'QualSoft' the next force in the mobile multimedia battle?

Original URL: https://www.theregister.com/2006/05/08/microsoft_qualcomm_alliance/

MS and Qualcomm join forces to challenge Nokia

Posted in Networks, 8th May 2006 11:47 GMT

Analysis Qualcomm's last major venture with Microsoft was Wireless Knowledge, a failed foray into mobile enterprise email that nevertheless highlighted the companies' ability to think ahead of major wireless trends.

The two giants' new collaboration is more ambitious and has far greater disruptive potential, offering a tightly integrated combination of Windows and CDMA or W-CDMA that does not only cut time to market for ODMs, but will produce the first 3G Windows smartphone and a strong multimedia device platform that could build a bridge to the mainstream PC and IPTV worlds for CDMA operators, and therefore strengthen their fixed/mobile convergence hands, while boosting Qualcomm’s already advanced multimedia content capabilities.

Microsoft may be the weakest of the high level operating systems in mobile phones, but it has huge power in other key convergence platforms such as home and portable media centers; and it brings a credibility boost to Qualcomm's bid to extend its reach beyond the warmth of its CDMA homeland - a boost that could, in future, stretch to support for the chipmaker in the brewing battle over OFDM broadband wireless platforms.

There are many complications in the way of any attempt to create a Wintel-style alliance for the next generation mobile world, a possible extension of the current handset and patents agreement.

One is how far Qualcomm's own software ambitions, enshrined in the Brew environment, will have to be adapted or subsumed to Microsoft; another is the relationship with Intel, Microsoft's most important partner and Qualcomm’s beête noir. Nonetheless, the two new allies have made an important first step in what could prove a major force in mobile multimedia, and a challenge to their mutual enemy, Nokia.

Qualcomm and Microsoft have a lot in common, and not just intense scrutiny by anti-trust authorities and huge market influence. They share some key strategic goals, notably leadership of the emerging mobile content and media industry, and control of the device architectures for this sector. They are both venturing out of markets where their dominant position is almost unchallengeable in to new waters where they face different and powerful competitors.

This means they also share several common enemies, most importantly Nokia. So, while the close alliance hinted at by last week's announcement of a smartphone collaboration may be seen in parts of the wireless industry as the gathering of the forces of darkness, it is also highly pragmatic and shows the two giants huddling together for warmth as they face increasingly critical challenges in the world of ubiquitous connectivity and mobile multimedia.

Microsoft is looking for a new familiar that can carry Windows into its chosen new markets, in the same way that Intel does in the PC world, but has largely failed to do in mobile media; and Qualcomm, beset by an unprecedented alliance of its opponents, will welcome a powerful new friend to strengthen its current CDMA platforms and even add credibility to its attempts to take a leading role in the next wireless generation, dominated by OFDM technologies.

The handset deal

So could Wintel morph, in the wireless world, into QualSoft?

Certainly, even a surface reading of the new agreements indicates that this is an important coupling, and that is without taking into account the likely extensions of this initial collaboration that will take place over the coming months and years.

Qualcomm will "share information" (and patents) about its CDMA and W-CDMA chipsets with Microsoft in order to support the rapid development of a Windows Mobile smartphone bases on these designs, with the first chipsets shipping in the second half of the year. The work will be centered on the Qualcomm Convergence Platform MSM 7xxx architecture.

This gives Microsoft a new chip partner for the Windows Mobile operating system and for its own smartphone architecture, which currently owes almost all its limited success to ODMS – notably Taiwan's HTC – making PDA/cellphone hybrids based on Intel silicon (Texas Instruments does support Windows Mobile but this combination has not been actively promoted).

The Qualcomm alliance means Microsoft could target the CDMA sector, and also produce a 3G Windows smartphone for WCDMA. Also likely to be attractive for Windows Mobile, whose stronghold is the traditional territory of the enterprise PDA, is Qualcomm’s advanced work on integrated chipsets supporting 3G and Wi-Fi.

Most tier one handset makers are suspicious of Microsoft, having seen its heavy handed treatment of its hardware partners in the PC world, and so the software giant is heavily reliant on white label handset manufacturers, such as HTC, and on creating designs that appeal directly to the operators.

In many ways, Qualcomm has the same approach in CDMA, regularly overcoming OEM wariness by winning operator support directly, because it understands what those carriers need to deliver to their consumers (the recent adoption by new customer O2 of its uiOne software platform is a prime example).

The creation of an end-to-end reference design that ticks plenty of operator boxes – familiar interface for the enterprise space, strong multimedia capabilities and so on – and provides quick time to market for handset ODMs, would strengthen both parties. Could it even, down the line, provide the basis for the much discussed entry of Microsoft into the hardware device market to take on Apple with its own branded mobile media products (a move given credence last month by an interview with CEO Steve Ballmer in German newspaper Die Welt)?

Targeting a converged world

However broad Microsoft’s portable device ambitions, it undoubtedly needs to strengthen its hand in mobile products beyond the traditional enterprise executive base, and to extend its progress in multimedia content on other platforms – PC-based media centres, IPTV and so on – to the wireless handhelds.

This is not just because, in numeric terms, these will represent the largest target market for its software within a few short years, but also because service providers will increasingly look to deliver the same content and interfaces across a variety of different networks and devices, from set-top boxes to smartphones, and will look to a unified software architecture across the board.

This is where Microsoft is vital to Qualcomm. On the surface, the initial deal between the companies looks like a PR boost for the chipmaker, but with more substantial significance for the software house. In the burgeoning world of convergence, though, all mobile-only specialists risk being consigned to a backwater when it comes to the plans of the large converged operators.

Mobile companies need to ensure their technologies are relevant to partners in the wireline and fixed worlds too, if they are to take part in plum contracts for end-to-end, multi-platform media systems – which will be the most attractive area of telecoms spending around the turn of the decade.

Nokia and Motorola have been busily expanding their activities in Wi-Fi, broadband and enterprise partnerships and other areas to, as Nokia puts it, turn the mobile handset into the key hub device for the whole converged experience. Mobile-only operators are looking to deliver fixed services or partner with wireline providers.

Among the chipmakers, Texas Instruments is highly advanced with a multimedia vision that spans the whole gamut of content platforms, and Intel, of course, is entering the mobile world with its feet already firmly on the other side of the fence.

Qualcomm, however, despite its dominance of the mobile 3G chipset world, has little influence on other media platforms. Microsoft brings it the option of a fully fledged operating system and content environment that could be unified with those of other, non-mobile devices to be part of a converged system.

Otherwise there is the risk that would-be quadruple play operators, and their integrators and vendors, will lose confidence in CDMA as part of a fixed/mobile system, since it will offer a mobile experience that is completely different to that on the fixed units. Or they will turn to phonemakers that are offering such a unified experience, but are not using Qualcomm chipsets – a wide range of choices in W-CDMA, and even in CDMA2000, there are devices from the Nokia/TI/Sanyo collaboration, a very black outcome for Qualcomm, which despite all its famous patents revenues, still has chip sales at the heart of its business.

And increasingly, the engineering excellence and execution effectiveness that do underpin its products are not enough. The chipmaker, as TI knows very well, has to offer a complete experience.

This, and the need for more sophisticated data and media functionality on phones, has brought PC-style operating systems and software architectures into the high end of the mobile world to replace the cut-down, proprietary OSs that run the bulk of cellphones. Symbian OS, Windows Mobile and mobile Linux are the main contenders in the GSM/GPRS and W-CDMA world, with Java J2ME and, just emerging, mobile Ajax the key unifying software environments.

In CDMA, though Java has gained ground as a software distribution platform, particularly since Qualcomm supported it in its own Brew software architecture, the classic OSs have been far less important, despite Nokia's launch of the first CDMA Symbian phone a year ago and some progress by Linux.

Microsoft may well see this as territory that is still open for grabs and where Windows will face less threat as the high level OS of choice. Nokia (now joined by Sanyo), the only major handset maker seeking to build a CDMA phone business without using Qualcomm chips, would naturally support Symbian and Java on its models, but its market share currently remains small.

For the other CDMA phonemakers, if Qualcomm does a good job of creating an optimized software environment for multimedia based on Windows, there would be little reason not to adopt it for high end models. This would give Qualcomm a high level software architecture at a stroke, and given Microsoft's need to make progress in this market, it would have greater influence over its partner – ironically, given the usual reasons to avoid working with the Redmond giant – than it could hope for in the fragmented world of mobile Linux or the Nokia-dominated Symbian platform.

All this would also serve to wrong foot the common enemy, Nokia. In the long term, the Finnish giant aims to usurp the position of the Microsoft- based laptop as the primary enterprise client, and it also seeks to reduce the power of Qualcomm in mobile networks, in order to reduce royalty payments on the CDMA giant's famous patents and cut the cost and therefore economic viability of 3G systems and beyond.

What about Intel and Brew?

There are two twists in this tale – Intel and Brew. Partnering with Microsoft makes good sense for Qualcomm – it offers the software house as much as it gets back in the mobile world, and its ogres are not Microsoft but Intel and Nokia/TI.

Microsoft too has reasons to put pressure on Nokia, and it does not need to worry too much about antagonizing TI, which is a pragmatic company that will support any technology that generates revenue for its advanced platforms.

But Intel is the company on whose architectures the bulk of Microsoft's base still depends, and – as Intel itself flirts with new partners, from Nokia to the WiMAX community – it has the power to put pressure on Microsoft as no other company can.

In their traditional markets, the two remain inextricable and inter-dependent, and neither will do anything to damage an alliance that has worked extraordinarily effectively. But as those markets become, gradually, a smaller percentage of the hi-tech whole, the Wintel coupling may prove, in newer sectors, a square peg in a round hole.

But the shift of both members towards new ecosystems and sometimes conflicting friendships will be as slow and fraught as that of any twin siblings seeking to make their own way in the world.

The other wrinkle is Qualcomm's own ambition as a software house. The chipmaker, like Nokia, has recognised that it can boost its margins and its overall control of its market by offering a complete environment, including software, to its customers, and that many of the factors that make a difference for operators, such as easily customisable user interfaces and over the air distribution/maintenance, lie in software – but software that can still deliver more effectively when integrated with and optimized for the hardware architecture.

The cornerstone of this strategy has been Brew, the content download platform, and Qualcomm has added significantly to this over the past year with acquisitions such as Trigenix and elata, which have contributed graphics rich, customisable user interface and multi-network content delivery capabilities.

Such moves have strengthened CDMA and extended the appeal of Brew to other platforms, notably W-CDMA, giving it an entry to previously closed markets such as Europe, as the O2 deal showed. In future, the same functionality can be adapted for other platforms such as dual mode cellular-Wi-Fi and OFDM-based networks.

Most recently, Qualcomm formed a venture with Chinese company TechFaith to enhance user interface techniques to market in China and elsewhere. The sticking point for the Brew family, as for other Qualcomm technologies, is that however functional they may be, they carry the burden of royalties – in Korea, for instance, the major cellcos, backed by the government research institute, created a Brew alternative, WIPI, to reduce their payments.

So in optimising Windows for its chipsets, will Qualcomm start to sideline its own Brew technologies in key emerging markets, or will we see some integration of the two over time, to strengthen the mobile aspects of the Microsoft platform? Not that a Windows-Brew convergence gets round the royalties question, of course, but it could broaden the mobile reach of both platforms and give them a leg up in the battle to dominate the keymarket for multimedia handsets and other devices.

The partners are already talking in terms of offering handset makers not just a reduced time to market for CDMA/Windows devices – by a factor of "weeks to months" over integrating the technologies themselves – but also supporting a range of media applications including mobile TV.

Future alliances and OFDM?

Which brings us to the thorniest issue for Qualcomm right now – how to maintain its powerful position in the wireless world once that world shifts steadily away from CDMA technologies and towards OFDM?

We have seen Qualcomm building up its own OFDM arsenal, to challenge the front runner in the field, WiMAX, and also kicking off the bid to assert intellectual property rights in WiMAX itself.

At this early stage, when there are no real products based on the mobile variant of WiMAX, 802.16e, this is largely a game of bluff and confidence. WiMAX appeals to some vendors and operators as a mobile platform that could potentially exclude Qualcomm from the game altogether; Qualcomm is determined to throw confusion and doubt over that view and dent confidence in 802.16e, while offering its own OFDM roadmap, based largely on the Flash OFDM technology it acquired with Flarion and its own FLO broadcasting system.

Support from Microsoft for these technologies would be a valuable confidence boost, regardless of any revenue it might generate. Microsoft, though enthusiastic about the impact Wi-Fi can have on the rate of PC upgrades and the adoption of other Windows devices, has not shown its hand on WiMAX at all, another sign of a divergence from the Intel path.

Microsoft support for a Qualcomm technology in this area, or licensing of its intellectual property, would be a huge boost in terms of market credibility, despite the fact that Microsoft’s influence on mobile equipment makers remains peripheral.

The most likely cooperation in this area, in the short term, may centre on the MediaFLO mobile broadcasting system. With Intel and Dell talking up TV to the laptop, and Microsoft fighting hard in the wireline IPTV space, broadcasting cannot be ignored and, as with MSN, Microsoft may seek its own channel to market rather than merely supporting mobile TV standards in Windows and its other platforms.

In that case, Qualcomm’s 700MHz MediaFLO broadcasting network in the US, combined with Windowsthat boast a unified interface with PC and IPTV systems, could be a strong option for the US market.

Much of this is speculative at this stage, and the partnership of two powerful companies that are under unprecedented pressure can be seen either as a strong response to threat or an alliance of desperation. But even before we consider next generation technologies, the combination of Windows and CDMA will provide phonemakers and operators in the CDMA sector with a new bridge to the convergence mainstream, and offer an influential combination for the emerging mobile multimedia market.

The ball is now firmly back in Nokia's court.

Other Qualcomm developments

Also last week, Qualcomm claimed the first commercial chipset supporting HSUPA (High Speed Uplink Packet Access), an extension of the W-CDMA standard that speeds upload data rates and should be deployed by 3G operators in 2007 onwards.

The MSM7200 chipset is targeted at low latency applications such as multiuser gaming, push to share and VoIP and supports the Multimedia Broadcast Multicast service (MBMS), the standard for television over 3G networks.

The MSM7200 offers downlink speeds up to 7.2Mbps and 5.76Mbps on the uplink, says Qualcomm, and so competes with wireline broadband speeds. The new chipset is part of Qualcomm’s Convergence Platform of dual-core solutions, aimed at advanced multimedia applications.

At the other end of the handset scale, and seeking to counter perceptions that CDMA is a high cost solution because of the patents costs, CEO Paul Jacobs told last week's analyst day that CDMA phones are winning in low cost markets like India, even in the sub-$50 category.

Indeed, the chipmaker raised its third quarter earnings forecasts last week largely on the basis of better than expected sales of low end models, saying the company's per-share earnings should range between 38 cents and 40 cents, up from an earlier estimate of 36 cents to 38 cents. Revenue should meet or exceed the high end of earlier guidance of $1.77bn-$1.87bn.

While the GSM Association’s Ultra Low Cost Handset programme has focused on the economies of scale that the huge GSM market enjoys, its counterpart, the CDMA Development Group, argues that aggregating the features and options so that manufacturers only have to build to one particular core design is the key to low cost handsets.

In 2005, the bill of materials cost for a low end handset was about $39, according to IC Insights, and phonemakers believe they can get that below $25 this year.

Also at the analyst day, president Steve Altman said a settlement is "likely" in the company's ongoing royalties dispute with Nokia, which has joined five other mobile manufacturers in filing anti-trust complaints with the European Commission.

Earlier in the week, CEO Paul Jacobs described ongoing license agreement negotiations with Nokia, which the company had previously warned could hit difficulties, as the most significant challenge facing the company in the coming months. The agreement expires in April 2007.

Flarion patents

Qualcomm’s recent statements have been designed to convince the markets that it has a strong patents hoard in OFDM, and one that is likely to impact on WiMAX.

The latest strike comes in the shape of a $205m payment to former shareholders in Flarion, which Qualcomm acquired for its OFDM technologies in January for $600m, already a high price for a start-up whose revenues were estimated at less than 5% of that figure.

At the time, a further $200m was built into the acquisition deal based on future performance, and this pay-out has now been triggered by the issuance of new patents to Flarion.

"The rapid issuance of these patents is yet another indicator of Flarion's strength as an OFDMA innovator and further enhances Qualcomm's leadership position in the wireless industry," Qualcomm president Steven Altman said in a statement.

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