Editor’s Corner—A Broadcom takeover would quash the innovation that has long been part of Qualcomm

editor's corner monica

Qualcomm and its founders received the IEEE’s Milestone Award on Tuesday, just a day after Broadcom announced an unsolicited $130 billion takeover bid for the company. The IEEE award is a big honor for Qualcomm and speaks to the pioneering work it’s done in CDMA, specifically for the first demonstration of CDMA for cellular networks. 

In fact, 28 years ago, on Nov. 7, 1989, Qualcomm demonstrated a digital cellular radio system based CDMA, which formed the basis for the IS-95 second-generation cellular standard and for the major 3G mobile broadband cellular standards used in billions of mobile devices worldwide. That’s partly why this hostile takeover missive from Broadcom stings so much.

I’m going admit upfront that I have known Qualcomm not from the very beginning but pretty early on, at least since the days its marketing team was running around trade shows with military-style promotional material to show how CDMA was so secure and reliable that the U.S. military was using it. I covered some of the early fights over CDMA versus GSM, and I’ve had the opportunity to geek out over the chance to speak with founders Irwin Jacobs and Andrew Viterbi on occasion.

So it was with a bit of nostalgia that I learned that the IEEE award, which has been used to recognize such big innovations as the transistor and the internet, was presented to Qualcomm and its founders for their breakthrough CDMA technology.

“An IEEE Milestone is really a big deal,” said James Thompson, Qualcomm’s chief technology officer, since it puts company founders Jacobs and Viterbi in the same rank as Thomas Edison and Alexander Graham Bell, according to the Times of San Diego. “It’s really quite an honor for Qualcomm and certainly the founders of Qualcomm to see this happen.”

In the announcement about Broadcom’s seemingly-out-of-the-blue offer on Monday, CEO Hock Tan gave a nod to the innovation that has characterized Qualcomm all these years. "We have great respect for the company founded 32 years ago by Irwin Jacobs, Andrew Viterbi and their colleagues, and the revolutionary technologies they developed,” he said. “Following the combination, Qualcomm will be best positioned to build on its legacy of innovation and invention.”

But “building on its legacy” would be a lot different under a Broadcom regime, which traditionally is more short-term-focused than Qualcomm’s long-term philosophy, according to Patrick Moorhead, founder and president of Moor Insights & Strategy. Broadcom often looks to leverage M&A and short-term R&D to achieve fiscal returns on a quarterly basis. “There’s nothing inherently wrong with wanting to make a fast buck, but if companies do not invest in the future, it is a slow path to nothingness, particularly in tech,” Moor writes at Forbes.com.

Note that late last week, Tan stood next to President Donald Trump when it was announced that the semiconductor company would move its global headquarters from Singapore to the United States, a move that no doubt would help it accomplish the merger with U.S.-based Brocade Communications Systems and potentially this tie-up with Qualcomm, although analysts are saying the latter will face a tough time with regulators.

Some point to Qualcomm’s feud with Apple as a weak point for the semiconductor company, but that’s a ruse. “Qualcomm’s track record in resolving legal issues is in its favor and we have full confidence that Qualcomm will find a way to rest all its battles with Apple outside the courts,” write Strategy Analytics analysts Sravan Kundojjala and Stuart Robinson in a well-articulated blog post.

Beyond that, Apple’s position is weaker, Robinson told me. “It (Apple) doesn’t really have a leg to stand on,” he said, adding that it would be very short-sighted if Apple were to cut Qualcomm out of the supply chain next year; that would mean using an Intel modem in all its devices. Apple has already throttled the Qualcomm-based devices back so that it appears to perform at the same slower speed as the Intel-based chips. “If Apple went exclusively with Intel, they would be taking second best,” he said.

While Intel looks to be a big competitor in 5G, it has had a poor reputation in phones over the past several years. However, it's been doing a lot to get ahead in the automotive space, including with the acquisition of Mobileye. Still, I don't think combining Qualcomm with Broadcom would make for a stronger competitor in the connected car/autonomous car space. 

Qualcomm, which characteristically isn’t afraid to tout its prowess in 5G (and a heck of a lot of work in the standards bodies), is also heavily invested in the connected car space, spearheading a lot of the work around Cellular Vehicle to Everything (C-V2X), as well as IoT, smart cities, drones and artificial intelligence. “They’re pushing out their feelers in all sorts of new markets,” Robinson said.

The Strategy Analytics analysts point out another thing: Broadcom’s opportunistic offer looks like it’s acquiring a distressed company. The well-publicized legal battles with Apple and regulatory bodies in various geographies as well as its slow-moving acquisition of NXP have created a “perfect storm” that makes Qualcomm look vulnerable when it’s not.

“In reality we believe Qualcomm is not vulnerable as the company’s chip unit (QCT) has been performing well since Qualcomm’s strategic review on whether to split the chip unit and the licensing unit in 2015,” the analysts wrote. “QCT’s margins recovered well and its efforts to expand beyond smartphones have started to pay off. … Let’s not forget that QCT’s efforts to capture more value per smartphone with its broad portfolio (modem, apps processor, connectivity, RF 360 JV, sensors, etc.) have also started showing fruitful results.”

While it’s been getting a lot of negative press for its IPR tactics, there’s no denying Qualcomm has been an innovation powerhouse. It’s highly likely that pace will not be the same under a Broadcom management.

Few people probably remember when Qualcomm actually made phones, but I recall visiting Qualcomm’s campus in Boulder, Colorado, shortly after it announced a plan to transfer the CDMA phone division over to Ericsson in 1999. It struck me then that such a deal (which in comparison to this one was peanuts) would not win over employees: culture clash! This would be a big clash, and despite what Tan told the San Diego Union Tribune, there’s no guarantee all those 13,000 employees in San Diego would continue to be happily employed there.

It’s a bit disconcerting that Qualcomm didn’t stridently reject Broadcom's offer. Instead, it agreed that the Qualcomm Board of Directors will “assess the proposal in order to pursue the course of action that is in the best interest of Qualcomm shareholders.” Sure, companies must act responsibly and do what’s in the interest of shareholders, but really? Fine, do your due diligence, but please, snuff out this idea fast. — Monica | @fiercewrlsstech