Industry Icon Irwin Jacobs on Qualcomm and What’s Next for the Industry

When the industry’s 60,000 executives depart from the Mobile World Congress in Barcelona, an era will be about to end. Dr. Irwin Jacobs, Qualcomm’s co-founder and founding CEO, plans to retire from the board in March, marking his final separation from the San Diego wireless technology giant he built from scratch.

 

Qualcomm, the company Jacobs helped launch in 1985 and led as CEO for two decades, opened the market to companies which did not have the in-house capability to build a mobile phone from scratch, such as Samsung, HTC and LG Electronics. Today it licenses technology and provide chips and software to almost every player in the industry.

 

Jacobs, an electrical engineer and former college professor, is credited with establishing Code Division Multiple Access, or CDMA, as a wireless standard.  The royalty structure Jacobs put in place in the company’s early days radically changed the industry, ensuring the U.S. firm’s financial success and its role as a key global player. (Qualcomm now has over 200 royalty-bearing 3G licenses and 13 single-mode OFDM licensees around the world).   

 

By the time Jacobs stepped down as CEO in June of 2005, Qualcomm was a public company and he was a billionaire, listed by Forbes as one of the 400 richest people in America.

 

The company continues to do well financially: Qualcomm’s revenues grew to a record $15 billion in fiscal 2011. And, looking forward, the company is forecasting strong revenue and earnings again in fiscal 2012.

 

Qualcomm’s current management is quite confident that it will be able to maintain its current pace of top- and bottom-line growth for at least the next five years, according to Zacks Equity Research. There are primarily four reasons for this positive outlook: the gradual introduction of 4G LTE enabled mobile handsets in the U.S., Japan, and South Korea; massive growth of 3G smartphones in the emerging markets, particularly in China, where the company has a strong foothold; Qualcomm’s growing association with Apple for its iPhones and iPADs; and a diversified product portfolio, Zacks observed in a February 17 research note.

 

 Some of the credit for recent wins goes to Jacobs’s son Paul, who took over as CEO in 2005.  The separation of his father from the company has been gradual. He continued to serve as Qualcomm’s chairman through March 2009, when Paul Jacobs took over that role as well. But the elder Jacobs, now 78, has remained an active board member until now. Just weeks before severing his formal tie to the company, Jacobs reflected on his career and the future of the wireless industry during an interview with Informilo Editor-in-chief Jennifer L. Schenker.

 

Q:  Tell us about the early days at Qualcomm.

 

A: We came up with the idea that CDMA technology could be interesting for mobile communications during the first four or five months after launching, but we didn't have any money to pursue it. We did some other commercial business, which gave us the funds to go back and look at CDMA for cellular in October or November of 1988. At the time, CDMA was not thought to be commercially viable. In June of 1989 we had the possibility of meeting with the CTIA (the international association for the wireless telecommunications industry) to present CDMA.  Nobody found any holes in what we were saying but nobody was convinced either.

 

Q: A lot of funding was necessary for you to prove that the technology was in fact commercially viable. How did you do it?

 

A: Out of necessity we came up with a licensing scheme that basically said manufacturers would have to provide us with an upfront licensing fee, and if ever the technology became commercial they would have to pay a royalty on each handset. Today, roughly two-thirds of Qualcomm’s revenues come from the sale of chips and one third from the licensing fees. But it is the licensing fees that generate two-thirds of the profits.

 

Q: What have you found the most surprising?

 

A: When we got into cellular, we knew there would be growth and that devices would be pervasive but the reality has far exceeded our expectations. The number of subscribers worldwide has expanded far more rapidly than anyone imagined. And the fact that data use – things like video on demand – would become a major driver of mobile usage was expected, but again not at the current rate and size of demand. The Apple iPhone and its user interface have helped increase this phenomenon.

The industry will have to keep running hard to stay ahead because there will continue to be things that surprise us.

 

Q: What do you see as the next big thing?

 

A: The Internet of Things. Having billions of devices out there to which you can attach a sensor –   that is going to have a major impact –   and part of it will be the huge amount of information  that will be generated and the need for that information to be extracted. Examples of uses for M2M include monitoring wind generation or solar power on a smart grid, or remote monitoring of energy usage in homes. Wireless communications between autos to smooth out traffic flows on highways is another example. There is a whole range of possibilities with machine-to-machine communications.

 

Q: What do you regard as your greatest accomplishment?

 

A: The most exciting aspect of being an engineer is to have a concept and ultimately to see it become useful to so many people around the world. The fact that we are moving toward six billion wireless connections means that we really can change so many aspects of so many people’s lives.

 

Q: Can you give some examples?

 

A: A number of years ago Qualcomm launched a program to support various social projects in over 40 countries. Mobile health is one critical area where we are playing a role. There can be a tremendous reduction of costs if we can monitor patients on a full-time basis efficiently, and I see this as a major growth area for the industry. Mobile technology is also helping fishermen or farmers in emerging markets, alerting them to weather conditions, problems arising, and how much they can expect to be paid for their products at different ports or markets. Mobile education is another important area, and there will be major results this decade. Smartphones and tablets will help drive more personalized instruction.

 

Q: What advice do you have for entrepreneurs entering the wireless industry today?

 

A: If you have an idea you want to pursue, be prepared for it to take two or three times the amount of time you originally thought it would. Be persistent as long as you believe in an idea. And remember that every aspect of a company can benefit from innovation – not just engineering but finance, project management and marketing. The people working with you will come up with new and better ways of doing things, so be very open to that. And you never know when customers will come up with new requests. Be prepared for a new opportunity and move quickly when one comes along.

 

Q: What will you do after March?

 

A: I still plan to give a lot of talks and stay involved in the industry; it is a fascinating time. But I won’t be starting another company.

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