Qualcomm Inc. augmented its wireless reach with the $600 million acquisition of OFDM technology startup Flarion Technologies Inc., a move that pushes the company beyond its CDMA roots and gives it a solid position in the race to fourth generation.
Indeed, Qualcomm recently changed its corporate tagline to suggest its expanded range of influence. The company has long described itself as the “pioneer and world leader of CDMA digital wireless technology,” but in the past few weeks has modified it to the “leading developer and innovator of CDMA and other advanced wireless technologies.”
“CDMA is a great thing, but it has its lifespan,” said Dave Mock, author of “The Qualcomm Equation.” “OFDM could be their next CDMA. I think you’ll see a new face on Qualcomm.”
“With this acquisition, Qualcomm will be in a stronger position to support advanced development in both CDMA and OFDMA technologies,” said Paul Jacobs, Qualcomm’s chief executive officer. “The combination of Flarion and Qualcomm’s engineering resources greatly strengthens our position as a continued technology innovator and leader in the wireless industry. We believe CDMA will provide the most advanced, spectrally efficient wide area wireless networks for the foreseeable future, but with Flarion we can now more effectively support operators who prefer an OFDMA or hybrid OFDM/CDMA track for differentiating their services.”
Although the standards have not been finalized, Orthogonal Frequency Division Multiplex Access technology often has been named as the basis for wireless technologies beyond third generation. Qualcomm acknowledged that it acquired Flarion primarily for the company’s intellectual property portfolio, which means that other companies may have to pay Qualcomm to build 4G products.
“We believe that Qualcomm’s move is a longer-term step to equip itself with the right technologies to offer operators a wider range of choices when 4G services finally arrive,” said Philip Solis, senior analyst of wireless connectivity with ABI Research.
Interestingly, WiMAX too runs on OFDM technology. Qualcomm said it plans to play in the WiMAX space with its newly expanded patent portfolio.
“We believe our portfolio as well as Flarion’s portfolio would be applicable to WiMAX,” said Steve Altman, Qualcomm’s president, during a conference call with investors. Altman did not provide details.
“It is unclear which agreements and which vendors will be impacted, but it is possible that both equipment and chipset vendors may need a licensing agreement with Qualcomm and could owe a royalty payment for WiMAX products,” wrote Ittai Kidron with CIBC World Markets in a note to investors. The firm makes a market in Qualcomm securities.
Qualcomm executives were somewhat oblique in discussing the company’s specific plans for Flarion’s technology. Qualcomm’s Jacobs said the company would honor Flarion’s current contracts and would work to push the technology through standards bodies like the Third Generation Partnership Project and 3GPP2. Further, Jacobs said Qualcomm’s current CDMA licensees will be able to build OFDM products without paying additional licensing fees, which could give Qualcomm a leg up in its licensing negotiations. As for how Qualcomm plans to roll out OFDM technology, Jacobs said that will be up to the company’s carrier customers.
“We’re going to work with the operator community,” Jacobs said, adding that the company could offer standalone OFDM services or a hybrid OFDM/CDMA offering.
Jacobs’ hints at a combination of OFDM and CDMA could be aimed at Sprint Corp. The carrier just finalized its acquisition of Nextel Communications Inc. last week and plans to offer wireless broadband services throughout its newly expanded 2.5 GHz holdings. Sprint uses CDMA technology, and Nextel recently completed a trial of Flarion’s technology.
Founded in 2000, Flarion sells its Flash-OFDM technology around the world. The company boasts that the technology supports 1 to 1.5 megabits per second on the downlink and 300 to 500 kilobits per second on the uplink and a latency of below 50 milliseconds. Flarion has conducted numerous Flash-OFDM trials with the likes of T-Mobile International AG in the Netherlands, Vodafone Group plc in Japan and Cellular One in Texas. The company also has scored commercial deployments with Retel d.o.o. and Arbital Communications Sdn. in Zagreb, Croatia; Citizens Wireless in Blacksburg, Christiansburg and Radford, Va.; and most notably with Digita Oy to cover Finland.
Interestingly, Qualcomm is not new to the OFDM space. The company has been working on the technology for years, and its MediaFLO mobile TV offering runs on OFDM technology.
Under the terms of the acquisition, Qualcomm said it will issue about $267 million in stock, assume existing Flarion options and warrants of about $128 million, and pay a total of $205 million in cash. The company also plans to pay an additional $205 million in the coming years if Flarion meets certain milestones. Qualcomm said it will take a hit of around 3 cents per share in its fiscal year ending September 2006 due to the transaction. The transaction totals about 1 percent of Qualcomm’s $66 billion market capitalization.
