BW 50: Qualcomm: The Son Gets The Call
Paul E. Jacobs casually rattles off features of the cell phone of the future: smart wireless TV broadcasts, built-in glucometers that help diabetics track blood-sugar levels, restaurant reviews that zap onto the screen as you walk past a joint. It's a simple leap for the easygoing yet sharply focused Jacobs, who, at 42, inherits the chief executive mantle at Qualcomm Inc. (QCOM ) from his father and company founder Irwin Jacobs on July 1. "The phone will be your personal alter ego in cyberspace," Paul says. "Whether it's finances, or my music, or my blog, all those kinds of things will happen through my phone."
Paul has big shoes to fill. Irwin helped shape the wireless industry through his dogged promotion of his patented CDMA wireless networking technology as superior for handling voice calls. Now, San Diego's Qualcomm is cashing in, as carriers around the world upgrade to third-generation -- or 3G -- wireless networks, virtually all of which use some form of CDMA. Qualcomm's profits, which come mostly from patent royalties and sales of its CDMA chips, have jumped an average of 92% a year for the past three years, to $1.8 billion last calendar year, on sales of $5.1 billion, according to BusinessWeek's calculations. That helped it land the No. 13 spot on the BusinessWeek 50 list of top corporate performers.
But Paul, an engineer like his dad, is moving Qualcomm well beyond voice. In the past four years, as president of the Qualcomm Wireless & Internet group, Paul has shepherded projects that take advantage of the speedier 3G networks, which let carriers beam a dazzling array of services to customers. Brew, which he launched in 2001, is software that 45 carriers now use to deliver such services as games and mobile e-mail. He has also worked on projects for delivering digital TV and improving the design of cell-phone screens.
Yet the focus on multimedia makes the transition at Qualcomm especially tricky. Other chipmakers have struggled to move beyond their core markets. And Qualcomm will have to face formidable new rivals, including Microsoft Corp. (MSFT ) and Apple Computer Inc. (AAPL ) Confounding matters, Qualcomm's core business of selling chips to phone makers faces hurdles, including price pressures in developing markets such as China. "Unlike his father, Paul is facing a Rubik's Cube challenge," says Kenneth Leon, an analyst at Standard & Poor's (MHP ).
Paul's move into the corner office will be closely watched by investors. When the transition was announced on Mar. 7, Qualcomm shares dipped 3%. Investors may have been spooked by Paul's record managing the unprofitable handset division, which was sold off in 2001. Or they might have had in mind Motorola Inc. (MOT ), which struggled under Christopher B. Galvin, grandson of the company's founder. Qualcomm directors deliberated for three years, interviewing internal and external candidates before deciding on Paul. "I expect there to be a lot more scrutiny," he says. "You have to answer [with] execution."
That attitude seems to be winning over the Street. "The market is comfortable with Paul," says Jason S. Maxwell, an analyst at TCW Group Inc., an asset management company that owns 37 million Qualcomm shares. "The job now is to capture what they have been setting themselves up for." That's the booming 3G market. Paul must work to sign on more partners -- such as Motorola -- to reach Irwin's ambitious goal of having its chips in 50% of all 3G phones.
Clearly, the transition at Qualcomm has been carefully planned. And with Irwin Jacobs remaining as chairman, the wireless pioneer will provide plenty of oversight. But it's up to Paul to jump on new opportunities while maintaining the company's roots in voice. That'll determine whether Qualcomm will be as successful in the next 20 years as it has been in the past.
By Heather Green in New York