Qualcomm: Interview with a cellular vampire
A trace of humanity now?
Analysis The 1976 Anne Rice novel Interview with the Vampire which showed the a sympathetic and softer side of the vampire and which uncovered both the mind-numbing ennui of being immortal and the complete lack of a sense of belonging, and other disadvantages to being uniquely powerful and yet disliked, was the first image that struck us while listening to Qualcomm’s analyst relations conference the week before we took our summer break.
For years Qualcomm has been portayed as the industry pariah, due largely to its “triple” charged royalties and its headstrong invasion of the “cosy” European dominated GSM and UMTS hegemony.
CEO Paul Jacobs, in his opening address to the collected mass ranks of US and European analysts, turned this image on its head – expressing his “palpable relief” that the Nokia patents dispute had been resolved – and on terms that will not wreck the greater part of Qualcomm’s profits – those through royalty payments, and talked about having been smashed around for the past three years, and that now that it was over, the settlement driving huge positive momentum for his company.
The deal brokered with Nokia came after 40 straight hours huddled in a single room, constantly negotiating, and resulted in a deal couched in terms such that “if all our customers have the same terms as Nokia, Qualcomm would be very happy.”
So the dire warning that once Nokia had pushed back the barriers, then all other handset makers would be on the phone asking for their equivalent rebate, may have been wide of the mark. And given that only a few of the royalty deals that Qualcomm has with the rest of the world are due for renewal shortly, the pressure on the US chip designer’s margins appears to have evaporated except for the same kind of battle it still has with Broadcom.
Departing COO Sajay Jha, who announced his intention to take the CEO job at Motorola’s handset division the day after the conference, said of the suit: “The judge in the Nokia dispute set an artificial deadline and would not allow the start of the trial to move back any further, maybe the same will happen to trigger a settlement in the Broadcom suit.”
Multiple decision trees
Jacobs added: “We are not quite so worried about that action since we have workarounds for the Broadcom patents which are already in chips, and that give us negotiating leverage. We have worked through multiple decision trees on the outcomes of that legal action and although we’d like to see it resolved, whichever way its goes it will not have as great an effect as the Nokia action.”
So somehow, magically, Qualcomm has gone from a company that charges chip makers, handset designers and equipment manufacturers multiple layers of repetitive royalties, into a company that has brought its royalty practises into line, and done it without creating a hole in its future income statements, something it has been intimating to Wall Street that it thought was possible for some time.
The exact price of the Nokia settlement will come out in time, as the royalty numbers for subsequent quarters are analyzed, but the surge in chip revenues for Qualcomm leaves us with the impression that any shortfall will be swallowed up by 3G and HSPA chip shipment rises and specifically chip sales that are now possible to Nokia. Previously Qualcomm had been effectively banned from 40 per cent of the handset market, and while it has no orders yet from Nokia, speakers heavily implied that all of the barriers in the way of building chips for Nokia handsets and even Symbian devices, had now been removed.
This has been the market’s view of the world for the past year, that shareholder opinion counted too much for both of these companies and that they would not go down the costly litigious route and that they would merely play brinkmanship up until the trial date.
But from the vampire’s point of view this has been a sweaty time, and the jubilance of each individual there – despite the settlement being largely seen as a draw – shows that it had previously anticipated a savage defeat and having avoided it, the company is ready to embark on a period of sustained innovation and prosperity.
For the next two days Qualcomm then reminded us why it is perceived as the leader in dealing with multiple spectrum effects and embroidered a complex and rich series of messages, complete with technical hurdles, likely answers, and the spreading of the vampire’s cloak to envelop multiple surrounding domains.
Intel can begin to worry with the Gobi  software-defined radio offering PC makers ways of talking to any kind of cellular network, in a single chip, with wins at Lenovo, HP, Dell and Panasonic. And it can worry some more as the Qualcomm Snapdragon processor begins to roll out into multiple devices, with Qualcomm claiming some 30 design wins on new types of devices which will emerge over the coming months, into the first quarter of next year.
Apple can begin to worry as Qualcomm chipsets emerge that make it far easier to produce a touch screen handset with the quality of graphics that the iPhone has. And Nokia, although no longer in legal dispute, will be keeping an eye on the huge range of services, especially payment, wallet, and location and mapping services that Qualcomm is investing in, at the chip level and above, along with a rival for its now promising Widsets widget platform.
If anything there is the feeling that Qualcomm is broadening its horizons a little too much, but the emphasis is always on services or device types that will drive chip sales. So in a way, Qualcomm is always sticking to its knitting, which increasingly is making any kind of chip with radios on it.
One issue that Jacobs dealt with, and which later the CTO, Dr Roberto Padovani, touched upon, was the idea that Shannon’s Law , which governs the amount of data that can theoretically be delivered over a digital radio signal, has more or less been reached. And that from now on, there will be little point in trying to send more total data over any given radio connection. So in order to drive the mobile internet, and fuel the mobile data revolution, networks must be built differently.
The current architectures that will drive base stations closer together, for instance over femtocell base stations, usually rely on one piece of spectrum for the femtocells and another for macro and pico cells, due to interference concerns. Instead, these interference issues need to be solved, and the entire spectrum used dynamically across all base stations in a network, using dynamic interference management (which is now in its infancy). In this way Jacobs and Padovani outlined the technical wars that the Qualcomm engineers are fighting with adversaries such as Texas Instruments, STMicro and Broadcom over the next five to ten years.
But with that solution Jacobs promised cellular penetrations of 300 per cent of a given country’s population and with the addition of machine to machine devices, billions more opportunities for newer, innovative, cheap cellular chips in the near future.
One example of machine to machine communication was the Amazon Kindle electronic bookreader, which is believed to have shipped around 350,000 devices since it launched earlier this year. The Kindle delivers books using Sprint’s cellular network, as 500 KB files, taking just a few moments to arrive.
The cellular download cost is added to the price of the book and the customer has no idea of how the book arrived, it just does, and Qualcomm says that for this amount of data, cellular networks are by far the most efficient method of delivery, cheaper than driving books round in a truck. MP3 players and portable media players which use similar systems will follow, Qualcomm confidently predicts, and each device needs a cellular chip, in Kindle’s case a Qualcomm CDMA chip.
Machine to machine applications can be thought up for any type of data transfer for a specialized function – there is a Motorola device which is a mobile TV player, but which has a cellular chip in it purely for software downloads and DRM key updates. There are monitoring devices which use the cellular network simply to report back how many miles a driver completes, or the location of a lost PC (with a GPS chip in it) or a lost cargo in the same way.
That rivalry we referred to with Apple was delivered by Jha with nothing but praise for the Apple iPhone design, “The power consumption on 3D graphics has to come down,” he said. “The Apple iPhone display pipeline and graphics are deeply integrated and we need to do the same on a single chip, to empower other devices to have the same kind of graphics capability. It is not a trivial problem. When a handset is rendering a web page, it has to deal with six or seven different media types, served from 10 or 12 different servers. The iPhone has done a good job of this, but Qualcomm thinks it can do a better one at the chip level.”
Up to, but not including, a laptop
Jha went on to talk about the new types of devices that Qualcomm can now consider driving, which effectively is everything up to, but not including a laptop. “We are working with Android, Linux and Windows, and in the future we might work with Symbian and we have started to look at a lot of device designs which use a 4 inch to 12 inch screen.”
Jha called these Pocket (or pocketable) Computing Devices (PCDs) instead of the Intel Atom acronym of Ultra Mobile Personal Computers (UMPCs) or Nokia’s Mobile Internet Devices (MIDs), but they are essentially the same. The Qualcomm watchwords are “always on, and always connected,” looking forward to a new genre of devices which can operate on one battery charge for an eight-hour working day, where a cellular connection always makes the internet available.
Qualcomm earlier this year showed two such devices, Fairbanks and Anchorage. The Fairbanks has 16GB of storage bundled, offers MediaFLO TV, GPS and a 3 MP camera and is in essence a portable media player. We have a problem with a device which doesn’t allow the basic applications of word processing, email, spreadsheets and presentations alongside these qualities, because otherwise it is only a leisure device.
But the “Anchorage” is a Snapdragon with a 1.0 GHz processor which operates at just 500 milliWatts when in portable mode, and which also has WiFi, Bluetooth, GPS, and a cellular connection and a qwerty keyboard. This is just like the Nokia N810, except it is also a phone.
Later the Snapdragon will move multicore with a quad CPU chip, and will offer one core working when in mobile mode, with the rest cutting in once the device is docked. In that mode it will be able to drive a big TV screen at 1080p encode or decode. Qualcomm says the idea is that these devices will be sold by operators, which might subsidize the device itself, which has a low Bill of Materials, and then sell extras such as docking stations.
“The Snapdragon is at 500 milliWatts now and will go to 300 milliWatts once we do the design in 45 nm,” said Jha. “We believe that when these devices ship you will be able to source 16GB of storage for around $30,” he added.
In the end this is a serious bid to stay the right side of operator buying power and set up a counter bid for the general purpose cpu designs of Intel, when it is NOT being used as a full PC. Qualcomm made it clear that if Intel genuinely wanted to attack the portability problem from a power consumption point of view, then it would be successful, but that so far it had remained more committed to getting more processing power. “Intel’s heritage is best performance, and ours is low power, we have a longer history of doing this than Intel,” Jha said.
These form factors are about throwing mud at a wall and seeing what sticks. The PC is unassailable, and the handset market will eventually eat up the MP3 player market – will there ever really be a device that sits between the handset and the PC? Well to a certain extent there already is – the BlackBerry. And although this is defined merely as a handset that does email, then similarly a handset which does email but also allows you to download and view attachments, lets you work on the internet all day, tells you where you are, acts as a phone or a Skype phone and still fits in your pocket, sounds fairly compelling. Even if it also sounds just like a phone – but better.
If this attack is aimed at anyone other than Intel, then it is the application processing power on handset devices, so far dominated by Texas Instruments.
But then Len Lauer – who has since taken Jha’s position as COO, before that at Sprint, and most recently EVP and group president in charge of Qualcomm’s services - talked about the shift at Qualcomm towards services. "How can a chip company offer services?" you may ask, but Qualcomm has given this some imagination and talks about enabling every type of service from news delivery to games and from advertising to social networking, and Lauer’s view is that software components laid on top of the chip architecture – but underneath actual applications, which you might call service enablers – is the sweet spot for Qualcomm.
Lauer counts seven separate service-enabling platforms already in the Qualcomm camp in MediaFLO: Its Xiam profiling and recommendation engine, the Firethorn Mobile wallet, the well established Brew application delivery platform, its new Plaza 2 widget management tool, its GPSOne nGeo location systems and its QES mobile data management stack that is the guts of Kindle, and telemedicine systems it’s working on, as well as transportation and construction services which it has offered in the US for a few years now.
At first pass this looks like a mishmash of inventions and acquisitions which are being pushed and pulled into a strategy, but the company has already found some synergies. For instance the Xiam recommendation engine can pick the right adverts to show to mobile TV customers. Our point was that this is far more powerful when not attached to the MediaFLO mobile TV system, but free to work with ISDB-T or DVB-H or any other system, and Qualcomm would not rule this out, but will first and foremost integrate it with MediaFLO.
Of course Qualcomm rightly points out that MediaFLO is not just a mobile TV platform, it is a data casting service so that data (and adverts) can be pushed to devices which may go with a TV program. This could be a pitcher’s statistics, or a list of survey questions or a coupon, and this can then be highlighted by the Xiam engine. Link this to the Firethorn electronic wallet which already works with five of the top US banks and the two top cellular operators in the US in Verizon and AT&T, and suddenly you have a system to keep coupons and offers, and a payment mechanism which itself can find uses for the Xiam recommendation software.
Firethorn gives a mobile user a way to grab an online offer the moment he sees it, as well as offering an online banking system, a way of transferring mobile gift certificates and a way of holding transport tickets – all of which can work with near field communication system when these become widespread in the next two to three years.
We suspect that Qualcomm should not try to become a services play overnight. But as long it will make it easier to buy into Qualcomm chips, so long as it -
- Tries to integrate these building blocks into a single set of tools
- Continues to support these service enablers from the chip level up, bringing solid integration
- Asks itself first “can an operator use this service” rather than a consumer, so that it stays true to its existing fan base.
So once you get to know it, is the vampire any more “human” than before his interview? This all depends on just how firmly into its past these royalty squabbles have gone. If Nokia and Broadcom are the only two to get some change out of battling Qualcomm, then the intellectual property issues that have dogged cellular for the past 15 years or so may take a back seat.
That could leave a new Qualcomm, more sure of its chip design heritage than ever, pushing on with service creation technologies, and mounting a challenge on the world’s basic device building blocks. It will also mean a classically US company has begun the task of integrating with the rest of the globe, having gone some way towards accommodating the powerful European forces in mobile. And after all, as everyone knows, the vampire originally came from Europe anyway.
Copyright © 2008, Faultline 
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