Qualcomm CEO Mollenkopf Says Smartphone Growth in Infancy

When Steve Mollenkopf moved to San Diego in 1994 to join Qualcomm Inc. (QCOM), he and his wife put off buying a house while they waited to see if the then-fledgling company would make it.

Mollenkopf ultimately concluded that Qualcomm’s prospects warranted a home purchase. As the company’s new chief executive officer, effective today, the 45-year-old has moved on to new concerns. Topping the list: Keeping the biggest provider of mobile-phone chips from getting complacent and trying to give consumers new reasons to upgrade, even as revenue growth slows after achieving a 90 percent market share.

“You don’t ever want to get comfortable or you’ll have a lot of problems,” Mollenkopf said in a phone interview. “The impatience with where things stand today and wanting to push it forward is very common in the company.”

Under Mollenkopf’s predecessor, Paul Jacobs, Qualcomm increased sales almost fivefold and passed Intel Corp. to become the largest U.S. semiconductor company by market value. The surge was driven by the use of Qualcomm’s chips as the smartphone market swelled 39 percent in 2013 to pass 1 billion units shipped.

Yet by 2017 that will slow to 8 percent annual growth, according to market researcher IDC Corp., putting pressure on Qualcomm’s growth streak. After posting sales gains averaging more than 30 percent over the last three years, analysts project the company will deliver an 8 percent revenue increase this year, according to data compiled by Bloomberg.

Photographer: David Paul Morris/Bloomberg

Steven Mollenkopf, chief executive officer of Qualcomm Inc., said Qualcomm has plenty of growth avenues, with the mobile-phone industry still early in providing consumers with what they want and emerging markets just beginning to migrate to more advanced wireless technology. Close

Steven Mollenkopf, chief executive officer of Qualcomm Inc., said Qualcomm has plenty... Read More

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Photographer: David Paul Morris/Bloomberg

Steven Mollenkopf, chief executive officer of Qualcomm Inc., said Qualcomm has plenty of growth avenues, with the mobile-phone industry still early in providing consumers with what they want and emerging markets just beginning to migrate to more advanced wireless technology.

Gas Pedal

The concerns are reflected in Qualcomm’s stock price. The shares rose 20 percent last year, compared with a 39 percent gain by the Philadelphia Semiconductor Index.

“They can’t afford to take their foot off the gas on the technology,” said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., who has the equivalent of a buy rating on the shares.

The company is ushering in Mollenkopf’s tenure by returning more cash to shareholders. Qualcomm boosted its dividend today by 20 percent to 42 cents a share and increased its stock buyback authorization by $5 billion to $7.8 billion.

“We are committed to continuing to do that,” Mollenkopf said at the company’s shareholder meeting today.

The stock rose 3.4 percent to $76.11 at the close in New York, leaving it up 2.5 percent this year.

Mollenkopf said Qualcomm has plenty of growth avenues, with the mobile-phone industry still early in providing consumers with what they want and emerging markets just beginning to migrate to more advanced wireless technology.

China Opportunity

The CEO said it is a “top priority” to get more licensing revenue and chip sales from makers of phones that work on China Mobile Ltd. (941)’s network. The world’s largest wireless carrier is upgrading to the long term evolution, or LTE, standard, which Qualcomm says will boost demand for its chip and revenue from licensing.

At the same time, Qualcomm is facing a Chinese government agency investigation, which some analysts have said indicates the government wants to cap how much local companies have to pay the chipmaker.

Mollenkopf declined to discuss the investigation. His pitch to Chinese phone makers that want to succeed beyond their home market has been that Qualcomm can provide the chips and patent licenses they need to quickly become exporters to the U.S. and Western Europe.

Utility Gap

Qualcomm’s growth will also hinge on replicating its success in phones -- where its chips dominate in handsets with processors that include LTE capabilities -- in new areas, said Alex Gauna, an analyst at JMP Securities in San Francisco. Gauna, like 78 percent of the analysts covering the company, has the equivalent of a buy rating on the shares, according to data compiled by Bloomberg.

Qualcomm is just starting to get cellular technology into everything from cars to medical devices, Mollenkopf said. That will fuel expansion in the next five to 10 years, with many improvements on the horizon for phones in the meantime, he said.

Mollenkopf said he peppers engineers with e-mailed news articles -- sometimes in the middle of the night -- asking them for progress updates on products and research. They share his frustration with the disconnect between the capabilities of technology in science fiction and what’s possible today, he said.

“The gap with what people want to do with the phone, or phone technology, and what we’re currently doing with it is pretty large,” he said. “Cell-phone technology has barely made it into the car, it’s barely made it into health care, it’s barely made it into a lot of areas where it will go.”

Mollenkopf’s Arc

Qualcomm announced Mollenkopf’s promotion from chief operating officer to CEO on Dec. 13, following reports by Bloomberg News that he was a candidate for the top job at Microsoft Corp.

The executive joined Qualcomm in 1994 as an engineer after getting a master’s degree from the University of Michigan. He rose through the ranks to become head of the chip business, QCT, in 2008. While leading the group, he bought chipmaker Atheros for $3.1 billion in 2011, in Qualcomm’s largest acquisition. Mollenkopf became president and COO that November.

His career is marked by decisions that countered the company’s prevailing logic, according to Qualcomm Executive Vice President Cristiano Amon. Mollenkopf’s drive to keep the company from missing out on technology transitions and new opportunities led him to push LTE development as a rival to another Qualcomm standard, Amon said.

“He works very hard to be in tune with the market,” Amon said.

Qualcomm customers said they are looking forward to working with Mollenkopf as CEO.

“He will lead a new momentum for Qualcomm,” said Shin Jong Kyun, CEO of Samsung Electronics Co. (005930)’s mobile business.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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