastructure business was already gone, having been spun off to Ericsson the previous year. "We sold it because we didn't make money and because of vendor financing, which got a lot of infrastructure manufacturers into trouble."

Jacobs isn't fazed by W-CDMA (Wideband CDMA), the branch of CDMA that is the step to 3G for rival mobile system GSM. "We still have patents to W-CDMA -- we're still working with Siemens and Alcatel for W-CDMA and if they don't sign before they ship, we'll take action."

By the time W-CDMA is up and running in Europe and other GSM strongholds, "we'll have multimode chips, so it won't be that relevant".

Qualcomm announced at the congress that it plans to introduce technology to allow easy migration from GSM to CDMA2000 1X and go after GSM subscribers, especially in Asia.

"We see Europe [where GSM is entrenched] as a replacement market, but Asia is a growth market."

Edge, a CDMA2000 1X-type upgrade for GSM, isn't a threat either, despite being rolled out on a limited scale in the U.S., he says. "Edge is pretty bogus. There are a couple of operators in the U.S. who'll spend a lot of money trying to get manufacturers to build equipment for them because they don't want to use CDMA."

Licensing is certainly lucrative for Qualcomm -- Jacobs says Qualcomm gets 51 percent of its revenue from its chipset tools division, but only 26 percent of its earnings come from that source, because of low margins. "Licensing is the most profitable part. The net margins are very high."

Qualcomm has been accused of being too dependent on revenue from CDMA licenses and patents, with investment website The Motley Fool saying during the tech boom that Qualcomm was "going to be an important player in tomorrow's wireless world, but right now it's an overvalued company dependent on a single technology".

Qualcomm is sometimes described as "the toll booth on the road to 3G".

Watson travelled to Hong Kong courtesy of Qualcomm.

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