From: acquiredfm
CDMA’s Dominance in 3G
The first CDMA networks went live in the US and internationally in 1995 [00:01:09]. By the year 2000, as the next generation of cell phone networks, 3G, emerged, CDMA became the dominant technology globally [00:07:08]. Despite debates in the US between GSM and CDMA, all 3G networks eventually became CDMA-based [00:07:21]. This was because 3G prioritized data speeds and broadband internet, where CDMA was a vastly superior technology [00:07:44]. Its digital-native structure perfectly lent itself to handling digital information like website downloads, iMessages, or tweets, as it was already in packets [00:08:04].
Qualcomm’s Strategic Shift and Early Success
Qualcomm’s early revenue in 1995 was 814 million in 1996 [00:01:17]. However, Wall Street initially viewed the stock negatively due to the capital-intensive manufacturing operations and joint ventures, which tied up company profits [00:01:45]. The stock remained largely flat until January 1999 [00:01:56].
In 1999, Qualcomm made key strategic decisions to divest from hardware manufacturing:
- March 1999: They sold their infrastructure business (base stations) to Ericsson, a former competitor, as part of a licensing and settlement deal [00:02:27]. This indicated their belief that they no longer needed to bootstrap their strategy with manufacturing [00:02:50]. Approximately 1,000 Qualcomm employees transferred to Ericsson [00:03:00].
- December 1999: Kyocera bought Qualcomm’s mobile phone business [00:03:41].
These moves transformed Qualcomm into two primary groups:
- Qualcomm CDMA Technologies Group (QTC): Focused on selling chips [00:03:44].
- Qualcomm Technology Licensing (QTL): Focused on licensing their extensive patent portfolio [00:03:51].
This established their business model: producing high-margin semiconductor designs (without fabrication) and collecting high-margin licensing revenue from their patent chest [00:04:06]. This model allowed them to charge a percentage of phone sales, leveraging their fundamental patents [00:04:26].
Incredible Stock Performance in 2000
Following the offloading of their manufacturing businesses, Qualcomm became the single best-performing stock for the entire year 2000, amidst the tech bubble [00:05:58]. The stock appreciated by 2,621% in 366 days [00:06:11]. However, it crashed down over the next 18 months, becoming only a 4x return from its pre-1999 high [00:06:40].
Transition to 4G and Beyond
Leadership Change and Strategic Acquisitions
In 2005, Qualcomm’s founder, Irwin Jacobs, retired as CEO and Chairman [00:08:13]. His son, Paul Jacobs, who holds a PhD in electrical engineering and had spent his entire career at Qualcomm, took over as CEO [00:08:24].
Also in 2005, Qualcomm acquired Flarian Technologies for $600 million [00:08:50]. This acquisition was crucial as Flarian possessed many patents essential for 4G technology [00:09:01]. It allowed Qualcomm to “refill the pot of missiles” (a metaphor for patents) needed for the next generation of wireless communication [00:09:08].
Shift to OFDMA and Snapdragon Development
While 4G eventually became based on Orthogonal Frequency Division Multiple Access (OFDMA), which was more efficient than CDMA [00:09:22], Qualcomm initially resisted this shift, pushing for CDMA to remain the standard for 4G [00:10:43]. However, they eventually pivoted to OFDMA, securing patents through acquisitions like Flarian, which enabled them to maintain their business model for 4G and LTE [00:09:51].
During Paul Jacobs’s tenure (2005-2013/2014) [00:10:06], a key strategic initiative was getting Qualcomm into IoT (Internet of Things), which did not fully materialize at the time [00:10:21]. However, two significant successes during this period were the OFDMA patent acquisition and the development of the Snapdragon mobile systems-on-a-chip (SoCs) and CPUs [00:10:58]. These developments positioned Qualcomm exceptionally well for the modern smartphone era [00:11:09]. Today, Qualcomm sells the high-end Android chip, with products like the Snapdragon 8 Gen 1 becoming the standard for premium Android phones [00:11:15]. They have also branded many of their diverse silicon and chip designs under the Snapdragon label [00:11:30].
Continued Value Capture and Litigation
Today, Qualcomm earns an average of about $20 for every smartphone sold worldwide, including Apple iPhones [00:12:09]. This significant value capture, driven by their patent licensing and chip sales, began to draw public and legal scrutiny around 2009 [00:12:27]. While Qualcomm remains a pioneer and invests heavily in R&D [00:12:40], they became known in the ecosystem as “value capture pioneers,” leading to anti-trust lawsuits from entities like Apple and the Department of Justice/FTC [00:12:49].
Ultimately, Qualcomm’s current total revenue is close to 37 billion of their $44 billion revenue stems from selling semiconductors, a business that would not exist without their initial strategic decision to focus on patent licensing and chip design [00:00:09]. They are now the largest fabless semiconductor company globally, surpassing Nvidia [00:00:21].