Microsoft gains powerful Windragon ally

Once the co-owner of the powerful “Wintel” monpoly, in the past decade, Microsoft has been suffering an increasing slide towards irrelevance. The onetime brash PC pioneer has looked more and more like a legacy software company protecting an installed base.

Nowhere is this trend more painful than in the mobile world. Since 2006, it has never held more than 15% of the global smartphone market and in fact — under the twin onslaught of iPhone and Android — its market share has been in a freefall, giving up more than three-fourths of that share. To add insult to injury, 2011 was the year when more smartphones shipped than PCs, a trend that’s only going in one direction.

To save its mobile strategy, Microsoft’s put all its money on its Nokia alliance in hopes that would save Windows Phone 7 from the same ignominy as its predecessors. Given that Nokia’s share has also been in freefall, this has the potential of extending Gary Hamel’s “two drunks” analogy from acquisitions to joint ventures.

On Tuesday, Microsoft landed a public endorsement from one of the mobile industry’s most powerful players: Qualcomm. To me, this has the potential to be the most powerful ally that Microsoft could attract, as a net positive for both firms and a negative for their respective rivals, Apple and Intel (and to some degree, Google).

At the company’s annual shareholders’ meeting, Qualcomm CEO Paul Jacobs bragged a little about the company’s successful shift of its semiconductor business from radio modems (“basebad processors”) to its Snapdragon all-in-one process — which include an ARM-compatible CPU, radio, graphics, multimedia and other features. Based on its Snapdragon success, Qualcomm has continued to gain market share, passing TI last year to become the leading supplier of cellphone CPUs (“application processors”), according to Strategy Analytics.

(By not making its own cellphones or infrastructure, Qualcomm also had a unique position in the mobile phone value chain. Instead, it devotes its $3 billion/year R&D budget to developing components and basic technologies that it sells to all comers among the various handset and platform providers).

Qualcomm has two reasons to throw its weight behind Microsoft. First — unlike Android — it’s only game in town, as the sole CPU supplier for WIndows Phone products thus far. Secondly, Qualcomm sees Windows-on-ARM as opening a whole new market — allowing it (and other ARM licensees) to take CPU market share away from Intel in the PC and tablet space.

In Jacobs’ view, the Windows-on-Snapdragon (or — as I put it, “Windragon”) combination will merge the office productivity options of Windows with the mobility, power saving and performance of the Snapdragon CPU line. Part of the shareholder meeting was devoted to demonstrating the Snapdragon S4 processor designed for the Windragon market.

This sort of tight alliance would seem to me to accelerate the estrangement of Apple and Qualcomm in the handset world. A shareholder asked when (or why) Qualcomm can’t provide more chips to Apple, which appears to be limited to its baseband processor (in the iPhone 4 and iPhone 4S) to complement Apple’s own A5 ARM cpu. If Qualcomm is going to help Microsoft gain share against the iPhone, iPad and perhaps reverse the OS X gains against Windows, then the Apple of Steve Jobs (and perhaps Tim Cook) is not likely to be too friendly or dependent on the San Diego chip giant.

Certainly success of Windragon would accelerate the shift from Mac to iPad sales and Apple’s expected phase-out of OS X.

The other interesting implication is what it does to Intel. There’s no love lost between the firms, particularly in the WiMax vs. LTE 4G wars (that Jacobs alluded to Tuesday). At the same time, Intel is suffering from the same shift away from PCs that threatens Microsoft.

Will Intel make ARM-compatible CPUs, as it once did? Will it try to more aggressively win Android allies to counter the Microsoft-Nokia-Qualcomm alliance?

Qualcomm joins chorus for MNC tax reform

At Tuesday’s Qualcomm shareholder’s meeting, the company’s executives joined the chorus of Fortune 500 leaders who called for reducing taxation of multinational US companies when they repatriate foreign income that’s already been taxed offshore.

The list of proponents is heavily skewed towards high-margin IT companies, including Apple, Google, Microsoft and Oracle, as well as more traditional market leaders like GE and Pfizer. Bloomberg estimated that 70 US companies hold $1.2 trillion offshore.

In response to a shareholder question, CFO William Keitel said that of Qualcomm’s more than $20 billion in cash, about 60% of that is offshore. CEO Paul Jacobs said that 75% of employees are onshore, but that 90% of revenues are generated offshore because that’s where companies build products. That money “has a little note attached to it: don’t spend me in the United States,” Jacobs said. He also said he was leaving Tuesday for a meeting Wednesday by proponents of the change.

As I see it, there are three issues here:

• Economics. Clearly encouraging bringing that money back would encourage more capital investment and hiring in the United States.
• Budget Deficit. Reducing taxes would theoretically widen the deficit. In practical terms, if firms don’t repatriate their money — and thus don’t pay any repatriation tax — then there’s no loss. There’s also the issue of whether economic growth (e.g. increase in jobs) would increase other tax receipts, but that’s hard to measure.
• Politics. In an election year, it will be difficult for either side to openly support big business. Democrats are attacking big business (although in the past they’ve been closely aligned with big NYC Wall Street financiers). Republicans are already wary of being too aligned with business interests: Romney is wary of being seen as more of a plutocrat than he already is, while his two main rivals have more of a Main Street than Wall Street bias.

If either side wins a clear mandate, it’s possible there will be a settlement next year (or during the lame duck session). However, given the recent rhetoric, I can’t see how a Democratic Congress would support such an effort, so to me the only way it would pass is if both houses are decidedly GOP (give or take a few centrist Democrats) to work with whatever initiative next year’s president proposes.

Qualcomm: beyond the cellphone

Qualcomm has pulled the plug on FLO TV, its attempt at terrestrial broadcasting to cellphone (later dedicated device owners). It sold the spectrum to AT&T (so that LTE iPhones will have better Internet access than the 3G phones have today) and is refunding the purchase price paid by buyers.

I’m not sure what it means for Qualcomm’s future, but I offer some thoughts on my San Diego Telecom blog. Certainly it hurts its batting average under its second CEO, Paul Jacobs, son of the original CEO Irwin Jacobs.

On the other hand, Intel has been through multiple CEOs since its founding, and basically makes all its money from the 1980 decision to source IBM’s PC cpu and then later to pull out of DRAMs. So while Intel is un-sexy and no longer is seen as a growth company, it’s not in trouble, desperate or in danger of going away any time soon.

In some ways, it suggests second acts are very hard to pull off. Intel Microsoft and Motorola moved beyond their original products to another cash cow, but Oracle and SAP have not. (eBay may eventually make more money off of PayPal than auctions, so it’s too soon to call that one.) RCA and the original AT&T were once technological powerhouses that eventually died. Once-great pharma companies are also in great trouble nowadays.

Of tech companies, Apple and IBM have pulled off multiple re-inventions, but is there anyone else in that league? Google might get there someday, but they’re not there yet.

Qualcomm's other shoe

Cross-posted from the San Diego Telecom blog.

After 10 years in which Symbian never supported CDMA or any Qualcomm chipsets, why did Qualcomm join the Symbian Foundation last week? As the EE Times reports, the other shoe dropped this morning:

BARCELONA — Both ST-Ericsson and Qualcomm Inc. have revealed partnership programmes with Nokia based round reference platforms that will use the Symbian Foundation's software.

Qualcomm's deal focuses on developing UMTS mobile devices, initially for North America, that will be based on the S60 software on Symbian OS, running on the San Diego, California- based chip maker's latest MSM7xxx-series and MSM8xxx-series chipsets targeting wireless broadband.
…
The companies, for long arch rivals due to long standing patent infringement law suits that were finally settled last year, say the first mobile devices based on the collaboration would be expected to launch in mid-2010 and be compatible with the forthcoming Symbian Foundation platform.

Nokia currently has a very limited relationship with US carriers. “UMTS … for North America” means selling S60 smartphones either to AT&T or T-Mobile, competing for shelf space with the iPhone or gPhone respectively. Certainly, outside the US the Nokia smartphones are sold side-by-side with the iPhone by the same carriers.

EE Times plausibly argues that this cooperation is because Nokia last summer finally resolved its patent fight with Qualcomm. In November, analysts told EE Times they thought it unlikely that Nokia would go so far as to buy chips from Qualcomm.

It seems particularly odd that Nokia would start its partnership with Qualcomm with W-CDMA phones — given its sells hundreds of millions worldwide — but perhaps it is just trying to prime the pump. Presumably the next step is to use QCOM chips to sell more CDMA phones in the US, although so far Nokia is outsourcing that work to ODMs.

On a somewhat related note, Qualcomm CEO Paul Jacobs was quoted in Barcelona by CNBC as saying demand for smartphones remains strong. However, unlike his predecessor (Jacobs père), Jacobs fils is a perpetual optimist.

Symbian going CDMA

In advance of this week’s GSM Mobile World Congress, Qualcomm has joined the Symbian Foundation (as have HP and MySpace). Qualcomm of course is interested in supporting CDMA around the world, in addition to its dual mode 3G processors.

Rumors of Symbian CDMA support date to at least 2004. Nokia had once sponsored an adaptation of Symbian S60 to work with CDMA – presumably to gain access to the US market and segment where it’s had a relatively weak presence.

Back in 2005, MobileTracker reported that Nokia had won FCC approval for the Nokia 6638:

The FCC has approved (FCC ID QMNRM-18) the Nokia 6638, the first CDMA Series 60 phone. Visually, it looks just like the Nokia 6630 with the addition of a [very long] antenna. Since the 6638 is a CDMA handset, Nokia is most likely aiming for a US release.

The phone was compatible with Verizon’s two CMDA bands, 800 MHz and 1.9 GHz.But the phone apparently never made it to the market.

Qualcomm has already joined the Android Foundation. Apparently Qualcomm has worked on a Windows Mobile prototype that works on Qualcomm chips, and its chips power several BlackBerry models that are dual cdma2000/W-CDMA, including the Storm and the 8830 world phone.

Now Qualcomm has committed resources to the major smartphone operating systems — pretty much everything outside the iPhone. From now on, we’ll see how many operators and manufacturers use Qualcomm chips for their Android, Symbian or Windows Mobile smartphones.

DTV pandering hits telecom operators

The House voted Wednesday to support President Obama’s plan to delay the end of over-the-air NTSC broadcasts to June 12. Despite all the public announcements we have been hearing from a year ago through this week, the DTV changeover will not happen on February 17.

The delay will prevent Qualcomm from rolling out is MediaFlo mobile phone TV service for another three months. Efforts to exempt four key markets were ignored. Two of the markets Qualcomm asked to exempt were Boston and San Francisco: if these markets are not tech savvy and educated enough to understand that DTV is coming, who is — or ever will be?

Verizon will also be impacted in their use of the 700 MHz spectrum, which they planned to use for their LTE rollout. Congress did not vote to refund a portion of the billions paid in the auction for the spectrum. The three most affected companies — Qualcomm, Verizon and AT&T — paid a total of $16.6 billion in the 700 MHz auctions.

This is bad policy on so many levels. Besides pulling the rug out from under businesses that made these multi-billion dollar investments, there is no evidence that the delay will have any significant impact on the supposed 6 million households that are not ready. If they are watching TV, they have seen the ads, and another 4 months of ads are not going to change that. Last month, the leading House opponent said it best:

“I guarantee you, no matter when you set the date — Feb. 17, June 12, July the Fourth, Valentine's Day — there are going to be some people that aren't ready,” said Rep. Joe L. Barton (R-Texas).

A majority of Congress seems to think otherwise. Of course, this is the same Congress that sold the spectrum, mandated (and previously delayed) the switchover and decided how much funding to provide for converter boxes. Perhaps if an independent commission will at long last consider Congressional culpability for the financial meltdown, perhaps they could move on to the DTV debacle after that.

Unlike Apple, Qualcomm embraces Flash

Apple thus far has refused to support Flash on the iPhone, but this week Qualcomm announced that it finally will.

Qualcomm has its own proprietary cell phone platform called BREW (vs. Java, get it?) that is used by Verizon, Alltel, Japan’s KDDI and several other carriers around the world. It differs from other mobile phone platforms in that it includes an integrated business model for third party software vendors, incorporating distribution, fulfillment and payment. Qualcomm made the announcement at its annual developer’s conference.

Clearly BREW lacks the momentum of the iPhone, but with the prior cooperation of many of the industry’s heavyweights, helps Adobe’s ongoing push towards providing a (relatively) seamless cross-platform multimedia delivery platform.

EU vows end to Total World Domination

Today an EU court (roughly equivalent to the US Court of Appeals for the Federal Circuit) reaffirmed the March 1 administrative ruling against Microsoft seeking sanctions over Microsoft’s alleged noncompliance in its 2004 competition policy (antitrust) case, including the original €0.5 billion fine. The usual round of Microsoft enemies applauded the ruling. Notably absent from the cheering was Apple, which Microsoft threatened to put out of business 10 years ago as part of a negotiating tactic.

In fact, Fortune argues that Apple and Google are next, while Information Week adds Intel and Qualcomm to the pile. I’m not completely sure whether this is a realistic legal prediction or merely intended to stir up nationalistic resentment against Eurocrat meddling.

Certainly, if the standard is “fails to provide interoperability with a proprietary technology,” then there are a wide range of successful IT companies (nearly all American) that could be targeted, although claims of total world domination most often list Microsoft, Apple, Google and sometimes Qualcomm.

I have mixed feelings about this — I think interoperability is good but have an economist’s skepticism about government intervention. But one quote from the Information Week article set off all the alarm bells, as I find myself (for once) agreeing with a Microsoft lawyer:

“A significant drop in market share is what we would like to see,” European Competition Commissioner Neelie Kroes said at a news conference Monday. “When we observe a situation where one producer has a share of 95% of the market, it’s a monopoly. It’s not just a monopoly-like situation.”

In response to a question from a reporter, Microsoft general counsel Brad Smith bristled at Kroes’ words. “These are rules that speak more to how one competes more than who should win the race,” he said.

This is not an arcane philosophical debate, but a basic question of whether the government sets rules or whether the government determines outcomes. If Republicans still held the US Congress, there certainly would be official complaints (beyond a few Microsoft friends and some Libertarian-leaning activists) about the extra-territoriality of the EU action setting global constraints on a US company.

Twenty years ago (or even 14 years ago), such interoperability complaints were targeted at IBM. Today compatibility with IBM proprietary standards is only a slightly higher priority than compatibility with French or German ones.

I’m sure that the Microsoft situation will correct itself in the not too distant future. Apple will gradually lose its music domination (which is mainly in the US) after everyone gangs up on it. Google’s start is still ascendant, so I’ll probably be in the nursing home by the time people start to write it off. (Sergei and Larry won’t be collecting social security until after 2040).

Technorati Tags: antitrust, Apple, Google, Microsoft, Qualcomm, Total World Domination

Qualcomm news elsewhere

I’ve decided to post all my future Qualcomm-related news at the SD Telecom blog. I hope that this isn’t a brand extension too far, and that’s certainly not the motivation.

Instead, I see the charter of this blog as offering observations about IT firm strategies — theoretical, descriptive and practical. I follow Qualcomm rather closely for my book, to a level of detail that’s probably far beyond the interests of OITS readers.

Still, I imagine the blog (or at least the Qualcomm-related postings) would be of interest to those that care about patents and patent licensing business models.

Technorati Tags: patent infringement, patents, Qualcomm

Lots of IP news today

Three news items I saw today related to past, present or future IP litigation in the IT industry:

1. By now, everyone’s heard about how Viacom wants $1 billion from Google for copyright infringement. Apparently they don’t buy the GooTube business model either. Donna Bogatin, who claims to have predicted this before the YouTube acquisition, seems sanguine there will be a labor-efficient technical fix (i.e. digital watermarks). I’m not so sure.
2. After losing a patent lawsuit to Verizon, Vonage must be looking for a win somewhere. But here’s one award Vonage doesn’t want: worst one-year performance for a 2006 IPO (down 75%). Somehow, saying shareholders could have lost 96% doesn’t lessen the pain.
3. The looming Nokia-Qualcomm showdown over Nokia’s expiring CDMA license, which was a major topic at the Qualcomm shareholders’ meeting.

I spent the day at the Qualcomm meeting, so I haven’t kept up on the news, but thought I’d mention all three. I expect to have more to say on the Qualcomm-Nokia case when I can offer more specific observations.

Technorati Tags: Google, intellectual property, Nokia, Qualcomm, Vonage

How Much is “Open” Worth for Mobile TV?

This is the week of the GSM World Congress in Barcelona, where the big action is for the entire year of mobile phones: I’d love to be there, but my current budget doesn’t support such a trip. On stage are the various standards battles in the ongoing Nokia v. Qualcomm war, including the one over delivering television to cell phones. Apparently both sides saw this week as a chance to put their best foot forward.

In one corner is Nokia, promoting DVB-H (the handheld variant of the DVB standard) with its new N77 phone. As London Guardian blogger Bobbie Johnson notes, Nokia took every opportunity proclaim DVB-H as an “open standard.” DVB is owned by the DVB Consortium, which seems to be “open” in the sense that the annual membership fee of € 10,000 is relatively cheap.

In the other corner is Qualcomm pushing MediaFLO. According to Johnson, the MediaFLO trials by British broadcaster Sky confirmed Qualcomm’s claim of twice the channel capacity of DVB-H for the same infrastructure coverage. Perhaps that is why that MediaFLO has won U.S. support not only from CDMA carrier Verizon, but also by AT&T, a former IS-136 (aka IS-54 aka D-AMPS) carrier that has since converted to GSM. AT&T cares more than most, since it requires mobile TV as the final leg of its “three screen” strategy.

I’m not an expert here, but obviously many European manufacturers would like Europe to be entirely DVB-H and Qualcomm would like the US to be all-MediaFLO. Suppose we accept the respective claims of the two sides: which is more important, an “open” standard with low IPR costs, or one that delivers better performance?

Of course, this assumes people want to watch TV on their 3“ screen. I suspect that for consumers to embrace mobile TV en masse, they don’t care so much about IPR costs as the lowest total price, both for the equipment (right now a long way off) and the monthly tariff. But then I’m sitting not in Barcelona but America, where we tend to prefer ”cheap“ on just about everything. Of course, other factors will be the supply of popular content and good image quality from both the equipment and the network.

Technorati Tags: mobile phones, open standards, Nokia, Qualcomm

Qualcomm’s Stunning Court Loss

Friday a jury ruled in favor of Broadcom in the first of seven patent lawsuits between the two companies. Even if the H.264-related patent is not core to Qualcomm’s assertion of IPR on 3G mobile phones, it’s hard to see this as anything but a big negative for the company.

Any loss emboldens the various mobile phone vendors and component makers, none of whom want to pay Qualcomm patent royalties. I would expect more aggressive lawsuits by Qualcomm rivals and less willingness to sign (or renew) Qualcomm patent licenses.

Technorati Tags: mobile phones, patent infringement, Qualcomm, standards