QualComm - a case study.

Friday, May 4, 2007

The previous report talked about the service provider's sway over the industry and hinted on the interplay with the other players, especially the chip and platform vendors. Let us take a deeper peek into this interaction in an attempt to try and understand the impact the manufacturers have in bringing the best of technology to us. This is best done with an example, and who better to investigate than QualComm.

QualComm, as I fondly mention to everyone, is the Microsoft of EE. It is a success story like no other's in wireless. It is Quality Communications at its best! QualComm is the company that perhaps has the biggest love-hate relationship with the wireless industry. They all love their technical leadership, but then hate their guts. The "Cool-ade" that QualComm offers to the CDMA service providers is unparalleled. Why else does Sprint have most of its phones with QualComm chips? They have the best chips out there, but then they have a better service and support capability. They have excellent market intelligence too to stay ahead of the competition. For example, they provide so many extra features that make the phone manufacturer's life so much simpler and of course the purchase choice easier. Besides, just the sheer engineering excellence makes all other chipsets a no-go. If that is not all, they also have the basic patents for CDMA earning them enough royalty that can keep their research program ahead of others. These factors imply market dominance and this is reflected in the fact that they have 95% of the CDMA market share.

It is also true that though there are basic requirements being put out by the service providers, the chip vendors strive to provide more than what is asked for. This raises the bar for small players and vendors whose margin comes from manufacturing excellence as against engineering and design leadership. Besides, this also ensures exclusivity in a lot of cases. I can't imagine the phone manufacturers creating a different platform for different vendors because they support different features. It is likely that they build a single test platform that would support the best chip made available to them. This has the potential of shutting off other chip vendors who strive hard to get their basic chipset to work.

The strategy QualComm follows is not obvious but definitely logical. There may be a few good ways to get to market leadership like engineering leadership and manufacturing excellence. But there is only one way to get there to the top and to dominate the wireless market. Make the best radio ahead of others. This will enhance your position with the phone manufacturers and the service providers alike. This will also provide enough cash inflow to stay ahead of the competition. QualComm seems to have understood this mantra for success quite well. When other phone manufacturers struggle with basic HSDPA phones,QualComm is out developing chips for the next generation. They can certainly afford to do this owing to the revenue inflow from their priceless patent portfolio and their CDMA market dominance. They have consolidated their leadership position with a great research team that looks ahead to the future standards. Besides, they have also strengthened their IP portfolio with respect to future OFDM/OFDMA standards by acquiring Flarion for a very reasonable price.

Clearly, there is no question who dominated the CDMA 2000, 3GPP2 evolution path. As far as the US is concerned, considering that WCDMA is the evolution path for 3GPP as well, I can well see their strategy and engineering leadership work into their hands. Even if other big names like Nokia, Ericsson or Motorola try their best to retain their leadership in the 3GPP standards, QualComm will succeed in pushing ahead. Its rapport with the service providers and their reputation for building quality communication products coupled with their strong IP portfolio is likely to take them to their purported ambitions of capturing close to 50% of the 3GPP market.

Posted by Vijay Nagarajan at 4:21 PM  


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