As Qualcomm Plots Future, C.E.O.'s Son Awaits Role

[Dave Farber <dave () farber net>]

From: "Ed Lazowska" <lazowska () cs washington edu>
Date: Mon, 14 Apr 2003 06:27:09 -0700
To: <farber () cis upenn edu>
Subject: Qualcomm

You might want to point folks to the very interesting article on
Qualcomm in today's NY Times:
    http://www.nytimes.com/2003/04/14/technology/14QUAL.html
(It starts with an entirely business slant, but has some
techno-historical information later on.)




As Qualcomm Plots Future, C.E.O.'s Son Awaits Role

April 14, 2003
By MATT RICHTEL 




 

As a young man, Paul E. Jacobs discussed antennas and data
transmission rates with his father the way many of his
friends and their fathers talked balls and strikes. So in
1985, when Irwin M. Jacobs started Qualcomm, a pioneering
firm in mobile phone technologies, it was natural for his
son to spend summers working there.

"We would talk about all the angles sitting at dinner,
driving everyone else crazy," said Paul, who began work on
a doctorate in electrical engineering at the University of
California at Berkeley the same year Qualcomm was founded.
"We had a mission."

Qualcomm, now a $3 billion maker of software and
microprocessors for mobile phones, has steadily grown into
one of the titans of wireless software though consumers may
now know it best for its Eudora e-mail software.

Today, Irwin Jacobs, a founder and driving force of
Qualcomm, holds the corner office. Down the hall is Paul
Jacobs, the president of Qualcomm's Internet and wireless
group, one of the company's most important divisions, and
who is considered by many inside the company and by some
outside of it to be a strong candidate to succeed his
father as chief executive.

For now, the elder Mr. Jacobs, at 69, is showing no signs
of quitting or reducing his role in the company. And he has
offered no indication about who his successor might be. But
Paul Jacobs, 40, has made quite clear that he hopes to be
chosen. Asked when his father might step aside, Paul Jacobs
laughed and said: "Ask him when that might be. Then tell me
what he said." 

The company's board might see promise in having another
Jacobs at the helm. The younger Mr. Jacobs is generally
favorably regarded by the board and Wall Street as an
innovative engineer. But a potential strike against Paul
Jacobs is that he was the manager in charge of Qualcomm's
troubled handset division, which briefly ceased production
in 1998 because of connector problems within its mobile
phones. The division was later sold. Also in his disfavor,
thorny management problems are often raised by having a
family member succeed another in a Fortune 500 company.

Corporate governance watchdogs are often skeptical when
succession turns into a family affair. In businesses large
and small, there are at least as many examples of children
faring worse in the family business than there are of those
who did better than their parents.

In the case of Qualcomm, said Nell Minow, the editor of the
Corporate Library, a corporate governance research group,
"This board should be very clear about what their
succession plan is, and they're going to have to do better
than say, `This guy is in the family.' "

Neither the company's annual report to the Securities and
Exchange Commission nor its Web site, for example, mentions
the Jacobs's familial relationships, said Paul Hodgson, a
compensation expert with the Corporate Library. A second
Jacobs son, Jeff, also works at the company as the leader
of its global development division.

According to Mr. Hodgson, Irwin Jacobs earned $63.5 million
last year, $61 million of that from stock options. Paul
Jacobs earned $4.2 million last year, with $3.4 million
from options. Salary information for Jeff Jacobs was not
available. 

Although family connections are a prominent part of
corporate life at Qualcomm, Wall Street analysts have not
necessarily found that situation to be a hindrance to the
company's performance. On the contrary. "Against a very
strong headwind and against all of these critics, Qualcomm
has won," said Mark A. Roberts, an analyst with Wachovia
Securities. 

In the mid-1990's, the company had to overcome skepticism
that its technology would take hold. It pioneered the
commercial use of CDMA, which stands for code division
multiple access, one of the two dominant standards for how
data and voice traffic are delivered over wireless
networks. Already, that standard is used by 40 percent of
mobile phone subscribers in the United States for voice
traffic. 

But worldwide, 80 percent of phone users rely on the
competing standard, GSM, or global system for mobile. Both
standards are poised to upgrade to a third generation - the
so-called 3G of mobile networks - which will allow faster
delivery of data. These new networks will enable phones to
become mobile entertainment devices with animated games,
video capability and high-speed Internet access.

Qualcomm currently earns a royalty of around 5 percent of
the wholesale price of each cellphone sold that relies on
CDMA technology. It expects eventually to get a similar
percentage for 3G phones based not only on its new
standard, CDMA2000, but also on those based on the
competing standard, W-CDMA, the wideband version of CDMA,
which includes both CDMA and GSM software. The reason is
that in Europe, Asia and the Middle East, where GSM is
dominant, mobile phone carriers have said they intend to
make their phones compatible with CDMA, making them likely
to adopt the W-CDMA standard.

But it may take as long as a decade before W-CDMA becomes
widespread. And there is the risk that another wireless
technology could emerge in the interim. Still, some Wall
Street analysts are sanguine about Qualcomm's prospects for
remaining a leader in its field.

"Assuming 3G gets deployed, I liken Qualcomm to a toll
road," said Mr. Roberts, the Wachovia analyst. "If you want
to get on the road, you'll have to pay a toll to Qualcomm."
Within six years, 50 percent of cellphones in the United
States will use CDMA, Mr. Roberts predicted. He said he
believed Qualcomm would eventually receive royalties on 80
to 90 percent of all mobile phones because they will
include some form of CDMA. Others are more skeptical about
whether CDMA is the best long-term technological solution.

CDMA licensing is one of the two pillars of Qualcomm's
business. The other is the manufacturing and sale of the
chip sets that power mobile phones. That line of business
is less certain and generally less profitable than
collecting CDMA royalty fees. But it can offer the prospect
of high revenues, which explains why Qualcomm has begun an
ambitious effort to expand its chip set business where its
only real competition is Nokia.

In the future, Qualcomm wants to be a leader in
manufacturing chip sets for use in the W-CDMA standard,
which means it will have to engage in fierce competition
with Motorola, Texas Instruments and Intel, among others.
Whether Qualcomm succeeds is "the billion-dollar question,"
Mr. Roberts said. 

In the shorter term, the question is whether Qualcomm can
keep its stock price from eroding. The price reached $200 a
share in early 2000, and then declined along with the rest
of the technology industry. It closed Friday at $31.88, but
even at this price some analysts worry that the stock is
valued too highly compared with the rest of its sector.

For now, the challenge of leading Qualcomm falls to Irwin
Jacobs, who taught electrical engineering at the
Massachusetts Institute of Technology from 1959 to 1966 and
was a founder of a company called Linkabit, which designed
telecommunications equipment in the 1970's and early
1980's. 

In the summer of 1985, while driving from Los Angeles to
San Diego, he came up with the idea for using CDMA for
mobile networks. The telecommunications world initially
dismissed this approach because TDMA, or time division
multiple access, another technology, was considered the one
likely to become the basis for mobile phone communication.

Mr. Jacobs proved that CDMA could provide better clarity
and security than TDMA. And now Verizon Communications and
Sprint, among others, use CDMA to operate their networks.
With astute marketing, he has created a hugely profitable
intellectual property business. In the first quarter of its
2003 fiscal year, which ended Dec. 29, the company
announced $1.07 billion in revenue and $344.7 million in
profit. 

"Irwin is one of the world's best communications
scientists," said Robert E. Kahn, a member of Qualcomm's
board, a former colleague of Mr. Jacobs's at M.I.T., and
one of the creators of the Internet. "He understands the
theory and the practical application."

Paul Jacobs has as intense an interest in the science of
telecommunications as his father. Instead of entering the
academic life as a professor, he joined Qualcomm in 1990
shortly after he received his doctorate from Berkeley.
During his early years at Qualcomm, he worked on the
engineering for the antenna of Qualcomm's OmniTracs system,
which is used to track the routes of freight trucks. He
worked on the speech compression algorithm for CDMA, and
holds a patent for part of the technology - one of more
than 25 Qualcomm patents that he helped develop. (Qualcomm
currently has 2,655 patents issued or pending.)

In 1995, he took over Qualcomm's fledgling handset
business. The goal was to make phones in a partnership with
Sony that would prove the viability of the CDMA technology.
But that enterprise was plagued by manufacturing problems
and in 2000 Qualcomm sold the handset business. Paul Jacobs
said that episode created strains in his relationship with
the board that are still evident. "I suspect I'm still
working on it," he said.

More recently, he has been the driving force behind BREW,
the binary runtime environment for wireless, a platform
that allows the development of numerous applications for
mobile phones, including games, that Qualcomm hopes will
drive demand for wireless networks.

"I have a vision for this company," he said. "I believe the
wireless Internet will become bigger than the wired
Internet." But whether he can lead Qualcomm with that
vision will depend on the board. "If the board thinks it'll
happen, it'll happen. If they don't, it won't."

For now, board members are not talking about a successor.
"The board isn't going to get into a deliberation on that
until it's clear that Irwin is stepping down," Mr. Kahn
said. He added that Paul Jacobs has compiled a good track
record. "He has a very strong technical background and he's
been given a lot of challenges. He has coped with all of
those challenges." 

The board itself will come under scrutiny in coming months.
The Corporate Library plans to publish its annual ratings
of corporate boards in late May. Ms. Minow said the group
has concerns that Qualcomm's board is not providing
sufficient oversight. For now, she said, one of the board's
top priorities should be determining how it will deal with
the eventual departure of a chief executive who turns 70 in
October. "The No. 1 job of the board is C.E.O. succession
planning," she said.

For his part, Irwin Jacobs is saying little about his
future. He said that he continued to love his work. He also
said, in an apparent nod to his son Paul: "This business
has been quite successful with someone who has an
engineering background. You take good people wherever you
can get them." 

Whether the board will agree is an open question, but there
is no doubt that Irwin Jacobs is proud of the connection
between his family and his company. When asked how many of
his 10 grandchildren he would like to see at Qualcomm, Mr.
Jacobs responded immediately, "I'd like to see 11."

http://www.nytimes.com/2003/04/14/technology/14QUAL.html?ex=1051328222&ei=1&;
en=ddb7eefeffd0abc2



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