In 1989, we publicly introduced the concept that a digital communication technique
called CDMA could be commercially successful in wireless communication applications.
CDMA stands for Code Division Multiple Access and is one of the three main technologies
currently used in digital wireless communications networks. CDMA and the two other
main digital wireless communications technologies, TDMA (which stands for Time
Division Multiple Access) and GSM (which is a form of TDMA and stands for Global
System for Mobile Communications) are the digital technologies used to transmit
a wireless phone user's voice or data over radio waves using the wireless phone
operator's network.
CDMA works by converting speech into digital information, which is then transmitted
in the form of a radio signal over the phone network. These digital wireless
phone networks are complete phone systems comprised primarily of base stations,
or 'cells,' which are geographically placed throughout a service or coverage
area. Once communication between a wireless phone user and a base station is
established, the system detects the movement of the wireless phone user and
the communication is handed off to another base station, or cell, as the wireless
phone user moves throughout the service area.
Because we led the development of CDMA technology, we own significant intellectual
property, including patents, patent applications and trade secrets, that we
license to other companies and integrate into our own products. The wireless
communications industry generally recognizes that a company seeking to develop,
manufacture and/or sell products that use CDMA technology will require a license
from us.
From the international perspective, the ITU is the central telecommunication
standards setting organization. The ITU is recognized as an impartial, international
organization within which governments and the private sector work together to
coordinate the operation of telecommunication networks and services to advance
the development of communications technology. The ITU's standardization activities
foster the growth of new technologies, such as mobile telephony and the Internet,
as well as the emerging global information infrastructure which handles a mix
of voice, data and multimedia signals.
The ITU develops internationally-agreed technical and operating standards to
foster seamless interconnection of the world's communication network and systems.
As the world of telecommunications, information technology and content provision
rapidly converge, the role of the ITU is to forge new recommendations that promote
the interoperability of equipment and facilitate the development of communication
networks. The ITU's objective is to identify sound technical recommendations,
which are then developed into internationally recognized ITU recommendations.
The Telecommunications Industry Association (TIA)'is the leading U.S. based
non-profit trade association serving the communications and information technology
industry. Through its worldwide activities, the TIA facilitates business development
opportunities and a competitive market environment.
The TIA provides a market-focused forum for its member companies, which manufacture
or supply the products and services used in global communications. The TIA facilitates
the convergence of new communications networks while working for a competitive
and innovative market environment. The TIA is a major contributor of voluntary
industry standards that support global trade and commerce in communications
products and systems.
Our revenues. We generate revenues by licensing our CDMA technology to other
manufacturers of CDMA products (such as wireless phones and the hardware required
to establish and operate a CDMA wireless network). Revenues are generated through
licensing fees and royalties on CDMA-based products sold by our licensees. We
also sell products and services, which include the following, all of which are
described in greater detail below:
CDMA-based integrated circuits (also known as chips) and the related software
used in wireless phones (also known as subscriber units and handsets) and wireless
networks;
Messaging and other services and related equipment and software used by transportation
and other companies to communicate with and track their equipment fleets;
Software products and services related to BREW (which stands for Binary Runtime
Environment for Wireless), a package of products that enable software developers
to create applications, or programs, to run on mobile phones. BREW includes
porting tools and technical assistance for device manufacturers and the BREW
Distribution System (BDS)'that allows for over-the-air distribution of applications
to mobile phones and coordinates billing and payment for wireless operators;
and
Software and hardware development services.
We make investments to promote the development of new CDMA products as well
as the adoption of CDMA by more mobile phone service providers. We also continue
to provide products and services to service providers and other customers of
Globalstar L.P., a company that operates a worldwide, low-Earth-orbit satellite-based
telecommunications system.
Our engineering resources. We have significant engineering resources, including
engineers with substantial expertise in CDMA technology. Using these engineering
resources, we expect to develop new versions of CDMA, develop new technologies
that use CDMA, participate in the formulation of new wireless telecommunications
standards that use CDMA and assist in deploying wireless voice and data communications
networks around the world.
Our integrated circuits business. We develop and sell CDMA-based integrated
circuits and system software for use in wireless phones, wireless networks and
global positioning systems (GPS). Our integrated circuits related products include
both the integrated circuits for wireless phones and the equipment used to operate
the wireless phone network. Because of our broad and unique experience in designing
and developing CDMA-based products, we not only design the integrated circuit,
but we also design the entire supporting system. This approach enables us to
optimize the performance of the wireless phone itself with improved product
features, as well as the integration and performance of the network system.
Our design of the entire system also allows CDMA systems and devices manufactured
by our customers to come to market faster. We provide our integrated circuits
and related system software, including reference designs and tools, to many
of the world's leading wireless phone and infrastructure equipment manufacturers.
We plan to add additional features and capabilities to our future integrated
circuit products to help our customers reduce the costs and size of their products
and to simplify our customers' design processes. We also design and create multimode
and multiband integrated circuits incorporating other wireless standards for
global roaming markets. In addition, we will continue to provide high quality
support to enable our customers to reduce the time required to design their
products and bring their products to market faster.
Our asset tracking and messaging business. We design, manufacture and sell
equipment and provide two-way messaging services to transportation companies,
private fleets and construction equipment fleets throughout parts of the world.
These products permit our customers to track the location of their vehicles
and to communicate with them en route. These products and services use commercially
available satellite and land-based mobile phone technologies to permit this
communication. Our customers use these products to communicate with drivers,
monitor vehicle location and performance, provide automated driver logs, fuel
tax reporting and enhanced customer service. Our products, which collect and
transmit this data, are also integrated with our customers' operations software,
such as dispatch, payroll and accounting, so our customers can better manage
their information and operations.
Our phone software and related services business. We provide our BREW (Binary
Runtime Environment for Wireless) product and services to network operators,
handset manufacturers and application developers and support for developing
and delivering over-the-air wireless applications and services. The BREW product
and services include the BREW SDK (software development kit) for developers,
the BREW applications platform (i.e. software programs) and interface tools
for device manufacturers, and the BREW Distribution System that enables network
operators to get applications from developers to market and coordinate the billing
and payment process. The BREW platform is a software application that provides
an open, standard platform for wireless devices, which means that BREW can be
made to interface with many software applications, including those developed
by others. We make the BREW SDK available, free of charge, to any qualified
person or company interested in developing a new product for wireless communications.
BREW leverages the capabilities available in integrated circuits and system
software, enabling our customers to develop feature-rich applications and content
while reducing memory and maximizing system performance of the wireless phone
itself. BREW can be used on wireless phones and other devices that support wireless
technologies other than CDMA, such as GSM/GPRS (General Packet Radio System)
and WCDMA.
Competition
Competition in the wireless telecommunications industry in the United States
and throughout the world continues to increase at a rapid pace, as businesses
and foreign governments realize the market potential of telecommunications services.
Many of these current and potential competitors have advantages over us, including:
longer operating histories and presence in key markets;
greater name recognition;
access to larger customer bases; and
greater sales and marketing, manufacturing, distribution, technical and other
resources than we have.
As a result of these and other factors, our competitors may be more successful
than us. These competitors may have more established relationships and greater
technical, marketing, sales and distribution capabilities and greater access
to channels in markets not currently deploying wireless communications technology.
These competitors also have established or may establish financial or strategic
relationships among themselves or with our existing or potential customers,
resellers or other third parties. These relationships may affect customers'
decisions to purchase products or license technology from us.
Accordingly, new competitors or alliances among competitors could emerge and
rapidly acquire significant market share to our detriment. In addition, many
of these companies are licensees of our technology and have established market
positions, trade names, trademarks, patents, copyrights, intellectual property
rights and substantial technological capabilities. We may face competition throughout
the world with new technologies and services introduced in the future as additional
competitors enter the market place for products based on 3G standards. Although
we intend to employ relatively new technologies, there will be a continuing
competitive threat from even newer technologies that may render our technologies
obsolete. We also expect that the price we charge for our products and services
may continue to decline as competition intensifies.
QUALCOMM CDMA Technologies Segment (QCT)
The markets in which our QCT segment operates are intensely competitive. QCT
competes worldwide with a number of United States and international manufacturers.
As a result of the trend toward global expansion by foreign and domestic competitors
and technological and public policy changes, we anticipate that additional competitors
will enter this market. We believe that the principal competitive factors for
CDMA integrated circuit providers to our addressed markets are product performance,
level of integration, quality, compliance with industry standards, price, time
to market, system cost, design and engineering capabilities, new product innovation
and customer support. The specific bases on which we compete against alternative
CDMA integrated circuit providers vary by product platform. We also compete
against alternative wireless communications technologies including, but not
limited to, GSM/GPRS, TDMA and analog.
QCT's current competitors include major semiconductor companies such as Texas
Instruments, STMicroelectronics, VIA Telecom, NEC, Infineon and Philips, as
well as major telecommunication equipment companies such as Motorola, Nokia,
Ericsson and Matsushita. In addition, QCT faces competition from the in-house
development efforts of many of our key customers, including Samsung. QCT also
faces competition from start-up ventures.
Our competitors may devote a significantly greater amount of their financial,
technical, marketing and other resources to aggressively market competitive
telecommunications systems or to develop and adopt competitive digital cellular
technologies, and those efforts may materially and adversely affect QCT. Moreover,
competitors may offer more attractive product pricing or financing terms than
we do as a means of gaining access to the wireless telecommunications markets.
We have entered into licensing agreements with certain companies, including
Philips, Motorola, Lucent, Texas Instruments, VIA Telecom, PrairieComm, NEC,
EoNex Technologies and Infineon. These licenses permit the licensees to manufacture
CDMA-based integrated circuits using certain of our intellectual property for
sale to CDMA-based phone manufacturers. In exchange for granting the licenses,
we are entitled to receive license fees, royalties (payable as a percentage
of the selling price of the integrated circuits) and/or royalty-free cross-licenses,
which allow us to use these companies' CDMA and, in some cases, non-CDMA intellectual
property for specified purposes. In every case, the phone manufacturers' sales
of CDMA-based phones are subject to the payment of royalties to us on the products
into which the integrated circuits are incorporated in accordance with the manufacturers'
separate licensing arrangements with us. We license our CDMA intellectual property
to the competitors of our QCT segment to support the deployment of CDMA-based
systems and technologies worldwide in order to grow our royalty revenues from
customers licensed to sell CDMA phones and equipment. We believe that, if the
use of CDMA expands sufficiently, QCT's business will also grow, even if we
lose market share. Also, our QTL segment will receive royalties from sales of
CDMA integrated circuits by certain competitors of QCT. To date, most CDMAOne
and CDMA2000 phone manufacturer licensees have elected to purchase their CDMA-based
integrated circuits from us.
QUALCOMM Technology Licensing Segment (QTL)
As part of our strategy to generate new licensing revenues, significant resources
are allocated to develop leading edge technology for the telecommunications
industry. We face competition in the development of intellectual property for
next-generation digital wireless communications technology and services. There
are no guarantees that our technologies will continue to be adopted or we will
be able to secure patents for our technology to subsequently license. Furthermore,
there are no guarantees that existing systems and applications cannot or will
not be replaced by competitors' technologies, thereby jeopardizing our existing
royalty and licensing revenues.
On a worldwide basis, we currently compete primarily with two digital wireless
telecommunications technologies, TDMA and GSM/GPRS. TDMA has been deployed primarily
in the United States and Latin America. Variations of TDMA have also been deployed
in other countries, such as PDC (Personal Digital Cellular) in Japan and PAS
(Personal Access System) in China. GSM has been extensively utilized in Europe,
much of Asia other than Japan and Korea, and certain other markets. To date,
GSM has been more widely adopted than CDMA, and, although CDMA technology has
been proposed for all third generation wireless systems, there can be no assurance
that wireless communications service providers will select CDMA for their networks
or update to any CDMA-based third generation technology.
WCDMA, a technology designed as an alternative to CDMA2000, is currently in
the standardization process and has been adopted by several European, Japanese
and United States carriers.
QUALCOMM Wireless & Internet Segment (QWI)
Existing competitors of our QWBS division offering alternatives to our OmniTRACS,
TruckMAIL, OmniExpress, GlobalTRACS, QConnect, EutelTRACS and LINQ system products
are aggressively pricing their products and services and could continue to do
so in the future. In addition, these competitors are offering new value-added
products and services similar in many cases to our existing or developing technologies.
Emergence of new competitors, particularly those offering low cost terrestrial-based
products and current as well as future satellite-based systems, may impact margins
and intensify competition in new markets. Similarly, some original equipment
manufacturers of trucks and truck components are beginning to offer built-in,
on-board communications and position location reporting systems that may impact
our margins and intensify competition in our current and new markets.
Competitors to our BREW platform are continuing to develop their products with
a focus on client, provisioning, and billing products and services. These competitors
are attempting to offer value added products and services similar, in many cases,
to our existing or developing BREW technologies. In some cases, competitors
are continuing to explicitly attempt to displace only certain components or
areas of the greater BREW offering, such as only the runtime client/device environment
portion of BREW. In addition, certain competitors in the computing industry
and device manufacturing space are now beginning to more aggressively attempt
to replicate the entire BREW system offering that includes both runtime device
environments and billing/distribution systems. Similarly, some carriers are
creating internally developed solutions by piecing together several components
or are being pressured by governments to adopt alternatives to our products
and services. Emergence of these and other new competitors may adversely impact
our margins and market share.