Qualcomm

In this episode, hosts Ben Gilbert and David Rosenthal, along with guest David Mock, author of "The Qualcomm Equation," delve into the remarkable story of Qualcomm, a company that pioneered the wireless industry with its innovative CDMA technology and strategic patenting. Qualcomm's journey from government contracting to becoming the world's largest fabless semiconductor company is marked by a series of strategic decisions, including the creation of joint ventures with Sony and Nortel, the significant role of patents and licensing, and the pivotal moment when the US government allowed Qualcomm's CDMA to become a second standard. Despite facing lawsuits and competition, Qualcomm's foresight in Moore's law and the industry's evolution allowed it to dominate the market, with its stock soaring by 2621% in the year 2000. The episode also touches on Qualcomm's current challenges and opportunities as it navigates a landscape with emerging competitors and new markets like IoT and automotive.

• David Rosenthal experiences professional camera equipment on-site.
• Ben Gilbert sets the stage for the podcast episode.
• David and Ben introduce themselves and their professional backgrounds.

"I walked in, and the first thing I saw was the bottom of the big crane boom arm with the weights. And I was like, why are there olympic weights here? And then I was like, oh, because we've got a professional boom arm camera. This is amazing." "I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures." "And I'm David Rosenthal. And I am an angel investor, based in San Francisco."

The quotes establish the professional setting and the hosts' credentials. David is impressed by the professional filming setup, while Ben and David introduce themselves and their roles in the tech industry.

• Electromagnetic signals travel at light speed and can carry invisible messages.
• Visible light, X-rays, and gamma rays are part of the electromagnetic spectrum.
• Some frequencies are undetectable by humans and harmless at modest doses.

"There's an incredible property of the universe where electromagnetic signals can be broadcast and travel through space at the speed of light to be received at a different point in the universe."

This quote explains the fundamental nature of electromagnetic signals and their ability to transmit information across space.

• Qualcomm's history and strategy are the focus of the episode.
• The company is responsible for advancements in how wireless systems work today.
• Qualcomm is compared to other tech giants like Nvidia and TSMC.

"The company most responsible for the mind-bending system of how it all works today is Qualcomm."

The quote highlights Qualcomm's significant role in developing the current wireless communication systems, setting the stage for an in-depth discussion on the company's contributions.

• The episode was recorded live in Lisbon, hosted by the Solana Foundation.
• The hosts express gratitude to the Solana Foundation and Austin Federa.
• They acknowledge the book "The Qualcomm Equation" by Dave Mock as a key resource.

"Our huge thank you to the Solana Foundation for hosting us at Solana Breakpoint."

The quote reflects the hosts' appreciation for the opportunity to record the episode live and the support received from the Solana Foundation.

• Pilot is a comprehensive financial service for startups and growth companies.
• Pilot is now the largest startup-focused accounting firm in the US.
• Jeff Bezos is among the backers of Pilot.

"Pilot both sets up and operates your company's entire financial stack."

The quote describes Pilot's services, emphasizing the company's role in managing financial operations for startups, which is relevant for the podcast's entrepreneurial audience.

• The hosts invite listeners to join discussions on the Acquired FM Slack community.
• They issue a disclaimer that the podcast is for information and entertainment only.

"After this episode, come talk about it with us. There are 13,000 other smart, kind people in the slack acquired FM Slack."

The quote encourages listener engagement and community building, promoting the podcast's interactive platform.

• Hetty Lamar's background and escape from Austria during World War II.
• Lamar's invention of frequency hopping and spread spectrum technology.
• The technology was patented but remained classified until 1981.

"They develop a novel technique to defeat RF frequency jamming by using frequency hopping."

The quote explains Lamar's contribution to wireless communication technology, which is a precursor to modern spread spectrum techniques.

• Claude Shannon's work on code-breaking and development of information theory.
• Shannon's influence on digital communication and the invention of the bit.
• Shannon's theorem sets theoretical limits on signal transmission through a medium.

"A mathematical theory of communication, which defines a bit. The new field of information theory ushers in the digital era for the world."

The quote summarizes Shannon's pivotal role in establishing the foundation for digital communication and information theory.

• Erwin Jacobs' academic journey from hotel management to electrical engineering.
• Jacobs' influence from Claude Shannon and his work on digital communications.
• Jacobs' role in starting Linkabit and his eventual founding of Qualcomm.

"He and his family move out to UCSD. And while he's out there, he continues doing his contracting work with defense contractors and JPL and the US space program."

The quote connects Jacobs' academic background and professional work to his eventual role in the founding of Qualcomm.

• Linkabit's formation to manage consulting work for defense and space programs.
• The company's shift from consulting to bidding on contracts and developing products.
• Linkabit's first commercial project was developing a satellite communication system for Walmart.

"Linkabit's first project is doing the satellite communication system for Walmart."

The quote reveals an unexpected connection between Linkabit, a company associated with advanced communications, and Walmart's early adoption of satellite technology.

• Linkabit was a successful business with a growing employee base.
• The company was sold to Macom, which David Rosenthal believes was a mistake.
• Selling Linkabit, however, led to the formation of Qualcomm.
• After a leadership change at Macom, the founders left and decided to pursue new opportunities in the emerging wireless communications industry.
• The cellular telephone industry was in its infancy in 1985, operating on analog 1G technology.

"They made absolutely the right decision in selling Linkabit then."

The sale of Linkabit was pivotal as it led to the creation of Qualcomm, a decision that, in hindsight, was the right move given the opportunities it opened up in the wireless industry.

• The early cellular industry was based on analog technology with limited bandwidth.
• Consumer demand for car phones was high despite the limitations and costs.
• The cellular infrastructure was based on the concept of cell towers to facilitate local communication.
• The idea of "cellularification" was innovative at the time.

"Cellular had just been an innovation... we were actually going to put cell towers so that you only needed to communicate with your local tower and that could be relayed."

The quote highlights the innovative step from long-distance communication to a localized cellular approach, which was a significant advancement in the industry.

• The founders of Qualcomm were both brilliant academics and astute business analysts.
• They anticipated the potential of the cellular market and had the technical expertise to innovate.
• The initial cellular technology required significant power and had limited bandwidth.
• There was a clear demand for improvement in the cellular communication industry.

"They are first-rate academics... but they're also, especially Irwin, like incredible business people, market analysts."

The founders' combination of academic brilliance and business acumen positioned them well to identify and capitalize on opportunities in the cellular market.

• Qualcomm was founded in July 1985 by seven individuals, including Irwin Jacobs.
• The name "Qualcomm" stands for "Quality Communications."
• The company initially bootstrapped by doing consulting work, similar to Linkabit's beginnings.

"They name it Qualcomm Quality Communications, which is short for quality communications."

The name reflects the company's commitment to delivering high-quality communications solutions, which was a core aspect of their strategy.

• Building a cellular network required significant capital expenditure and diverse competencies.
• The industry involved complex considerations, including real estate, technical protocols, and consumer marketing.
• Qualcomm had to decide how much of the industry they wanted to tackle directly.

"There's a way to sort of like bite and try and eat the whole elephant here."

This metaphor captures the enormity of the task Qualcomm faced in establishing a presence in the cellular network industry and the strategic decisions they had to make.

• Qualcomm's entry into the market is considered one of the most brilliant strategic executions ever.
• The success of Qualcomm was highly improbable due to the numerous challenges and dependencies.
• Despite the odds, Qualcomm became a dominant force in the industry.

"It is one of the most brilliant strategic executions of entering a market period writ large, ever."

The quote emphasizes the exceptional strategic approach Qualcomm took in entering and succeeding in the competitive telecommunications market.

• Qualcomm's initial strategy involved consulting work to bootstrap the company.
• They worked on proposals for mobile satellite networks, learning about consumer mobile telephony along the way.
• One of their first consulting projects was with Hughes on a proposal for a mobile satellite network.

"So they stay with Maccom for five years and then there's a leadership change at Macom."

This quote marks the transition from the founders' time at Macom to the founding of Qualcomm and the strategic decisions made in the early days of the new company.

• Qualcomm developed CDMA (Code Division Multiple Access) technology and patented it in 1986.
• CDMA allowed for more efficient use of communication channels, enabling multiple conversations on the same channel.
• The technology was initially thought to be impractical due to processing power requirements, but Moore's law made it feasible.

"They developed this, and they freaking patent it in 1986."

The patenting of CDMA technology was a strategic move that secured Qualcomm's position in the market and laid the foundation for future success.

• Qualcomm merged with Omninet and launched Omnitrax, a product to connect commercial trucks to distribution centers.
• The product was successful, generating significant revenue in its first year.
• The business growth allowed Qualcomm to pursue the development of CDMA technology for cellular networks.

"They raise $3.5 million in funding. As part of that, they bring the product to market at the end of 1988, as Omnitrax."

The funding and successful product launch provided the financial stability and business foundation for Qualcomm to advance its core technology in the cellular industry.

• The U.S. cellular industry was transitioning from analog 1G to digital 2G networks.
• The performance requirements for 2G networks were such that TDMA, the leading technology at the time, would not meet the specifications.
• Qualcomm's CDMA technology was well-positioned to meet and exceed the new performance requirements.

"The US cellular Telecommunications Industry association, or CTIA... released performance requirements for the planned upgrade of the US's cellular networks from the analog one g networks to the new digital 2g networks."

This quote highlights the industry shift that created an opportunity for Qualcomm's CDMA technology to become the standard for the next generation of cellular networks.

• In Europe, standards such as TDMA were mandatory for mobile carriers.
• In the US, standards were recommended but not enforced, allowing carriers to choose alternative technologies if they met performance specifications.
• Qualcomm confirmed with Washington that carriers could use different technologies as long as they met the required specs.

"So in Europe it was like mandatory like the TDMA, which DSM was based on, mandatory. That's it. And plenty of other countries mandatory in the US is like, this is the industry standard and we recommend that any mobile carrier follows it. But if you want to do your own thing, as long as it meets the performance spec, you can use whatever technology you want."

The quote highlights the difference in regulatory approaches between Europe and the US regarding mobile technology standards, with Europe enforcing mandatory standards and the US allowing more flexibility.

• Standards bodies are separate from government agencies and consist of industry members.
• They are necessary for coordination among manufacturers, carriers, and companies to foster innovation.
• Without standards, there would be confusion and less effective collaboration in the industry.

"And importantly, standards bodies are decoupled from government agencies. So the FCC allocates spectrum. But these standards bodies are literally just industry."

This quote emphasizes that while government agencies like the FCC allocate spectrum, standards bodies are purely industry-driven and play a crucial role in setting industry standards.

• Qualcomm was confident in CDMA technology based on their experience, despite it not being the industry standard.
• They believed in the economic advantages and benefits of CDMA over TDMA, such as better voice quality and cost efficiency.
• Qualcomm's strategy included obtaining confirmation on the legality of their approach and pitching CDMA to individual carriers.

"They're totally undaunted they go and they're like, great. We can go pitch individual carriers on using CDMA as a technology."

The quote shows Qualcomm's undeterred approach to promoting CDMA, despite it not being the mandated standard, and their strategy to individually pitch carriers on its benefits.

• CDMA offered significant economic benefits, such as allowing carriers to fit more subscribers per unit of infrastructure.
• Qualcomm pitched the technology's efficiency, claiming it was 3 to 5 times more efficient than TDMA.
• This efficiency translated to a scale advantage and higher profit margins for carriers adopting CDMA.

"This is the thing. So there's one benefit that actually matters. All the others are nice to have on a feature spec, there's one benefit that is going to allow them to be super sure they're going to win, which is that it is like an order of three to five x more efficient to operate."

The quote explains the key economic benefit of CDMA that Qualcomm believed would ensure its success: the ability to operate more efficiently, leading to a competitive advantage for carriers using the technology.

• CDMA faced skepticism due to technical challenges, such as the near-far interference problem.
• Qualcomm had to develop solutions for power management and real-time adjustments based on signal strength.
• They incorporated GPS technology to determine the distance of a phone from the cell tower, which was groundbreaking at the time.

"In real time, you're going to modify a signal based on what you're currently hearing from that signal."

This quote captures the skepticism around Qualcomm's ability to manage signal strength in real-time, a technical challenge they overcame with innovative solutions.

• Qualcomm patented every aspect of CDMA technology, creating a valuable intellectual property portfolio.
• They successfully demonstrated CDMA technology to carriers, starting with a prototype funded by Pactel Wireless.
• Demonstrations in challenging environments like New York City proved CDMA's capabilities and led to more carrier partnerships.

"They patent every single piece of this. Every single piece. Unreal."

The quote highlights the extensive patenting strategy Qualcomm employed to protect their CDMA technology, ensuring control over its intellectual property.

• Qualcomm expanded internationally, pitching CDMA as the best technology in countries with no existing mobile networks.
• South Korea adopted CDMA as a government-mandated standard, becoming a significant source of revenue for Qualcomm.
• Qualcomm went public in December 1991, raising capital to further their business goals.

"South Korea for a time was, I think, close to 40% of Qualcomm's revenues because the whole country, and it was one of the most advanced mobile countries, all just using Qualcomm."

The quote illustrates the impact of Qualcomm's international expansion, particularly in South Korea, where government support for CDMA resulted in substantial revenue for the company.

• Carriers faced the challenge of replacing existing infrastructure and handsets to adopt CDMA.
• Qualcomm responded by creating joint ventures with companies like Sony and Nortel to provide a complete CDMA solution.
• They raised significant capital through public offerings to support the development of infrastructure, handsets, and semiconductor technology.

"Yep, yep, and, yep, we make all that."

This quote reflects Qualcomm's assurance to carriers that they could provide every component needed for a CDMA network, from infrastructure to handsets.

• Qualcomm's decision to design their own chips was pivotal for their success.
• They became the largest fabless semiconductor company in the world, capitalizing on the rise of fabless manufacturing.
• The semiconductor business became a major revenue driver, accounting for a significant portion of Qualcomm's total revenue.

"Today Qualcomm's total revenue is what, close to 40 billion annually, I think. Of which 85% is their semiconductor business."

The quote highlights the importance of the semiconductor business to Qualcomm's overall revenue, demonstrating the success of their strategic decision to enter chip design.

• Qualcomm's market dominance as a smartphone modem supplier led to antitrust lawsuits by the US Federal Trade Commission and Apple.
• Apple's lawsuit against Qualcomm was based on the allegation of excessive licensing fees and leveraging patents to maintain market dominance.
• Qualcomm's patents on standard technologies allowed them to charge manufacturers for using their tech, resulting in significant revenue.
• Apple settled with Qualcomm in 2019, agreeing to continue using Qualcomm's radios and securing patent licenses for six years.

"Both the US Federal Trade Commission and Apple sue Qualcomm for basically the same thing, saying that Qualcomm was using its market position as the dominant smartphone modem supplier to force manufacturers into paying excessive fees."

This quote summarizes the core issue leading to the lawsuits against Qualcomm, highlighting the conflict over Qualcomm's licensing practices and market power.

"Apple could make up up to one third of Qualcomm's handset chip revenue."

This quote emphasizes the financial significance of Apple's business to Qualcomm, illustrating the dependency on a major customer like Apple.

"Qualcomm asked Apple to speak out against WiMAX, which is a competing technology."

This quote reveals Qualcomm's strategic moves to maintain its market position by influencing partners like Apple to publicly oppose competing technologies.

• Qualcomm charged Apple $7.50 per iPhone sold, translating to about $2 billion a year in patent royalties.
• The company also planned to raise prices, which would have increased the licensing cost to $17 per phone.
• Qualcomm's baseband chips, also known as cellular modems, had a "rack rate" of $30 but were actually priced at 5% of the average selling phone price.
• Apple's negotiations during the lawsuit revealed they were paying between $10 to $18 per chip to Qualcomm.
• Apple's use of Intel modems during the iPhone XS and XR era was due to the legal conflict but resulted in performance issues, leading to a settlement with Qualcomm.

"They asked Apple for $7.50 per phone sold, which comes to about $2 billion a year, plus an additional eight to ten when they were going to raise prices later."

This quote details the financial terms of Qualcomm's licensing agreement with Apple and the substantial revenue it generated for Qualcomm.

"Apple does use Qualcomm cellular modems, which started in 2011. And there was just one year where they used Intel."

This quote highlights Apple's reliance on Qualcomm for cellular modems, except for a brief period when they switched to Intel due to the ongoing legal disputes.

• Qualcomm's acquisition of Nuvia for $1.4 billion is aimed at entering the laptop CPU and system on a chip market.
• Nuvia's founding team includes former Apple Silicon engineers, positioning Qualcomm to compete with Apple's M series chips.
• Qualcomm's focus is shifting towards IoT, automotive, and RF front end markets as potential growth areas.
• The company anticipates almost $0 revenue from Apple in the future as Apple develops its own cellular modems.
• Qualcomm's CEO Cristiano Aman has outlined a vision for the company that includes a multi-hundred billion dollar opportunity in new technology sectors.

"Qualcomm is that they think Apple is going to succeed at this. It's just going to take a couple of years."

This quote suggests Qualcomm's awareness of Apple's ambitions to develop its own modem technology and the potential impact on Qualcomm's future revenue from Apple.

"Nuvia was founded by former Apple Silicon people, including the chief architect of the A series chips."

This quote explains the strategic importance of Nuvia's acquisition, bringing in expertise to help Qualcomm compete in new markets and with industry leaders like Apple.

• Qualcomm has a market cap of $120 billion, which is the same as during the peak of the .com bubble.
• The company is the largest fabless semiconductor company by revenue but has a lower market cap compared to competitors like Nvidia.
• Qualcomm's revenue is primarily from chips ($37 billion), with licensing fees ($7 billion) being a higher margin business.
• The company's growth is attributed to its ability to capitalize on mobile technology and its IP licensing model.

"Qualcomm today has a $120,000,000,000 market cap, which two things, one, that's astonishing, that's impressive."

This quote acknowledges Qualcomm's impressive market valuation and its success as a technology pioneer.

"They're the largest fabless semiconductor company in the world. Bigger than Nvidia, but a way lower market cap than Nvidia."

This quote compares Qualcomm's position in the semiconductor industry to that of Nvidia, noting the discrepancy in market cap despite Qualcomm's larger revenue.