Qualcomm: The future Role of Paul E. Jacobs
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>> As Qualcomm Plots Future, C.E.O.'s Son Awaits Role
Matt Richtel
The New York Times
April 14, 2003
http://www.nytimes.com/2003/04/14/technology/14QUAL.html?pagewanted=2&ei=5062&en=e5189679687....
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." <<
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