© 2005 Business Week Online. All rights reserved.
© 2005 Wireless NewsFactor. All rights reserved.
What's driving this acquisition urge? Certainly not any trouble with Qualcomm's core business. Sales are about to enter a growth spurt, as Code Division Multiplexing [CDMA], a cutting-edge wireless technology for which the company holds more than 3,000 patents, is deployed all over the world. In the fiscal year ending in September, the San Diego company should reach nearly $6 billion in sales, almost double its year 2000 revenues.
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But a problem looms: In the fast-paced life of wireless technology, CDMA can't remain on the cutting edge forever. "CDMA will be important for another 10 years, but after that it could be largely obsolete," says Albert Lin, an analyst with AmericanTechnology Research in San Francisco. "The world will demand more."
Soon enough, users will likely want next-generation wireless technology, offering ultrafast mobile video and cheap wireless Internet access at speeds 20 to 30 times faster than today's.
Qualcomm also needs to diversify its revenues into such markets as software for cell phones, say analysts. Enter Elata: The startup's code should strengthen Qualcomm's Brew software, allowing carriers to sell and deliver content to their customers'mobile phones.
This next leg of Qualcomm's evolution, led by new CEO Paul Jacobs, who took over the post from his father and Qualcomm founder in July, will likely prove even more challenging than its initial foray into CDMA.
Before CDMA took off, service providers could pick one of about four different wireless technologies, including Qualcomm's proprietary technology, to upgrade their networks. Now, "there are three times as many choices," says Lin.
Which of these wireless technologies will emerge as a leader next is still unclear, says Shiv Bakhshi, an analyst with tech consultancy IDC. So Qualcomm has to buy all the wireless know-how it can get its hands on to hedge its bets, Bakhshi believes.
The Flarion acquisition should help a great deal. For one, the outfit pioneered an early favorite, FLASH-OFDM [Fast Low-Latency Access with Seamless Handoff-Orthogonal Frequency Division Multiplexing], which has at least three times the capacity of today's CDMA, says Lin.
The Flarion acquisition likely also solidifies Qualcomm's presence in a competing and even faster flavor of OFDM called WiMax, pushed by chipmaker Intel. Thanks to internal R&D as well as the patents Qualcomm acquired with Flarion, "Qualcomm believes it has intellectual property that is relevant to WiMax," according to the company.
The upshot? Paul Jacobs & Co. may just be getting started down the shopping aisle. "What they've done with Flarion is a step up in their acquisition strategy," says Mahoney. The company wouldn't comment for this story on future purchases. "Qualcomm actively evaluates acquisition opportunities that allow the company to augment its intellectual property, product portfolio, and engineering employee base," according to a company spokesperson.
What might Qualcomm be interested in? Industry insiders point to a handful of emerging wireless technologies. For starters, Qualcomm might want to acquire additional OFDM patents in case this rival technology gets adopted worldwide.
Possible targets might also include companies with WiMax patents. Or, perhaps Qualcomm will jump into OFDM's cousin, Ultra-Wideband [UWB] technology, says Peter Hofstra, an analyst for AIC funds in Canada. UWB can send gigabytes of data per second over distances of about 30 feet.
One possible target, privately held Alereon, makes UWB chips for PCs and mobile devices and owns more than 120 related patents, Hofstra says. Or, Qualcomm might want to buy a company in the so-called mesh networks business, believes Lin. Mesh networks consist of tiny devices, each containing an antenna, which convey information to one another like basketball players passing a ball around.
This way of building a wireless network could be used to enhance performance of many other wireless technologies Qualcomm has a hand in. Even with Motorola acquiring startup MeshNetworks last November, there are still lots of other attractive outfits, such as privately held Dust Inc., for Qualcomm to consider.
While the possibilities remain endless, it's clear that Qualcomm had better hustle. Buying Flarion and Elata are steps in the right direction, Now, Jacobs & Co. have to keep going to prepare the company for its life after CDMA.