Qualcomm

Transcript from https://podmenti.com/t/0823897d9e1696ab

I walked in and the first thing I saw was the bottom of the
big crane boom arm with the weights and I was like why are there
Olympic weights here. And then I was like, Oh, because we've got a professional
Boom arm camera. This is amazing.
Alright, let's do it. Who got the truth?
Is it you, is it you, is it you who got
No
Is it you, is it you, is it you?
Sit me down

Another story on the way

Welcome to Season 11, Episode 6 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.
And I'm David Rosenthal and I'm an angel investor based in San Francisco.
And we
Are your hosts.
There's an incredible property of the universe.
where electromagnetic signals can be broadcast and travel through space at the speed of light.
to be received at a different point in the universe.
Now.
A tiny fraction of these frequencies are detectable by humans as visible light.
Some other frequencies can be dangerous, like X rays or gamma rays, but
But there's a part of the spectrum that
is not detectable to humans and it's not harmful at modest doses that can be used to transmit invisible messages all around us all the time.
Without any of us having any idea.
It's like magic.
Yeah.

These frequencies have been used for over a century to broadcast TV and radio shows, presidential messages, and important news updates.
In the last fifty years
Humans have gotten tremendously clever at purposing some parts of the RF spectrum.
to be used for cell phones.
But the story of how we got from transmitting small messages on a single frequency
to having billions of humans concurrently sending megabytes or gigabytes of data every minute.
has been an incredible journey of invention and entrepreneurship.
The company most responsible for the mind bending system of how it all works today.
is Qualcomm.
And today we will dive into their entire history and strategy, unpacking their products, which to the outside observer
is really best described as a layered series of magic tricks.
And spoiler alert for listeners.
This is an incredible story. I had no idea before we dove into the research. Like this one is up there with like NVIDIA, TSM C there's so much stuff you can't make up in this story. It's incredible.
Largest fabless chip company in the world.
Indeed.
The other thing we should say, listeners, uh this was super fun to do this episode live in person in Lisbon. Our huge thank you to the Solana Foundation for hosting us at Solana Breakpoint.
Many longtime listeners will know Austin Federa from the Slack. He was kind enough to invite us and uh and really fun to do it there, especially given Solana's tie to Qualcomm with Anatoly having worked there for
Over ten years.
Indeed.
All right listeners.
Now is a great time to talk about a new partner of ours here on Acquired, Lagora.
The agentic operating system that is redefining how the world's best legal teams work.
Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?
So the founders did exactly what great founders do.
operate with obsessive customer focus.
They embedded inside a massive law firm.
For months.
They sat with the lawyers just watching how the work really gets done.
And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagora's Bet here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work.
And do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product.
Legal teams get to maintain full control and transparency since they're still involved where judgment is required.
And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially
speak for themselves. When they have a head to head pilot with their top competitor, they win 70% of the time. Ligora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries.
And crazily, they went from one million
to a hundred million in ARR.
In about
Eighteen months.

truly insane numbers. And that is the real test.
Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.
If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired.
And just tell'em that Ben and David sent you.
After this episode, come talk about it with us. There are thirteen thousand other smart
Kind people.
In the Slack.
Acquire.fm slash slack.
Without further ado.
On to our live show at Salata Breakpoint.
And listeners know that this is not investment advice. David and I may have investments in the companies we discuss in the show is for information and entertainment purposes only.
Well one small bit of a do.
Before you know.
We dive into the story, is we owe a big
Thank you.
To Dave Mock.
The author of the incredible book, The Qualcomm Equation, which is not well known, but is the definitive history of Qualcomm and ranks right up there with among the best.
business books that business histories that we've used as a source unacquired throughout the whole history of the show. It's awesome. And the book's not even really published under like a real publisher. It's published under an industry association. There's no audio book, there's no Kindle, you have to read the physical book.
Yeah, it's you it's amazing. I literally the other day texted Ben
A photo that I noticed
on the back cover, and Ben of course has seen it too, uh of one of the blurbs. I'm gonna I'm gonna read it here now. Says Dave Mock helps uncover the single most important business story.
Single most important business story.
That has yet to be told.
How Qualcomm
came to rule the wireless industry. Think of it as a recipe book of for one of the most innovative and leveragels of all time. Whose words does that sound like Ben? That sounds like a deep business model thinker and someone who uh who truly appreciates capitalism at its finest. And is willing to go find the rare gems.
The rare diamonds in the rough.
And said by none other than Bill Gurley of Benchmark Capital for this almost unknown book.
I bet it's gonna be a lot more known.
After this episode. Yep.

Well Dave
Starts the book.
And it's such an apt place to start with a quote.
By Edwin Land.
Who I was not familiar with until recently when David Senter on the Founders podcast familiarized us with Edwin. Edwin was the founder of Polaroid.
And Steve Jobs is hero.
Uh
And he had this quote that Dave starts this book with Tru creativity is characterized by a succession of acts.
Each dependent.
On
The one before and suggesting
The one after.
So with act one.
of the Qualcomm story.
We start.
And
Austria?
Here in Europe.
In the middle.
Nineteen thirties.
In the pre
World War Two era.
as Hitler and Mussolini and the Nazis.
Horizon to power.
We'll start is this the first time we've been able to say here in Europe on acquired? It is the first time.
And we start you might think if you know anything about Qualcomm history, you think in mid thirties, you're like oh
I didn't know Erwin Jacobs, co co founder and CEO of Qualcomm, was born in Europe. He was not.
He was born in New Bedford, Massachusetts. We start with somebody very different.
We start with one of the most famous
Film actresses
Hollywood film actresses of all time.
A woman named Hetty
Lamar.

And side note, the fact that we're starting with Hetty Lamar.
on the story of how modern telecommunications came to be is so cool. I remember we reached out to the NZS Capital folks and said, hey, you know, do you have any great resources on on Qualcomm? And they sent back this excerpt of you should go read up on Hetty Lamar. I was like, are they trolling me right now? You cannot make this stuff up. This is like why we do the show.
So
Had he
With
An incredible she was like just an incredible human being.
She was world famous
Incredibly talented actress.
Incredibly beautiful. She would later be build like the way MGM she was one of the MGM starlets marketed her.
was as the most beautiful woman in the world.
She was also a genius.
So
She starred in Samson and Delilah, Ecstasy, Ziggrid Girl, many, many more.
But what most people
at the time, even up until her death, did not know, and certainly her husband at the time, in Austria in the mid nineteen thirties, did not know was
that she had incredible powers of observation and was way more intelligent than
So
This said husband.
It's quite character.
Mm-hmm.
His name was Friedrich Mandel.
And he was not a good dude.
Uh
He was
A Nazi arms dealer, which made him very rich.
At the time?

And they became married.
Haddy though.
Uh probably unknown to Friedrich, and certainly unknown to his business associates, including Hitler and Mussolini.
Hattie was uh Jewish. And um so Friedrich would bring his beautiful, you know.
Film actress, world renowned film actress Bride.
To his
Business meetings.
you know, with the Nazi military powers.
And uh
Heddy was listening in to everything that was going.
on and as uh the situation deteriorated in nineteen thirty seven
She disguised herself as a ma as one of her maids.
And escaped.
To Paris.
And then from Paris made it to the US.
Went to Hollywood and lived in Hollywood.
Most of the rest of her life.
Um
When
She came to the US though.
She knew like an incredible amount of inside information about the Nazi.
war effort. And she was incredibly motivated because obviously she's from a Jewish family. She hated the Nazis, hated her former husband, uh, and wanted to contribute.
And specifically
She knew.
That the Nazis
We're working on
And using to great effect.
A
radio jamming technique for radio guided torpedoes
that would be dropped from airplanes to attack Nazi submarines.
at this point in history that we had as humans the capability to radio guide the torpedo. And the torpedo, you know, gets propelled and you could guide it using radio frequencies to deciding which way to turn the rudder. I did not know that technology existed in the thirties. The concept of digital
doesn't exist yet,'cause we're gonna get to that in a minute. Uh this is all being done essentially with F M radios.
Uh
And so
Hetty wants to
contribute to the uh allied war effort. Trevor Burrus And when you say with FM radios, therefore pretty easy to jam. If you know that someone's broadcasting on jam in ninety-two point three and uh you start another signal on ninety two point three, you disrupt their signal and they're not able to hit their target with the weapon. Trevor Burrus
So Hetty.
Teams up.
With her new Hollywood neighbor.
A composer, a music composer named George Anthiel.
Bear with us here. I promise this is getting to Qualcomm. Uh who is a
Film music composer.
And they
With her ideas.

They developed
A concept that they
Patent and they get issued a confidential patent that stays confidential for decades in the US military.

was completely unknown.
Mm.
They developed
A novel technique to defeat
R F.
Frequency jamming by
using frequency hopping. And what they describe becomes the origin of something called spread spectrum technology.
So if you're familiar at all with like the wireless world or Qualcomm or anything, you'd hear spread spectrum and you're like, Oh
That sounds familiar. Spread spectrum technology.
This is the first like description of it.
In a technical and a patent.
by these two like incredibly unlikely people
And what it basically means is any way that you're going to transmit a single message across a variety of spectrums. So rather than just on I'm going to keep saying Jman 92.3 to ground it in radio. But instead of just broadcasting on one frequency, they came up with this idea to hop, so change frequencies.
during different points in the message to evade anyone trying to jam the signal and move to a different frequency. And the reason she teamed up with a music composer for this is that the way you make this happen is you have incredibly precise time sinking.
On
In this case the two ends, but in you know.
wireless use case, all endpoints of the communication channel, incredibly precise syncing so that all endpoints know when to hop frequencies. And you're hopping frequencies like dozens or hundreds of times.
A second.
And this can defeat jamming. This is great for cryptography. This is great for

This was not

Radar pun intended at the time.
It turns out that this is also
The most efficient way.
to use radio bandwidth.
But let's put a pin in that for now. And first
Let's go back to this specific use case of we want to transmit from a plane to a torpedo, and we want to be hopping around to different frequencies.
And we want to change that at incredibly precise time, so the transmitter knows to change the frequency and the receiver knows to start receiving the message on a new frequency at very specific points in time.
The concept of digital hasn't been invented. So how are we doing this, David? What's the technology used to synchronize a schedule of frequency hops between a torpedo and an airplane? So here's where
If this were a you know Hollywood movie like one of Hetty's films.
This single handedly would have like defeated the Nazis and all that. Unfortunately, the reality is
There there was no digital computing at the time.
It it wasn't possible. The US military tried very hard during World War Two to make this happen, the whole Allied military. Um they couldn't make it work because like think about what you're trying to do here.
And that vacuum tubes and analog computing was what was happening at the time. You would literally need to put like any ac on a torpedo and drop it from the sky to make this happen. That was not
feasible. It's worth sharing how how their prototype worked, though.
So the way that they prototype this heady in the you know nineteen early nineteen forties
Is they took two player piano scrolls.
That had the the same
basically song, and they mapped each note to a new frequency and they put the same player piano
In
The receiver.
the same scroll on the receiver that they did on the transmitter, and they pressed play on the player piano song at the same time. So it would know exactly where to hop around.
Yeah. So there were eighty eight frequency hops in their technical description of the patent, because there are eighty eight keys on a piano. So I guess literally you wouldn't be dropping any act from this guy. You'd be dropping a piano from this guy. Okay.
So that is the origin.
The you can't make this up origin of spread spectrum technology.
That's act one.
Act two, we stay in World War Two.
Around the same time, but a few years later.
There is a young
PhD.
Grad. PhD grad.
From
The Massachusetts Institute of Technology, the August.
Massachusetts Institute of Technology.

Who was working?
On
Code breaking.
For the Allies.
Very famously.
at Bell Labs and at the Institute for Advanced Study in Princeton, New Jersey, where
He intersects
with luminaries like Albert Einstein.
John von Neumann.
Alan Turing.
We're not talking about any of those three folks.
But by process of elimination you can probably figure out who we are talking about. We're talking about
Claude Shannon.
uh literally the father of information theory
uh one of the fathers of computer science and the inventor of the concept of
Digital of the bit.
Like
Yeah. Digital did not exist before Claude.
So
During the war.
All of this effort.
culminates in what he publishes after the war, his his master work on that.
A mathematical theory of communication.
Which defines.
A bit.
the new uh field of information theory.
Users in the digital era for the world.
And
Combined with the other folks who we mentioned, Einstein, Turing, von Neumann.
Mm-hmm.
And Bell Labs work on transistors during the war.
These things come together to create
The modern era of humans and the digital computer.
Yeah.
So
We've described like the Hollywood part.
Describe here in Act Two.
Claude Shannon, you know, birth of computing, all that. And it's worth maybe sharing a little bit about information theory. If can I take a second, David? Of course. I had heard people reference information theory or communications theory.
dozens of times over the years, and every time I'd open up the Wikipedia page, I'd see a bunch of complicated math equations. And you quickly get to like, okay, but what is this? Why does everyone keep describing it as so important?
I think
There's a pretty key concept.
that was an aha moment for me, which is
All communication must happen through a medium. There's no communication that happens through nothing. You need some way to send signal from a transmitter to a receiver.
And
The
method by which you communicate, the way you send signal, is governed by that medium.
And so what I mean by that in particular is let's use the analogy of uh a conversation. Well, if you're in a super loud room.
Then
Your message needs to be very loud.
And it needs to sort of not be very noisy. It needs to be a super clear, super loud message, because there's a lot of noise in the room.
Whereas if you're in a really quiet room
then you can have kind of a a message with a bunch of noise. Imagine someone talking, but there's a bunch of static. Well that's okay if the medium itself, the room that you're communicating in,

So there's this this relationship between how noisy a message can be and how noisy the medium is.
that you're communicating in. And I I think this is this very interesting aha moment where
What he basically deduces is
uh there is a theoretical limit to the amount of signal that you can pump through any given medium based on how noisy the medium is and based on the level of entropy or randomness in the um in the the message that you're trying to describe. So when I say entropy
Let's say, David, you're expecting me. You think there's a 99% chance that I'm coming to deliver the message to you, I just had breakfast.
Well
If it's a in a really loud, noisy room and you know there's uh I'm I'm sick and I'm coughing and I tell you I just had breakfast, because you were expecting it.
It's fine if it's in a really garbage medium, but if you have no idea what I'm about to tell you, and it could be everything from like uh hey, uh you're fired to I just had breakfast.
And and you have no idea, like we need to have that in a pretty pristine environment with really nice volume or gain on the signal. So that's sort of the high level concept of of information theory and more specifically of um uh Shannon Hartley theorem describing uh the the relationship between signal and medium. Yeah.
Super cool stuff.
Um
The
So where this all
comes together.
In Act Three.
of our story here, which is gonna be a little longer because we're getting get into Qualcomm as part of this. Uh
Is one Irwin Mark
Jacobs.
American.
Born in
Nineteen thirty three.
As we mentioned in the first time.
Scrappy.
New Bedford, Massachusetts. Which used to be I believe the wealthiest
town in America during the whaling era as we discussed during Standard Oil or Berkshire? I think it was Berkshire actually that we're five years before Irwin Jacobs was born in New Bedford the
Uh Hathaway.
Manufacturing company was started. Before it merged with Berkshire and before, of course, even by uh
Nineteen thirty three, New Bedford was
Not the New Bedford of the Wailing Era, shall we say.
is a pretty amazing
American story.
So
He grew up in like a
Very middle class family in this.
Super scrappy. Uh

Um
His dad worked a bunch of jobs.
uh and ended up running a local restaurant called the Boston Beef Market.
Erwin.
was high gifted in math and sciences as a kid going through school.
He wanted to
Study
Math and science and
probably would have wanted to study engineering if he like knew it existed in college. Uh but his high school guidance counselor
famously told him that there's no future
For math and science in New Bedford.
Frankly it's high school. Counselor was probably right. Uh so Irwin though
Had very good grades.
Growing up.
And the guns counselor encouraged him to go to
The world famous.
Cornell.
School of Hotel Management.
So that he could
learn the hospitality management business and come back.
And work in the family business.
At the Boston Beef Market. Which he did. Which he did go to the school of hotel management. This engineering genius, this like American pioneer of the wireless and communications industry, that is what he went to college for. And he would later
Credit.
The year and a half that he spent
in the hotel management school at Cornell before transferring to electrical engineering.
He would credit that year and a half with really helping him start first
Link a bit, his first company and then.
Qualcomm, get out of academia and s and become an entrepreneur because he actually learned about like business accounting, the real world applications, and found that like he kinda loved that too. Um
Uh amazing.
After a year and a half at Cornell in the hotel management school,
He learns about engineering and is like, Oh, you can make money with math and science. This is actually like in demand. Maybe not in New Bedford, but like
in the rest of America. And uh
So he goes to the Dean at Cornell, he tells the story and he's like uh
Hello, sir. You know, I I sophomore at Cornell. Uh I would like to transfer from hotel management to electrical engineering. And the dean's like, Oh you mean electrical engineering to to hotel management, right? He's like no no no hotel management
To electrical engineering. No, I wanna do the harder one. I wanna do the hard stuff. After the dean like picked himself up off the floor, he uh
He allowed it, uh perhaps with a degree of suspicion. Um which he need not have because Irwin is
Another genius in this string of geniuses um he would
Graduate, go on to a PhD.
At
MIT, which he would do in three years.
Finishing his PhD in nineteen fifty nine.
Studying under none other.
Than Claude Shannon himself, who after the war returned to MIT as a professor. It's pretty interesting because so many of these stories that we tell.
There's an an immense element of genius. No question, Erwin Jacobs and Jensen at at NVIDIA and Steve J geniuses. And also ten people in the world who knew this stuff at the time, and they were among them.
incredible right place, right time in history, too, because without studying under Claude Shannon, the father of information theory, it's extremely unlikely that Erwin Jacobs becomes the Erwin Jacobs he went on to be.
And then
without what's gonna come later in Hetty Lamar that he would start. Quelcom. Uh amazing.
So
Irwin is so young Irwin is so talented that um
After he finishes his PhD in three years.
you know, mere like five years removed from being a hotel management major at Cordell and Shannon and MIT.
Ask him to stay on as a professor.
an MIT like immediately. Um
Which he does.
He spends five years teaching at MIT.
During which he teaches the first course.
Like for
Students.
uh on digital communications.
In the world, I believe, you know, like applying Shannon's theories.
to like disseminate amongst like practical engineers being trained at MIT. Yep. He and a fellow faculty member.
write the first textbook on digital communications that is still in use today. You can still like it is the Bible of digital communication theory. Uh you can buy it on Amazon, uh and written by
By Erwin distilled, you know, from the father himself of Claude Shannon.
Um he spends five years teaching there.
And then in nineteen sixty four.
He takes a sabbatical.
And heads out.
Two.
California.
To do a sabbatical at

working on
The U S space program.
uh and communications with with satellites in the US space program at the time. Where
He intersects
Fatefully.
With another.
Recent.
MIT electrical engineering.
Yeah.
One
Andrea
Or Andrew, as it was anglicised, Viterbi, a Jewish immigrant from Italy.
who got his PhD from MIT in nineteen fifty seven, who was working
At GPL.
And they become
Fast friends. So fast friends, in fact, that when Erwin
Returns.
Back to Boston.
Two
cold, snowy, uh bleak Boston near his upbringing in Massachusetts. Uh
After his sabbatical.
Irwin then gets a call shortly thereafter from one of his former professors at Cornell.
that a new engineering school
In San Diego.

The new U C
San Diego.
And there's an opportunity.
for Jacobs to come out and start the electrical engineering department at UCSD.
He says well
I really enjoyed my time out there. I've got this great friend Andy. Let's do it. I would make the exact
Same decision.
So
He and his family, Erwin and his family move out to UCSD.
And
While he's out there, he continues doing his contracting work.
With
Defense contractors and JPL.
And the US space program. And this is sort of one off at the at at this time. I mean he's like doing it under his own name. He hasn't really started a company. It's just kind of Irwin doing contracting.
the first, you know, like electrical engineering professor at UCSD, that's his full time job, but because he's in such close proximity to everything going on at JPL and NASA and the like, um, he's doing that on kind of like one day a week ish.
And one day.
He and Andy.
And another professor from UCLA.
Are up at Nassau Ames in Mountain View.

And they're all kinda lamenting. They're like,
This is super cool that we're doing this, we're making more money than academia, we're helping our country, we're participating in the space race. Um
But it's kinda hard to like balance all this stuff that we're doing. And they're like, hey, what if the three of us

And form a company, kind of a shell company, to just kinda manage this consulting work that we all get. We could probably get some efficiencies here, maybe hire an assistant, help us out, that kind of stuff. And they say, Great. We don't intend this to be uh
real company. We're not gonna make any products or anything. This is just to manage our our consulting. Um
Uh they sort of tongue in cheek decide to call it Linkabit.
Like linking
A bit. Uh very like academic joke.
Uh so who is this
Third.
Partner.
And link a bit.
Um
He ends up
not kinda gelling with the other two, uh leaves shortly thereafter.
His name is Lynn.
Clinerock. And I read that the first time and I was like I've heard that name before. I know that name. But I'm gonna guess 99% of listeners haven't heard that name, but if you're you and me and all we do all day is study tech history and you know the history of the internet.
That name should ring a bell. Yeah. Well, you know, at first you you read this history and you're like, Man
Bummer for Lin.
Well
He actually ended up okay because instead of founding Qualcomm, he founded the Internet. He literally was the the I think the founding engineer on the ARPANET project at
DARPA. I don't know if it's the precursor to DAPANET, which is the precursor to the Internet. Len and one of his grad students at the time at UCLA.
Like
The next year, right after this has happened, this is all happening at the same time.
They sent
The first message
on ARPANET ever. Like the first
Internet.
Transmission.
Ever from UCLA to Stanford.
He's one of the core founding fathers of the internet. So he ended up doing okay, he probably didn't make as much money, but uh he will be remembered in history.
Pretty amazing.
Um
So
And the
And Irwin.
They're mostly continuing to work on
NASA and Navy defense projects in San Diego because of course
San Diego is a US Navy town.
Um
And most of what they're doing.
Is working on
Satellite communications.
And if you know anything about satellite communications, the bandwidth you have available to you is very
Very narrow.
To be very, very efficient with your communications. And that's still true to this day. I mean any any uh
company in the sort of emerging space economy.
It's a totally different engineering problem than you're used to
today because if you ship code up to your satellite and you find a bug.
It's like very expensive and very slow to go get enough bandwidth and actually make sure you have the right time window to update the code on the satellite. So it still kinda works the way that computers worked 30, 40 years ago. Yep. And so they're too you know it wasn't them, like this was the military. There was this they got exposed to this.
trolling around to find the most best, most efficient ways to use this narrow bandwidth channel that they had
And
What ends up getting used but this
Old
Patented
Spread spectrum technology from the World War Two era.
Invented by Hetty Lamar and George Anthiel. And the the timing is perfect because the time of Linkabit.

Early seventies.
Oh, link if it's early seven years.
Oh yeah, oh yeah. There's a LARN. Oh we uh y you might not know. I've got some good surprises for you.
So
They start doing more and more of this.
Um
Erwin's exercising the like hotel management sort of side of his brain as he's doing this. He finds that he really
Enjoys it. Um
They
Start bringing on
other professors, other grad students into Linkabit.
To kinda build this sort of like
Army of the greatest, you know.
information theory and wireless signal mines in the country.
All for defense contracting. Almost all for I don't think they were doing any commercial work at this point. I think it was all NASA and defense. And almost all satellite work.
Uh and so they start building the company that eventually
In nineteen seventy one, there's so much going on.
Irwin decides he's gonna take a sabbatical from UCSD and spend a year just organizing the company.
He ends up never going back to UCSD. Ever because uh
During that year.
They get the
idea. I believe it was during this year. Maybe they'd start to have inklings of it before that um
You know, it it's really nice. They've got all this technical talent. They're consulting
on these projects that defense contractors mostly are the prime
Yeah.
They're like
Wait a minute.
Those guys are making all the money.
We're doing all the differentiated like engineering work here.
What if
We started
Bidding on some contracts.
ourselves. We would probably make a lot more money as like a kind of product, like you know, contract focused services company ourselves rather than just as a
sub consultant on these projects. And that that lesson persists to this day, too. If you can pull off being the prime contractor to the government on a a big contract, that's the economics are much better than if you get subcontracted by one of the primes.
Oh man, if you can be a prime, I mean the Primes back then, Primes being prime defense contractors, they're still the Primes today. Like that is a gravy train that like Yeah, Raytheon, Lockheed, Boeing, all these companies.
So of course they start doing this, but like there's a reason the primes then are the primes now.
Linkabit is not gonna be a prime.
Then or ever. Uh so they need to if they're gonna do this, they need to move into the commercial.
Sphere.

So this is this is like one of these just like so good. It's it's like history was like made for acquired. Do you know what the first
Like contract.
Project.
The link of it.
It was if you knew you would just be like smiling so wide right now.
So
They hear about remember their expertise is in satellite communications.
They hear about
Mm.
Regional retailer.
No. Did they do Walmart satellite network?
Yeah they did. What
Excentric founder.
of this small midwestern regional retailer that for some reason wants to beam himself talking every day to all of you know from HQ to all of the local stores.
of this uh local outlets of this retailer.
Link of its first project.
is doing the satellite communication system for Walmart. That's wild. Listeners, for anyone who didn't listen to our Walmart episode, Walmart
was for a very long time the most innovative retailer on the planet. I mean ba until Amazon basically. And one of the illustrations of this is in the late 70s and then continuing into the early 80s when they actually lit it up, they invent they invested tens of millions of dollars into building a private satellite relay.
because the bandwidth available on the internet was insufficient for them at the time of the ARPANET, doing it. Phone lines.
you know, send the store data that they had actually been collecting and want to tabulate their results on a daily or weekly basis, but also this like Sam wanted to broadcast out the Saturday.
Oh feelings. So great. Wait, there's more Walmart to come a little later in the episode. Stay tuned. Uh literally.
So um
You just crack yourself up.
This is funny. We'll probably cut this for the actual episode. We get occasionally we get these reviews.
uh for acquired or like comments that like
One host is like really normal and the other host is just like crazy person And I'm like, Well, you know, at least they remember me. We are who we are. Nothing's changing at seven years in, we're not
Yeah. I promise you it's not an act. Ask my wife. Uh
Okay. So
The next thing we'll be getting to is um
Because they're in they're in video, they're they're they're in satellite.
They're in video now with Walmart, uh, and they're doing these two way communications.
They build
The
Video
scrambling system for
Pay TV on cable systems. So it used to be before
The link a bit solution for
m uh multiple access cable systems. Um if you like were
Even mildly technical or could like
play around with like a Allen wrench. You could do you could get HBO or any of the early pay TV channels for free. Yeah, the the the catchphrase there is security by obscurity. Yeah. It was to try and, you know, find one clever thing that consumers weren't likely to figure out by unscrewing their box and, you know, moving one wire or something and
So
Jacobs and Viterbi and all the the brain trust at at Linkabit they they solve that problem. Uh and the uh HBO uses them and then all the other all the other um
Uh big pay TV channels. I think that's the inspiration behind the HBO uh opener, by the way.
Uh so great. That's Erwin and Andy right there.
Um
So in nineteen eighty, they do this for the whole decade of the seventies.
Um
In nineteen eighty
The
Uh link of it, the company.
gets acquired by a East Coast radio technology company called Maccom, I think is how it's was pronounced. It used to be actually MACOM and then it
Yeah, this like weird.
eighties branding stuff, they changed the brand to M slash A C O M. Microwave Communications, I think. Um anyway, they sell the business for twenty five million bucks.
in um nineteen eighty, which like nice early win. Not bad for some former academics, twenty five million bucks in nineteen eighty dollars, like and they had a lot of people at this point. I think there was like over a thousand employees.
Matcom to that big. So I don't think it was it grew to fifteen hundred people eventually. This is a big freaking business. Like you can imagine, the things we're talking about, like a lot of other retailers started using, you know, satellite networks. A lot of other cable TV, you know, channels wanted to use these, like, and there were other products that they were building. Like this is a

Yeah. Basically they made a big mistake selling the company. Um they they hadn't listened to acquired, they didn't have all the lessons and they wouldn't have had Qualcomm if they didn't sell the company.
That's true.
T.
made absolutely the right decision in selling Link a bit then. Uh so they stay with Matcom for five years. And then there's a leadership change at Matcom and like this is an East Coast technology company.
So they all leave.
In nineteen eighty five.
And
They sit around for a couple months.
And
You know they're like
Like we made more money than we ever like dreamed we would. We got to be part of so many cool things.
We're still young.
And like
The
Wir
communications industry is
Kinda just getting started. And this is nineteen eighty five. So
Uh.
The cellular
telephone industry exists at this point. It had just started. We had the you know how we uh we're on 5G now, and everybody remembered is the iPhone 3G, that that second phone.
And the edge network that that the first iPhone launched with was uh 2G, it was a little advancement on 2G. This was 1G. This was 1G, which was analog. No digital yet in in cellular, analog cellular. And cellular had just been an innovation. I mean this notion that rather than communicating over long distances.

cell towers so that you only needed to communicate with your local tower and that that could be relayed and you had this sort of cellularification of all the geography that you needed to cover.
That was new. And it's funny how today we we don't even think about what the word cellular means, but that was the most recent innovation at the time. Yeah.
You know, Erwin and Andy, like they're
They are first rate acad academics, you know, as hopefully we've told the story here, like among the most brilliant minds in the world, but they're also like especially Irwin, like incredible
Business people
market analysts, like they're very aware like the products they developed at Link of It, they're aware that this market is coming.
And
And the reason they're so aware.
Like technically it exists now, cellular.
It's all car phones at this point in time. Because
The way
It works. It's it was essentially it was just like the torpedoes back in the day. It was
Essentially a
F M
radio broadcaster that you would wire up into your power car. Super high power. You needed like a lot of freaking power. You had to put it in a car for what you're talking about and because you couldn't like the there was not a battery available to
You needed a running internal combustion engine to make this thing work. On the endpoints.
And
bandwidth was super limited and like these systems were thousands and thousands of dollars in early eighties dollars.
And despite all that
The consumer demand for car phones
was
Insane. Like in like this was just like
You know, there were wait lists years long.
for consumers to get car phones installed and the
fledgling carriers at the time, like they only had so much bandwidth they could fit because literally it's you know, there's no you there's no uh efficient use of channels. It's just like the torpedo back in the day. Uh like they couldn't

The demand. I mean, I remember when my parents who were lawyers
Like they had car phones in the eighties. Did your parents have one? No, my great uncle had one. But it is interesting thinking about, you know, when you're listening on an FM radio.
You have
99.1, and then you click up on the dial and it says 99.3, and then you click up and it says 99.5. And you can't even have 0.2, 0.4, 0.6, because that's too close. There would be interference. So you start thinking about and this isn't exactly right, I'm gonna oversimplify this a little bit, but you start thinking about, well, geez, how many slots are there?
To communicate
in this analog way with a cell tower near me. What can a cell tower handle? Hundred phones? Two hundred phones? Five hundred phones? Either way.
It's not gonna skip. Yeah.
Yeah.
Radio stations there are.
It's not much more than that.
Mm-hmm.
So
You know, the link of it folks are running Nandy, they s they see this. They know and they're like, Oh
This industry is in its infancy. We see this amazing demand.
We are literally the best we know there's a better way to do this. We know you can do this digitally. We know you can do it way better. We know how to do it the best. So they found a new company.
In July of nineteen eighty five, with seven
Seven in total. Andy, Irwin, and five other.

At Irwin's house.
And they decided to start this new company.
And they name it.
Welcome.
Quality communications. Which is short for quality communications, which I had no freaking idea when we did the research. But then you're like oh
Uh uh.
quality communications. And then when you know all this history, it makes sense. Like they are the highest quality, you know, but they they know how to do quality communications.
This is a communications company and they can provide quality that nobody else can do. There's so many companies named this way too. These things become these household brands and then it's it's like you don't even think about what the original meaning was.
Totally. Because like the industry was still so early and and and you think for a minute about
What is involved in building out a
cellular telephone network.
There is enormous capex, like you know, laying like cable, we've talked a little bit about the cable industry history on acquired, like that required enormous capex. Like this is like literally.
Putting towers in the ground, putting base stations on them, building these thousand dollar mobile phones. It requires a lot of money to participate.
In this. It's money and it's a bunch of competencies because not only when you are you thinking about the real estate for the tower and putting in the tower and putting the base stations on the tower, well then you need to figure out well how are those towers what's the protocol, what's the technical method that it's communicating with phones and making sure that
The phones have all the correct hardware, and it's not just antennas, it's very specialized chips.
And so then you're like okay well
Do we need to then make phones and do we need to build a consumer brand and do we need to market to consumers?
Do we need to be our own carrier? Do we sell to carriers? There's a way to
Sort of like
Bite and try and eat the whole elephant here.
Or you could say, okay, we're just going to try and be one small part of this, because we have an idea for how to make this better, but if you're just doing one small part of it and inventing the means by which the the technical method that the phones communicate with the towers, there's a bunch of stakeholders that you've got to get on board with your thing, carriers.
the government in terms of licensing spectrum, phone manufacturers, chipmakers, base station makers. So there's this really interesting
Crux that they're at at this point of the company when they're saying, we know we can do this better. We have a specific idea about how to make this better, which we'll get to in a second.
But
And this story, you know, this um
Hopefully this first, you know.
Forty five minutes of the episode was interesting. We know fun telling this like crazy World War Two Hollywood, you know, history of all the technical aspect that comes to this.
The business history of Qualcomm

It is one of the most brilliant strategic
Executions.
Of entering a market.
Uh period. If not. Honestly.
More brilliant.
It seems more difficult. If you were to pitch me this idea a priori as an investor, I would tell you immediately no.
I see 15 different needles, all of which you must thread perfectly, a story that's entirely path dependent. So you're not gonna get one thing until you get the previous thing, and that was a needle that you were threading. So the likelihood of success is unbelievably low.
And yet here we are talking about Qualcomm.
So
They
New two things.
at the outset of founding.
This is a massive opportunity that they eventually wanted to pursue was bringing their expertise.
Two
bringing cell phone terrestrial cell phone networks into the digital era and building
the dominant guerrilla company in this soon to be massive industry.
And two, they knew they couldn't do it yet.
So they actually started
In the same
fashion that Linkabit did. They're like, okay, we're gonna bootstrap up.
by doing consulting work. So one of the first consulting projects they do is with Hughes.
You know, like
one of the p defense primes. He was like Howard Hughes. Um uh pretty awesome. Uh
On a proposal to the FCC for a mobile satellite network. We'll learn about consumer mobile telephony services, enter the market, while work on the satellite network. And we're talking like Jurassic Park SAT phones. Yes. But like when you really need it.
It's nice that there exists a sat phone network. Yes. So while they're working on this, they're like working on like, okay, how can we like we're the experts at, you know
Um
Optimizing uh satellite communication channels for efficiency.
They come up with an application of spread spectrum to use multiple access uh
Multiple conversations access the same channels at the same time.
Uh call.
That they
They use a technique called
C D M A.
Code.
Division.
Multiple.
Access. Which the first time you hear this phrase sounds like complete jargon, like meaningless, and and and then you stare at the Wikipedia article for a while to try and unpack each one. So we'll break it into parts. Multiple access.
Well that's that's fairly straightforward. Rather than being broadcast, so like
a TV network, we have multiple endpoints that all want to communicate with each other using whatever the same communication medium is.
So
Rather than
Using
one single frequency.
to all try to s try pile on there at the same time, which of course wouldn't work in that analog world that we were talking about. I want to call you on ninety-two three, you want to call Bob on ninety-two point three, my mom wants to call my dad on ninety-two point three, you quickly get into a situation where like everything is just colliding with each other. So multiple access
On
just an a single analog frequency doesn't work, so you gotta divide up and say everybody gets their own frequency. And that's sort of the the the way that uh
Um the way the world evolved. So you mentioned code division. Before we get to code division, can we talk about a different type of division?
Yes,
Uh we certainly can. So before we get to the CD in CDMA, code division, let's so we we've got the multiple access part. Bunch of bunch of people trying to communicate using the same medium.
Um
Well the things that we were talking about before, everybody gets their own frequency. That was called FDMA, frequency division multiple access.
a pretty straightforward way that you might divide up the airwaves in order to have multiple conversations. And the way the telecommunications industry works is remember I opened the episode by saying it's basically a layered set of magic tricks.
This is sort of the the next iteration on top. And if you say, okay, rather than sending analog signals, what if we were sending digital signals? So if I'm talking to David, there's a lot of sort of pauses, about half the conversation is actually empty air. And if
two folks out in the audience are talking to each other, a lot of your time is actually empty air. So we don't both need the entire frequency all the time.
And if we are communicating using a digital signal instead of an analog signal, then actually we can parcel up
the information into digital packets.
the time of when different packets are being set. Right. So you know uh the very crude example is if we're at a dinner party, I can have my conversation for 30 seconds in a room, and then you know uh a uh I pause and I stop talking, a different conversation can happen for thirty seconds. Of course that's too crude and that's far too long in a time division network.
What you'd basically do is say
I get some digital packets for these milliseconds, then the next milliseconds, you get your digital packets, then the next few seconds few milliseconds someone else gets their digital packets, and we'll keep round robining it between the 20 conversations that that we're all having. And when it gets reassembled on the other side by some other phone or something.
Thanks to transistors and digital technology, this can all happen fast enough that like you don't even notice. Yeah. You're like, oh the signal maybe sounds a little compressed. It's not as good as if we're talking to each other actually face to face, but there's no like weird blips or pauses in the conversation, even though we're
All borrowing.
different time slots on the same frequency, it actually sounds pretty smooth to me. So that's the next iterative invention.
way farther ahead than the US. Europe was basically ready to implement this.
time division multiple access digital standard in Europe for European cell phone technology. And that was driven by Ericsson, the
Big European. Um
uh infrastructure provider.
Big innovation going from y maybe twenty, thirty, fifty X, like you you get a lot more capacity.
by saying instead of just one person gets a frequency at any given time, you now get a whole bunch of people who can use that frequency because the signal is digital, because of time division. This is the movement from frequency division multiple access FDMA to time division multiple access or TDMA.
He said thirty fifty. Maybe now that kinda is, but like back then it was three to five X. Really, I think the right analogy is like um
It is time sharing. Time sharing is what it is. And it's kind of like the old computing model of like timesharing on a teletype on a mainframe. That's what's going on here.
And so
Over to Qualcomm. So they they're they're thinking about doing this this satellite communication thing. And remember
Irwin studied with Claude Shannon, so he's always thinking about what is the most efficient way to use
all the way up to the theoretical limit of how much signal can be
communicated in a given medium at a given time. And he's sort of looking at TDMA and they're like
Uh.
I think there's something even more efficient than this, and we need something more efficient than this for this.
satellite network.
And
These guys were all around the beginning of the internet.
Yes. And like you think about if you know anything about how the internet works, networks generally. No, it is everybody compresses their data as much as they possibly can.
into a digital packet, they fire it off and it bounces around a series of of places until it hits the other side, gets decoded, and hopefully the protocol is written collect correctly, where as you're sort of opening your packet and and sequencing them all in the right way, it seems
Perfect and how the message was originally intended to be when it was encoded in the first place.
Coded. And that's what these guys figure out. They're like
Duh, we'll just use code.
And then like
Everybody will send all the conversations all at the same time, all across all the different channels, will maximally efficiently use
All the spectrum allocated, and we'll just append the little code to the beginning of each digital conversation, and it'll get reassembled.
On
The back end.
Basically the same way the internet works.
Yeah. So to break that down further, so you've got this really interesting situation now where
All messages are encoded digitally.
And I I keep like going back to this analogy that they use in the telecommunications industry uh of the dinner party. So rather than uh the sort of frequency, the FDMA model of everybody's in their own room having their own conversation
you know, that's not super efficient, or TDMA, which is you put five or ten people in a room, but they need to wait their turn to have their conversation.
Well what c code division basically is, uh the the as the analogy goes, is well everybody can communicate in whatever room they want. They're all just communicating in their own language. And the person that they're communicating to understands that language. So they can sort of listen and and disregard
Noise that's coming in and expecting your message to be.
I had breakfast this morning. I either know you said that or you didn't say that. Right. You're like I'm disregarding all the Spanish and I'm just listening for English that sounds something sort of like
describing someone's state of breakfast. And that's an oversimplification. If if you really wanted to sort of dig into it, what what you're basically doing is uh you run any given packet through like literally an encoding. So maybe my encoding is one zero zero one zero so you detect
So you encode whatever the packet of information is, you run it through, sort of add it to one zero zero one zero, and then you end up with this signal that you can sort of stack on top of other messages. So imagine a digital signal, like a digital wave where
All of our messages are layered on top of each other. So the top of the peaks of some of the wave are extra high and the troughs are extra low for others. And when it all arrives all together on the other side.
the other side knows how to decode all of our messages. So it individually subtracts all of our messages, which are layered all on top of each other off the very same digital signal until it basically has all of our messages spread apart. It disregards any of the ones that doesn't match the code that I'm looking for, that I'm listening for, and it says I'm
I just care about it.
the message that came from Ben, which was 10010 or whatever code I just made up.
And that's reassembles it.
And what these guys do, just this brilliant like
They saw it, they had the background, they had the engineering. They they're like
Everything, right place, right time.

They developed this.
And they freaking
Patent it.
In nineteen eighty six, well before years before Qualcomm gets
actually directly involved in the cellular industry at all.
They patent.
The
Method and technique for code division multiple access applied to terrestrial.
cellular networks in nineteen eighty six in US patent number four million.
Nine hundred and one thousand.
Three hundred and seven, which is one of the most valuable
Patents.
In history.
Real. Like literally they played such a long game and they threaded needle after needle after needle and that was just the first.
And when you think about why that is so valuable, when you really distill down what the CDMA patent is, it was the very first time that you could say
Well
Rather than thinking about one.
d one specific frequency. Just imagine you have all the frequencies available to you, and everybody can all the time broadcast their message on whatever the next available frequency is, and we have the technology to just figure it out on the other side.
Oh, and by the way, you don't even need to do it with super high power, so it's good for battery life and that sort of thing. Because since it's encoded, an internal combustion engine to power this thing. Right. The other side knows what it's looking for. So this is the equivalent of there's a bunch of people whispering in a gigantic house to each other, all in different languages.
So it's this like way more efficient way
to use a given medium to have the absolute maximum amount of conversations or signal transmission in that medium.
Okay.
So
Qualcomm founded nineteen eighty five.
Patent issued.
Nineteen eighty six, or applied for in nineteen eighty six. Which is worth remembering, so it'll expire in two thousand and six.
No, that's right. That's right.
Looking ahead. Foreshadowing. Uh
Qualcomm doesn't enter.
The wireless industry.
until nineteen eighty nine.
What happens in the intermediate.
This is
This is the next Walmart. Oh it's so good.
Uh

To bid on another contract.
Fledging Qualcomm does from a company called
Omni net.
Which has
This
Idea.
That they think the Qualcomm folks are gonna be perfect.
to implement. They want to make a mobile
Satellite network.
specifically to connect
Commercial.
Semi trucks.
On the roads.
In America.
For
retailers and other uh people who uh companies who ship a lot of things in the US. This is right in their wheelhouse.
Walcom and and Irwin are like, great, we're gonna bid on this contract. They win it, they start working with OmniNet.
And they
Make it work.
And one of the very first customers is of course.
Walmart.
Which implement it on their own proprietary fleet of trucks. Building further their technical advantage over the yeah.
Just about every other retailer in America. Trevor Burrus And at this point they've walked away from the satellite contract, right? Yeah. Trevor Burrus So they developed this technology, they patent it, they were like, Oh, but there's no money here because the contract. Yeah, the FCC was like, yeah, satellite.
Jurassic Park phones not gonna be a thing. So instead they're focused on this.
Omni net.
So they focus on this and they also have like a lot of the
business, you know, relationships already from the previous iteration of what they were doing in Linkabit, including with Walmart and many of the other large companies and retailers.
Uh I believe it's
Schneider, uh
Chucking becomes one of the actually the first customer, I think, for that.
They work on building that. It becomes pretty clear like
This is gonna be
the interim main product. Uh Qualcomm and OmniNet merge.
in nineteen eighty eight.
They raised three point five million dollars in funding as part of that.
They bring the product to market.
At the end of 1988 as Omnitrax, people might have heard of it. Uh it was part of Qualcomm for a long time before I believe it ended up getting spun out to private equity.
And in nineteen eighty nine, in the first year of business for OmniTracks, they do thirty two million dollars in revenue. In nineteen
Eighty nine. Which is something like it's like inflation adjusted a hundred million dollars. It's a lot of money.
And there's a lot of demand for this product. Year one.
Um
Now there's a lot of cogs. Like this isn't SaaS revenue. No, yeah, yeah. And there's particularly a lot of cogs because one of the things they learn from doing this and one of the reasons the companies merge.
The first, kinda like the Linkabit days, you know, they remember Walmart was their customer for the Linkabit satellite, you know, thing. Walmart is very happy to integrate and implement technology themselves.
Most other customers are not. So they go around and they're like, you know, pitching this to trucking companies and retailers and the like, and and most of them are being like, well this is like
Cool, but um we're not gonna operate our own dispatch centers and messaging. We try to have as small an IT department as possible. Why on earth are you asking us to do all this work and just handing us this pile of technology? Yeah. So Irwin uh is like well
What if um
What if we just operate it for you?
And
We provide a
whole full stack solution. We don't sell you a technology, we sell you a
Solution. Which is like every enterprise company that you ever you know a company has become enterprisey when they cross the chasm and their website no longer has like products, pricing.
About
And it changes to solutions. Yeah. Solutions. They they they uh make the uh business discovery of solutions.
We also say like
This is a tremendously diluted financing event.
Th this is Qualcomm saying we need money so badly to fund
the development
of Omnitrax for this this customer OmniNet.
That
The most attractive option for us is to sell half the equity in our company. So everyone gets diluted 50% by merging with the customer themselves.
in order to get just a few million dollars to continue funding this effort. It's a pretty different time than today where you go raise a seed round and you sell five, ten, twenty percent of your business for
I don't know too many seed rounds that are happening for a five percent dilution these days, but uh but they were.
And so it's a it's a very it's crazy to think the position that they were in where everyone was looking at Irwin and he was like hey, I think this is literally the best path forward in order for us to get the few million dollars we need to get. I think some people were pretty bitter about this. And you can imagine too, it's not like an idea.
They had done a bunch of work already. This was going to happen. They were going to go to market. They were just a couple years away from
making a hundred million dollars and inflation adjusted dollars
And yet they had to give up half the company. They literally were a couple years away from making actual 100 million because
The business doubles every year for like five years from a thirty two million dollar base. Wow. Friggin' awesome.
So now that this is in place, they're like all right, we have both
A cash flow spigot.
That we can use
And now like a base of business that we can finance and like borrow against and raise equity against to pursue
The real big idea in our
original patent.
And
Uh you know, here's here's the other just you know, brilliant thing. What happened originally was not an effect. There were other people
Who
knew about code division multiple access.
Um you know other folks could have been in a position to patent this and pursue it.
But at the time, nobody believed it could actually work because you needed such sophisticated processing power on both the
endpoints on the base stations and the endpoints to actually make this work. Like it sounded completely freaking crazy. It needs to happen in real time. I mean people need to have conversations without a perceptible delay and you are
cutting a con you're you're first doing the uh the analog to dig digital encoding, where you're taking their voice and you're actually turning it into a digital signal. You're cutting it up into a bunch of packets.
You're encoding those packets with every user's unique code. You're sending it over the airwaves to your most local cell tower. That cell tower is relaying it across a variety of other cell towers to where the other person on the end of the conversation is having the call, and then the whole pipeline is happening in reverse.
On the handset. On the handset. And so this is the thing, like me.
on the base stations on the infrastructure side. But like the idea that like
In a car, like something powered by an internal combustion engine, like in a car or or heaven forbid, not a car, like a mobile phone, like a Zach Morris phone that you know somebody would hold in their hand, that you could do this.
on something like that was crazy in nineteen eighty six
But the Qualcomm guys, they know about Moore's Law, which like most people didn't know about at that time and they're like
Yeah, I'm pretty sure you give it one or two more, you know, turns of the crank on Moore's Law here and like I think we could maybe do this.
There are so many things that we've talked about in the last I mean on acquire generally, but especially in the last year, where there's success
came from correctly forecasting where Moore's Law would be at the time that they ship their product. So knowing that something at the time of shipping. But when we're gonna ship this, which is still gonna be several years in the future, it will be possible then. So cool. And like the fact that it's just like there were so few people that knew that then.
And like ah crazy.
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So in September of nineteen eighty eight.
All these factors, you know, they've got to be a little bit more.
the financing capability to take a swing at this.
They see a path with Moore's Law to it being technically feasible. They've got the patent. They're literally the only ones that can do this.
And then the market timing.
So in September nineteen eighty eight,
The US
Cellular Telecommunications Industry Association, or CTIA, as most people know it, and then uh its related entity, the TIA, the Telecommunications Industry Association. They release
Performance requirements.
uh the spec for performance requirements for the planned upgrade of the US's
Cellular.
networks from the analog one G networks to the digital
Two G networks. And this is just the US one. Europe has its own. Europe's already well on its way. GSM, Ericsson, TDMA, it's all happening here in Europe.
Um
The Qualcomm folks, of course, they eagerly anticipate the release of this spec and they look at it and they're like, Oh my God, this could not have been written better. It's written for us. This is a dream. It's written for us. They realize two things. One, of course, TDMA is the the frontrunner and Ericsson and all that to like
You know, do the US too, because they're successfully doing it in Europe. Trevor Burrus, Jr. And not only is it being done in Europe, it makes sense to adopt in the US too because it's kinda nice to have a global standard, and because it's quite believable.
Like okay.
One big thing I have to believe is we're switching to digital. I can believe that. Another big thing I have to believe is that you're able to use the same frequency for several conversations at once through cutting up di different time windows.
Okay, I can believe that, but gosh, how much new stuff are you trying to invent all at the same time? Anything better than that feels like I got to take a leap of faith. And show me it can work, and Ericsson's well on the way to like pilots proving showing it works, this actually works. They're big companies, they've succeeded before, they're the right vendors that everyone trusts. So the spec that the CTIA publishes.
Clock up guys. So this must have just been like beaming ear to ear. Uh
They realize that T DMA, because of the capacity limits of T D M A, it's not gonna meet spec.
Like
You can have the best implement implementation of TDMA. It's not gonna
allow for enough compression to actually meet the spec that the U.S. wants to hit. So here this this is a I've been I've been like waiting to bring this thing up. So at this point in history, the U.S. standards body has is
correctly forecasting
the incredible popularity of cell phones in the US. So they they're setting a really high bar for the amount of phones that need to be able to use this network.
And the reason that they have uh since changed their tune is in nineteen eighty, this is a fun bit of trivia.
A T T.
who has been the incumbent for a hundred years on all things telecommunications, commissioned McKinsey and Company to predict cell phones. It all goes back to McKinsey, always.
To predict the cell phone usage in the United States
in the year two thousand. So flash forward twenty years in the future. The consulting group argued that cellular t telephony would be a niche market. Ah yes, of course. They forecasted nine hundred thousand people
would be subscribed to a cellular telephony network in the year two thousand. Trevor Burrus I think I have nine hundred thousand cellular connections personally. So as you know, that number was off by
Over one hundred X.
There were 109 million people, not 900,000, 109 million subscribed in the year 2000. So it does make the point that in 1980, it was super not obvious. Like you had some of the smartest people in the world, both in domain depth at ATT and just good business model thinkers at McKinsey.
Wildly misforecasting this. And to illustrate how big the miss was, ATT eventually bought cellular for$12.6 billion.
To become ATT wireless, which is the ATT we actually all know today, and catch up in mobile telephony. So that this like 2G spec that was written.
is is right around the time that
Uh a lot of the people in the industry are starting to realize, like, uh-oh, were we super wrong in what we all thought just a few years ago the potential of this thing was? So that's like you know, back to the original Edwin Lann quote starting the episode of like creativity like one act following another.
You know, uh enabled by it, suggested suggesting the next like this is the next like needle day thread, you know, domino that falls of TDMA didn't hit the spec. And they could kind of foresee this, you know, um because they knew what the demand was and they knew TDMA wasn't gonna be able to do it.
So uh

Here's the next this this is cool. Like we I didn't expect to get into kinda like geopolitics on this, but um
The one great th you know, the US has like a ton of bureaucracy and regulation, like all of this being like, you know, case in point. But
One
Incredible. I think this took five years to eventually. Well, and like these standards bodies and like all like this is this is not the free market, like by any means. But a
The one
Difference.
In the
US process for all this versus the European process.
And it was the difference.
That made all of the difference.
Was
The US government said
The industry associations, you guys can set the specs.
And all that. And that can be official.
But it's not mandatory.
So like in Europe it was like mandatory. Like
The TDMA, which DSM was based on, like mandatory. That's it. And plenty of other countries, you know, mandatory. And the US was like this is the industry standard, and like we recommend that any mobile carrier follows it.
But if you want to do your own thing, like
As long as it meets the performance spec.
You can use whatever technology you want.
And importantly, standards bodies are decoupled from government agencies. So the FCC allocates spectrum, but these standards bodies are literally just industry. And they need to exist because there's so much coordination between all the different manufacturers and carriers and companies involved that like
You need to have a standard, otherwise the innovation doesn't happen.
Because no one knows what to build against and no one can sort of effectively collaborate enough. So once all this the standard comes out, Qualcomm immediately like goes to Washington, like Erwin and Andy, I mean they go they go to they go to DC and they're like,
Hey, just to make sure.
We just want to like be crystal clear. Can you confirm to us?
That even though this other thing is the standard
If a given carrier mobile operator
Wanted to use something different. As long as it used a spec, like that's cool. That's not illegal, right? And they're like
Yep.
That's the case. They're like, Okay, cool. Thank you. We'll be back. And um, so that was like the next needle they thread.
They're totally undaunted.
They go and they're like, Great.
We can go pitch individual carriers.
On
Using CDMA.
As a technology. So they start
A sales process. This is now the beginning of nineteen eighty nine. They start a road show.
They go out pitching this new
Novel.
C D MA standard versus the T DMA
Industry standard. And this starts what is known.
In the Wikipedia entry for all this. This is like canonically known.
as the holy wars of wireless. And uh there's so much telecom nerdery. And it really is holy. It really is holy wars.'Cause it's about belief. So many people were just like I don't believe you that CDMA will work.
And
Uh
You know, it was literally only the clock on folks who
Thought it would work.
Um
And not just, you know, I I'm reminded of the Don Valentine like I knew the future.
They didn't
know the future per se, but based on all their experience.
They were
Very, very confident that it would work.
And it would win despite the seemingly overwhelming odds.
Because they knew
A secret.
Which was that
At the end of the day, as long as there was not government enforced standardized regulation.
They knew that economics would win in the market. And there's so many benefits of CDMA.
versus T D M A, we've covered some of them. Um
Yeah, one of one of the other ones is that like the voice quality is actually much better than TDMA. Like it's all like there's a whole litany of the security is much better. I mean it was originally created for the government to beam stuff up and down to satellites. Another huge one is
It literally if you're operating a cell network and you can have more subscribers per unit of infrastructure, is literally cheaper. So you're you're gonna give you a it's a lower cost technology. This is the thing. So there's one benefit.
that actually matters. All the others are like nice to have on a feature spec. There's one benefit.
Yeah.
is gonna allow them
To be super sure they're gonna win.
Which is that
It is like an
Order of three to five X.
more efficient to operate. Unfortunately they originally pitched forty X. That's the standard that everyone was benchmarking. So that meant if you were a carrier
And you went with this crazy C D M A thing.
And it actually worked.
You could fit on a given set of spectrum that you are operating with, you could fit three to five X
More
subscribers. Three to five X more monthly revenue on that same fixed cost base than your competitors who are using TDMA.
And if you know anything about like if we've learned anything on acquired about economics of industries and power and Hamilton Helmer and all that, like
If you have a scale advantage like or you have a power advantage of differential profit margins versus your competitors, you are gonna run the table on your competitors in any given market if you do this. If if a customer is worth more to me than they're worth to you and we can offer them the same value.
There I I'm gonna win. Because you can just lower prices and get all the customers and make more profits along the way. And there's uh we've only sort of scratched the surface on this episode of reasons to doubt.
that code division was the right technology. There were all these other crazy hoops they had to jump over. One of them is the the near far interference problem. Oh yeah. If you think about it, so like let's keep the whispering analogy going.
The code division idea is that we can all talk really quietly and use the smallest amount of power and the smallest amount of sort of gain in our signal.
to communicate with each other. So it's much more efficient than these all these other
um high gain, high power, high volume signals that everyone else is trying to to use.
Well
If I'm using a really low gain signal and I'm far from my my the base station, from the cell tower,
That's an issue because the people who are really close are gonna sort of drown me out. Imagine we're all whispering, but I'm miles away. Well you're gonna hear the person whispering right next to you.
So you know, the we're very early days in powerful
Chips, powerful power management.
Um
And you've got Qualcon pitching the industry that they're gonna do this, and people are like, wait.
But you have to turn down the gain on anybody really close to the towers and turn up the gain on anybody really far from the towers, and you have to know.
in real time and adjust in real time.
All of that. So you have to be good at power management chips. Also, how are you going to know how far away someone is from the tower? And they're like, well, we'll be able to just
Uh
Observe the signal.
that is coming back from the tower, or perhaps do it on the tower, observe the signal coming from the phone itself, and we will in real time determine if it needs to go up or down. And this is blowing people's minds in the mid-80s. They're like are you like, oh don't worry, we got that. In real time you're gonna
modify a signal based on what you're currently hearing from that signal. And then Qualcomm comes in way over the top and says, oh also there's this new thing called GPS that is coming out.
And we're gonna basing the technology on GPS so we know how far away someone is from the cell tower based on GPS, which doesn't really exist yet. Like there's all these impossibilities with the system that theoretically is better, but
We've never witnessed any of the building blocks that are going to go into it actually work in practice yet. Back to the magic thing, like just the technological.
Magic that went into this.
At every stage of the way.
They're like, Yeah, we got this.
Figure it out.
They patent.
Every
Single.
Yep.
Every single piece. Like uh unreal the first patent we talked about is the most valuable. But like there is a whole string of, you know, dozens, hundreds, thousands of other patents that come after this that are just incredibly valuable. So they start the red show.
Pretty quickly in February of nineteen eighty nine, uh one of the largest carriers in the southern California area, Pactel
Wireless.
It's interesting because they get it. Like this economic argument, like it's
Yeah, basically they're like.
Alright, if this works, like
Yeah, you got us. Um they put up a million dollars
To fund.
A prototype.
Like.
Prove to us that this works, build a prototype.
Qualcomm for the rest of the year works on this. November of nineteen eighty nine, they host a demo.
You know, with the Pactel money, but they invite the whole rest of the industry in San Diego.
Uh and there's famously a little hiccup where like they're about to you know uh Erwin's giving like a big speech, introducing it, then they're gonna do the actual demo. They've got vans driving around the city and then like a base station back at Qualcomm HQ, uh and they're gonna make it all work.
He's giving the interest speech and one of the engineers is like frantically waving in the back, like, keep talking, keep talking. They had to reboot the GPS system. And so like he's you know he makes a little quip of like as a former professor, it was easy for me to keep talking. He's told this story like a million times. There is something funny, too, about this original demo where they they're not a consumer
uh hardware manufacturer yet. They've never built a phone. They're a bunch of academics and consultants and you know the the electrical engineers. And so for this demo, the the cell phone that they build basically looks like a mini fridge with like a handset hanging off of it. I mean they build the most important thing that's a photo of it in the book. It's awesome.
It's awesome. Uh we'll come back to building handsets in a sec. Um
So it works.
I was like, great, we're in.
And then some of the other things. I think they're basically a Verizon's West Coast operator at this point.
Uh
Some of the other industry folks who come, they're like, Well this is impressive. It works, but like
San Diego's a pretty forgiving environment for cellular technology. Like this is a very like geographically
Easy city to
operate wirel if or in terms of wireless signals.
Prove to us that this can work in like an urban jungle environment. And uh Qualcomm's like, Okay, how about New York? And like well, we'll see you there. So in February of nineteen ninety, they do a successful
Demo in
Manhattan in New York City.
On the back of that.
They sign uh Nine X, Ninex Mobile, which is one of the largest uh New York carriers. Um and then in August they sign Ameritech, which is one of the largest.
Um
Mm.
And then
Another brilliant move. They start going international. So like here in the US, there's all this like forward momentum that's already happened with the 1G analog services and the TDMA and all that. They're like, what if we go out to countries
Where it's just tabula rasa, like clean slate. And we pitch this as like
And famous.
South Korea, back to the like government mandated standards. The South Korean government is like Yep, this is clearly the best.
Government mandated.
They were building up the first
cell phone in San K in South Korea, there were gonna be these digital, you know, next gen networks. Yep. All C DMA.
Or qualcom. South Korea.
For
uh time was I think close to forty percent of Qualcomm's revenues. Because the whole country like and it was one of the you know most advanced mobile countries. Um
Trevor Burrus, Jr. There's lots of benefits to the free market and freedom and uh benefits to uh regulatory and government capture. Coming in over the top with an edict is also beneficial.
In uh December of nineteen ninety one
On the back of all this they go public.
Uh there is.
A paltry$68 million in their IPO. Yeah, totally. A twenty twenty-one series B.
So
Um
Finally.
And
Nineteen ninety three.
The uh
US industry associations, the CTIA and the TIA.
does actually adopt CDMA as a second standard officially, as like, oh okay, now you have our blessing. It's like well it doesn't matter. We already got like half the industry signed up with us anyway. Thanks for nothing. At that point, Qualcomm does a
Secondary offering, there is another 150 million on the public markets. A couple years later they do, or maybe a year later, there raise another five hundred million on the public markets. Um they're very well capitalized. And why are they raising all this money?
Back to the
Omnitrax and like this, you know, solutions discovery of like enterprise.
The people that they're pitching is their core customers, the wireless carriers.
They are sophisticated operators.
But
There's a whole ecosystem of technology providers to them.
And they already
except in the case of South Korea. Um you know they already have
built out like towers, infrastructure, they kinda replace all that.
And so you know it's a
Big ass, even with the economic advantage.
It's a real big ask for a Pacel or you know 9X or any of these folks. If you're Pactel, you're like it sounds great to me that you are going to have this much better standard and this much better technology.
Um
Are you gonna replace my towers? Are you gonna replace my base stations? Are you gonna replace all of my customers' handsets? Right. Like all of our customers buy phones from phone manufacturers.
So are those phone manufacturers signed up? Yeah. Right.
Rat's nest of uh industry dependencies.
Yeah, Qual Company, they're like this, you know, still relatively small San Diego, you know, technology startup. They can't do all this stuff.
So they do start signing some partnerships with both base station
infrastructure providers and handset makers, they signed Nokia, big win, big European manufacturer as a as a partner.
But they realize
You know.
To do this whole solution, like specifically there there's kind of four parts.
to making a CDMA wireless network work. We've talked about all of them, but just to enumerate them here.
You need the core IP and technology that we've talked about. Qualcomm's got that for sure.
You need the
infrastructure, the CDMA like base stations that go on the towers, you know, all that like the back ends, the switching, all that you need that infrastructure needs to be CDMA. The old stuff's not gonna work with it, the TDMA stuff's not gonna work with it.
Need the handsets.
For consumers to work. Same deal, it's gotta be C D M A.
And then
Probably most importantly.
In order to make
There's two sets of infrastructure.
Work.
You need the silicon, the semiconductors.
that go into them. And so somebody's got to do all four of those things.
Uh you know like all four of those things need to happen. Qualcomm's for sure got number one covered. The question is who's gonna do two, three, and four?
I was like, you know, they sign start signing partners, but they're like, you know, we really need to spur adoption.
I think we kinda gotta do
Everything.
ourselves.
Solution.
And this is a major undertaking. This is why they raise all this money in the public markets.
Despite
I mean none of us are buying Qualcomm phones today.
Today, spoiler.
Qualcomm today is the largest
Fabulous.
Semiconductor.
company in the world. Bigger than NVIDIA and they don't make hands and they don't make infrastructure.
Bigger than Apple.
Oh yeah, yeah.
In terms of numbers of orders they're placing with chip foundries. Qualcomm is the biggest.
How do you get from there to here? So they did need to run this really interesting playbook where even though it wasn't going to be the thing that they necessarily did long term, in order to get their solution adopted, they had to do it
Let's jump it up.
So
They do a another just brilliant move.
They create two
Joint ventures.
Uh I believe
I believe both of them. I know the hands had one, but I believe both were fifty one percent owned by Qualcomm, forty nine percent owned by the partner.
On the infrastructure side.
They partner with the
Northern Telecom, Nortel.
Yeah.
Do a J V to manufacture CDMA base station.
uh equipment.
And then
Another
Wonderful acquired m full circle moment. They call up our friends in Japan. They call up our friends in Japan who at the time
They're
US manufacturing headquarters was based
In San Diego, that's convenient. California. Very convenient.
Our friends at Sony I guess uh Accio Marita was running it. Yeah at that point in time. Yep.
The Sony Corporation.
A partner.
And a Davy to make handsets. So
I I actually had a Qualcomm handset back in the day. Like one of those little fliph? Yeah. Oh that was a lawsuit with Motorola. No, no, I had a brick phone. Like a small brick. Not a Zach Maris brick, but a small brick.
The JP with Sony. That was a Sony phone. But they're doing all this to sit to be able to answer yes when a carrier is coming to them and saying, Well, great, we'll be CDMA, but question mark, question mark, question mark, Qualmar is Qualcomm's like, yep, yep, and yep, we make all that stuff. Yep, yep, yep, yep. You should feel safe adopting us.
I P
Infrastructure.
Handsets.
Silicon that goes into both.
We got all of it.
So
We just talk about one, two, and three. We didn't talk about the silicon. And to be clear on the silicon, people know the Snapdragon brand today. This is not Snapdragons. This is not systems on a chip, CPUs, this is not a competitor to Apple's.
A fifteen. This is literally the silicon to power the radios. And just that. It's to do the encoding, decoding, power management of literally just
Attenuating the airwaves.
Two
Send CDMA encoded telephony back and forth.
You're making it sound um
Um
Trivial. But this is actually this is um
This is the final.
I'm not making it sound trivial. You do it. Yeah, right.
This is the final just brilliant master stroke in this long series of brilliant master strokes that Erwin and and Qualcomm
Yeah, did it this time.
Brilliant, brilliant strategic decisions one after the other.
If this had been ten years earlier.
They would have had to do the same thing with Silicon. They would have had to partner with Intel.
Or you know, Amy or somebody. Yeah.
TI, Texas Instruments, you know.
That had fabs, of course, we're referring to um AMD founder? COVID.
Who once said that real men have fabs and of course was proven desperately wrong over the Trevor Burrus They would have had to do the same thing they did with Sony and Nortel on the semiconductor side, and maybe you know they could have had some value capture from
the Qualcomm IP, but they would have had to partner to make this stuff.
But thanks to our acquired superhero.
Morris Chang.
Fabulous.
Semiconductors.
In nineteen eighty nine, nineteen ninety, nineteen ninety one. Just starting to become a thing. Just
Starting to become a thing.
A foundry.
in house to make them and they could outsource that to do it.
Do all
The
important value added work. Like it's totally it's it's a
rigging Ben Thompson's smiling curve in this industry. If you go from you know one to four of the IP the two
manufacturing and then the semiconductors.
All the value, all the differentiation in this industry is in the IP.
And the semiconductors and the manufacturing is a commodity.
And
Qualcomm would have been a great company if they had just captured the first.
They captured
The first and the last
All of the value. Like all of the value. And it's just and and and like we talked about on the NVIDIA episodes.
It was equally crazy and like future seeing.
To know that Fabless

Um
And Qualcomm.
Did it. It's like how many times is this company going to be in the right place at the right time? And and just to you know the the silicon.
Yeah, and right, and right.
You know, uh we're gonna talk more about silicon and qualcom as as we go here. Um but you know just to to
Yeah.
Paint the punchline here.
Uh today
Qualcomm's total revenue is what close to forty billion annually, I think. Of which eighty five percent
So but for this strategic decision.
Eighty five percent of today's Qualcomm revenue would not exist.
Like and they are the largest fabulous semiconductor company in the world, bigger than NVIDIA, who's number two.
Crazy.
Totally crazy.
It makes sense. They started a couple years before NVIDIA. So compounding. It's a thing.
So
They pull this whole freaking thing off. It's just crazy. There's nothing more to say than it's just one of the most impressive business stories I have.
ever heard. CDMA gets adopted as a major uh two G standard for the next set of phones that come out. Fifty seven percent market share in the US in two G
Uh hundred percent market share in countries like South Korea. They end up
Getting
I should know this. I I'm
Either hundred percent massive market share in China, which is adopting, you know, mobile cell vision f for the first time and like just so much. So the first nineteen ninety five is the first year that
These
networks go live in the US and and internationally.

Three hundred eighty three million dollars in revenue in nineteen ninety five. In nineteen ninety six?
They do eight hundred and fourteen million dollars in revenue. Oh my gosh. But here's the here's the crazy thing. So here's another like just
Wild you can't make this stuff up.
Uh
You would think.
Wall Street would love the stock.
Yeah. Wall Street bets would be going nuts for this stock, uh the equivalent at the time.
Not at all the case.
The stock is like basically flat. Wall Street kinda hates it because
The manufacturing operations and the JVs require so much capital and they're tying up all the profits of the company.
It gets the stock gets punished basically all the way up until January of nineteen ninety nine.
And a few interesting things happen. Are you okay jumping to ninety nine?
Yeah, great. Let's get going there anyway. So a few interesting things happened in ninety-nine.
Uh
Qualcomm starts to realize it's a pretty serious drag on our business to have this super capital intensive manufacturing operations. We're funneling all this money that could be free cash flow for the business or could let us reinvest in new RD into making phones and making base stations. We got to do something about this. So in March of 99, we have a lot of the same thing.
They sell their infrastructure business, the base stations, to Ericsson, which was formerly one of their competitors.
It was part of a licensing deal of all the law.
uh settlement deal of all the lawsuits that popped up between the two companies along the way. They're like a
Oh great, we'll sell you our manufacturing tidbits.
our strategy anymore. I think at this point we've got enough momentum that we don't need to make our own base stations. We don't need to make our own cell phones. So uh a thousand of the 9500 Qualcomm employees become Ericsson employees.
Uh then they look over at their mobile phone business.
Not fun at the time, but fun now.

Employees that got transferred as part of that.
Were
So freaking pissed that they lost their Qualcomm stock options. They got Ericsson. And I don't think they even got equity at Ericsson at all. They actually filed a class action lawsuit against Qualcomm to like get their stock options back. I mean over the next eighteen months, the stock would basically be Tesla stock.
That's the this crazy moment that we're about to talk about. December nineteen ninety nine, Keocera buys Qualcomm's mobile phone business. So they now officially
Just sell chips.
that they call QTC, the Qualcomm CDMA Technologies Group. And then they've got a second group, QTL, which is qu Qualcomm technology licensing.
The business model is now set.
They make silicon.
They make
They sell very high margin revenue licenses to their patent war chest. That's the business model for the future. They no longer have this drag on them.
relatively high margin semiconductor designs. And when they're selling these designs, they're not just saying, here's a chip, give me five dollars for it. They're saying
How much you sell those phones for?
Yeah, we'll take five percent of that.
And you say,
What?
What if I want to raise prices on my phones? And Qualcomm says, Yep, you'll still pay us five percent of that. And you're like, what do you mean? I'll just go somewhere else. And they're like, Where are you gonna go? We own all the patents. And by the way, in addition to paying us five percent of the phones,
I think you should pay us to license these patents too.
And all the customers go, what? And Qualcomm goes, Where else are you gonna go? You make them sound so evil.
I mean they did invent it all, so they do have a right to monetize it, but Apple did and the DOJ did uh the the FTC suit them for antitrust. Well spoilers. We'll get to that.
the punchline of all this after the December ninety nine offloading of the handset business to Keosera, which is actually a
Uh Japanese uh company I also had
Um
Well you bought all the good ones. I got all the good ones. Well you were on uh
You were on a TDMA network, right? I was on Singular, which was a GSM network, which became e which got bought by ATT wireless, but it doesn't matter, it all becomes CDMA anyway in a sec, as we will see.
In the year two thousand.
After
The sale.
The height of the tech bubble.
You know, uh this is like on the benchmark episodes. We're talking about e b ebay.
E Boys, benchmarks making billions of dollars.
Yeah, who's going uh it's like it's the it's the internet bubble. It's the tech bubble. And people are looking around, they're like, what powers the internet and what's going to power the next generation of the internet?
Best.
Performing stock.
For the entire year two thousand.
Is Qualcomm.
Yeah.
appreciates the Qualcomm stock appreciates two thousand six hundred and twenty one percent
The three hundred and sixty six?
Days of the year two thousand. I think it's a leap year.
Yeah.
I I
It's um
Yeah, unreal.
X. In the public markets.
In one year, the best performing stock of the craziest year.
Until

Twenty twenty one. Until last year.
In the stock markets. However, you would have had to know just the right moment to sell because it did not stay up there for very long. It would crash down
over the next year such that it be an uh eighteen months such that it became only a four X from its uh pre-nete ninety nine high. But if you bought it on the way up, you lost like a lot of it. I'll take only a four X on my 2021 investments all day long these days.
Um
Yeah, pretty great. So
You know, that's that's like the core
Just crazy.

The next generation of
cell phone networks three G uh which
Ben and I probably vividly remember probably many folks listening do too.
Three G you know, there were that's when there was a lot of debate, especially in the US about GSM versus C DMA and all you know and all things like uh
Uh naively, you would think at the time, like oh well all the folks who are going GSM, like that's bad for Qualcomm.
D S M switch to C DMA anyway, so like all basically all of three G
Was
CDMA in Europe. And in the US, just w worldwide. I mean they they just ran the table. Yeah. And the and the reason for that was three G was all about data speeds, broadband, internet
data speeds and CDMA was just like the vastly superior technology for
Totally. From analog to digital. When you're talking into your phone, you've got to encode the signal. But if you're downloading a website or you're sending an iMessage or you're sending a tweet, all that's digital information anyway. So it's already packets. It like it lends itself perfectly to CDMA's digital required infrastructure.
Um
Then in
Two thousand five, Erwin uh retires.
as uh as CEO um
I believe in also as as as chairman um of CoCom and
Interestingly, his son, one of his four sons, uh Paul Jacobs, takes over and becomes the company's CEO. Paul actually
has a PhD in
Electrical engineering as well. Spent his whole career at Qualcomm, rose through the ranks, um becomes the CEO.
twenty years from nineteen eighty five when they filed that first patent, something else would happen.
So Paul Jacobs became CEO. Also in 2005, Qualcomm buys Flarian technologies for$600 million. Now Flarian did some interesting like they had some interesting products, but
they had a lot of patents that would become essential for 4G.
So
When we talked to some industry analysts about this, one view was, and I quote, it was to refill the pot of missiles that Qualcomm promises not to fire at their customers if they pay additional money. So the key set of technologies here were OFDMA.
Which is we're not gonna get into it, but it was sort of 4G was based on OFDMA instead of CDMA, orthogonal frequency. Division multiple. Yeah. We're not gonna dive into it, but it was more efficient than CDMA. CDMA, while w it was the definitely the knight in shining shining armor versus the previous set of technologies.
It didn't quite hold up to the claims or the future proofing of sort of its evolution path that
Which means by this point in time it's twenty-year-old technology.
So but what we do see here now is after the Flarian acquisition.
Qualcomm is able to continue their same exact business model because all of the patents that would be required for 4G and LTE and all that going forward, they own a lot of those too.
So the Paul
Uh the Paul Jacobs era of Qualcomm from two thousand five to two thousand uh thirteen, I think.
Thirteen? Fourteen.
So somewhere about a decade.
No, I think it's like very viewed in a very mixed light. Um his big strategic initiative was getting Qualcomm into IOT.
IoT didn't really become a thing, at least at that time. Everyone thought it did.
It was kind of like a lost era for Qualcomm. But you know when you look
Back on it.
Two things that actually like
were really great then. One was that acquisition and getting because initially Qualcomm was was fighting OFD OFDM and trying to have CDMA still be the standard for 4G.
Eventually they did pivot and and get into OFDM.
So that was kind of a you know an initial wrong move, but then a then a pivot and a save.
Um
But two, that's when they start building the Snapdragon.
Uh and and mobile systems on a chip and CPUs and taking on more of the processing on the early predecessors to smartphones and that would just put them in such a good position for the modern smartphone era.
They they sell the high end Android chip today. I mean the world has sort of standardized around Apple makes the A Series chips for your iPhone, and if you're buying a high end Android phone, it's a Qualcomm, whatever I don't know all the model numbers, but Series eight Gen 1 or something is the Snapdragon.
Teasing some of this apart very confusing, because you they've just slapped the Snapdragon label on so much that you're like, wait, but that's just an RF antenna, Hallcombs says Snapdragon, and they're like, Yeah, fake you out. Like that's the whole point of calling everything Snapdragon. I mean I guess to be fair, like the
So it can
Engineering.
And the chip design is so complete. Yeah. That is like
A million times more complex than like
any processor in a phone ten years ago. So um it is truly differentiated work that they're doing. Um but that was you know obviously a
Huge win, and I you know, to the point, I think today
Qualcomm makes on average about twenty dollars
For every
smartphone sold in the world, including
Apple.
I find
Yes. So let's let's get into that. So I I've got the timeline from here.
So
Uh
Going to two thousand and nine, this is when like all the litigation really starts to happen and people flip from
Qualcomm, we think really highly of you and your
a pioneer of technology and true inventors, which they are, they still spend a ton of the company's revenue and reinvest it into RD, but where they really start to be known by their customers and the media and the ecosystem as value capture pioneers.
And so uh they lose a loss.
That's another acquired t-shirt. Value capture pioneer. Or what's the phrase that I use for Apple, maximally extractive for their ecosystem?
Uh so Qualcomm loses a lawsuit with Broadcom in 2009, has to pay$900 million.
in two thousand and twelve, uh Paul Jacobs wa at the helm makes a
Uh um
really bad bet maybe it's a good bet, but bad outcome, on a reflective display technology called Mirasol. They spun a two billion dollar fab to make it.
Well they actually made a fab? There's also zero customers for this next generation. It was supposed to be like a screen that looks like a magazine page, but they were never really able to reproduce it.
The image quality. I was working at the Wall Street Journal at this time and like oh man.
That was the future. Turns out the iPad was the future. Yes. Steve Mollenkomf comes in and becomes CEO, or I suppose gets promoted uh to become CEO, very technical leader. He was COO before.
Uh but the problems uh problems. They keep growing revenue, they keep doing well as a company, but the the ecosystem issues for them and ecosystem reputation continues. So in 2015 uh they enter into not just an issue with other companies, but now with nations. So they have a licensing dispute with China.
You have an activist investor who comes in that same year, John of Partners to try to split up the licensing and the chip business. That activist investor is kind of saying, why do these need to be the same company? The licensing business is printing cash. And at this point in time, many semiconductor companies have split out the actual like.
Chip operations and the IP like
A lot of old semiconductor companies are basically just litigation companies at this point.
Yeah. So that's the Broadcom model. So it's interesting to say, okay, what is Broadcom at this point? Broadcom is actually a company called Avago.
where the CEO of that ha basically made a bet and said I think
the semiconductor industry is no longer experiencing growth, I think that industry should be harvesting profits. Because I think I think it's predicated on Moore's Law decelerating. But basically saying I don't think that
this industry should be reinvesting as much in R D anymore because it's a it's a settled frontier. And what should be happening is we should be rolling up these companies. So Avago buys Broadcom, takes Broadcom's name, buys some other stuff like LSI Logic.
LSI Logic. Oh big uh Sequoia win. Don Valentine's one of his very first very few investments.
Um
And and it's really the the Broadcom strategy is to roll up
The semiconductor industry.
Uh squeeze them
Well as much as possible. In fact, they're basically a private equity firm. Broadcom is borrowing
Yeah.
lots and lots of debt to make the acquisitions that they're making and then squeezing them for profitability. So
Yeah, my favorite piece of um Broadcom history trivia.
That
Avago.
the sort of core of the you know what broadcom is um
Actually
started its life as Hewlett Packard's
Chip division. What a sad state of affairs. 2015, the company shakes off Jana Partners and doesn't split out the two businesses. I think that was the right call, and I'll tell you why in in playbook.
Um but we were talking about Broadcom.
2018, Broadcom comes in and tries to do a hostile takeover at a$117 billion valuation.
Interestingly, it was financed by$106 billion of debt. So that company for the rest of its life, I mean that that would basically just be Qualcomm servicing the debt.
So
Interestingly, the Trump administration got involved and said it would be a national c
security concern and block the deal. And while that may have been true for the reason that the Singapore based on the US is a very important thing
Broadcom was sort of joined at the hip with Huawei.
This
I think ends up being a big win.
For Qualcomm's lobbyists. I think they had great relationships with the U.S. government and always have since the early days in being a government contractor.
And a lot of people that we talked to viewed, or at least that I talked to, viewed this as Qualcomm being able to call in a favor and say this is a national con security concern, don't you think? We're we're we're calling in the favor now. It's totally true. I mean like this deal was gonna go through and Qualcomm was gonna be
Everything you were just talking about with with Broadcom, which would have been very s especially now, like we know about like
semiconductor like I'm like it just like um
This is one of the huge wins of the Trump administration, uh, you know, for like
America was keeping
Qualcomm an independent American company. Like whether it was Qualcomm calling in a favor or just what like I think we can all look back in twenty twenty two and be like
This was an enormous win.
Yeah.

So um
In twenty seventeen, uh going back one previous year
Uh
Both the US Federal Trade Commission
And Apple.
sue Qualcomm for basically the same thing, saying that Qualcomm was using its market position as the dominant smartphone modem supplier to force manufacturers.
into paying excessive fees. And this is one that I want to sort of dive in on. We we spent a bunch of time advancing through the timeline to really get to this particular point, which I think is is a great place to zoom in on Qualcomm's strategic position today is this Apple lawsuit. So some background.
Apple has always used either Samsung processors uh in the first iPhones until they switched to their own.
But they still had to pay.
uh Qualcomm patent royalties for whatever RF stuff they were using. So whether you know the let let's treat the CPU as its completely own world.
transitioning from Samsung to the A series processors.
Apple e
probably has to buy stuff from from Qualcomm. Maybe they could look somewhere else, but either way they're they're paying Qualcomm the licensing for it.

Um
Today, Apple does use Qualcomm cellular modems, which started in 2011, and there was just one year where they used Intel. Intel where they did not use Qualcomm. We're going to talk about that.
So the way that
I essentially perceive this and and why Apple eventually initiated the lawsuit
is Qualcomm got greedy.
They had patents on technologies that were
part of standards that were set by industry consortiums all over the world, and they leverage those patents in basically every way possible. And here's the economics as far as I could sort of suss it out.

So they asked Apple for seven dollars and fifty cents per phone sold, which comes to about two billion dollars a year.
plus an additional eight to ten when they were gonna raise prices later.
And so you y you quickly get to a situation where the the Qualcomm was sort of expecting Apple to pay seventeen dollars.
just to license patents which is on top of the price that they were paying for those baseband chips.
So rack rate for a baseband chip, and and baseband chips are the same thing as as sort of cellular modems, uh is thirty dollars a chip.
And
It's not actually thirty dollars, it's more like
five percent of whatever the average selling phone price is. Oh guess what phones have a really high average selling price.
Uh
And so
If you think about two hundred and fifty million phones a year, that is seven and a half billion dollars.
A year
that Apple would be paying Qualcomm.
That would be 2% of the QCT revenue, 20% of all of the chip revenue that that Qualcomm makes.
And further, if you back out the fourteen million a year from the from QCT, their chip segment, that doesn't come from
uh the chips for handsets specifically, but rather there's some other stuff they're working on, automotive, IOT, and this new thing that they're calling the RF front end radio's product line, which we'll also talk about. This is cool. Apple could make up up to one third of Qualcomm's
handset chip revenue.
Now, analysts have estimated that Apple negotiated down from$30 to$10. Apple's general counsel during the lawsuit let the number$18 slip. So whether it's$10,$18, or$30 a pop, that is an enormous amount of revenue that Apple pays Qualcomm.
Again, not for a snapdragon.
Not for the CPU, not for the system on the chip, just for
The R F
Cellular modem.
Wild.
So there's some other interesting things that came out in this lawsuit.
Qualcomm asked Apple to speak out against YMAX, which is a competing technology. They were like we need you to vocally
s speak out that our competitor is a bad piece of technology.
They also stipulated that if Apple ever used a competing supplier, and keep in mind this deal is signed in the early days of the iPhone, if they ever used a competing supplier to Qualcomm, they would owe Qualcomm a billion dollars.
So what Apple is basically doing is biding their time for there to be an actual credible
competitor and they had to wait all the way up until the 4G days until they're like looking at Intel and they're like,
Especially if we work with you and we work closely with you, we think you can be a credible competitor to Qualcomm right now. We think your cellular modems business is like close enough where our customers won't notice the difference, and we can tell Qualcomm that we're gonna use you.
And
Try to get a little bit of a library.
What Qualcomm interpret that as is
Well now you owe us a billion dollars.
Look at our original deal we did.
Um

The
What this basically comes down to from a legal perspective is because Qualcomm owns patents that are a part of an industry standard, they have to charge a price that is fair, reasonable, and non-discriminatory, or FRAND is the industry terminology. And Apple's basically alleging, look.
You're abusing the market because
It's not fair, reasonable, and not you're highly, highly unreasonable in the way that you're charging us this.
So
Uh around the time of the iPhone 10S and 10R those phones actually did use Intel modems. Uh but what was basically happening is the Intel modems were falling further and further behind Qualcomm. Apple was realizing, oh crap, we're gonna miss 5G, because there's no chance that Intel catches up and can actually develop a credible 5G chip.
And so
They end up settling.

Right.
We're gonna escape our uh technical level of competency quickly if we haven't already. But like five G is like it's pretty cool. This is where like we're talking about patents, this all sounds a little sort of like icky, but like the amount of
engineering and like IP and like work that has to go into like
What we described originally back in like the World War Two, and they're like it was so crazy complicated to make this stuff work back then.
Now it's just like a factor of a million more. Like the amount of processing, the
What Moore's law is had to come up the curve to enable something like 5G.
is unreal like there's dedicated processor in front now
Um
The R F stack. Yep.
to do all the crazy multiplexing that is required for
Five G bandwidth to work, right?

Yes. So this R F front end okay, so here's a fun little um
So what is five G?
It actually is an open question.
Uh when 5G was first proposed, the proposal was to use the millimeter wave spectrum, this super high frequency part of the spectrum that for years people thought was basically impossible to work with because it was it was uh
It just requires incredibly sophisticated electronics to make it work. Not only that.
But when you have really high frequency
Um
And again, we're right on the edge of our competency here, but when you have really high frequency radios.
Uh they can't transmit through a lot of stuff. It doesn't handle concrete well. And so you end up needing a a little base station on every street corner. Now it can give you like
10 gig internet. Like it's crazy, but
It needs to be really close to you. And so as the uh the um
Telecoms were starting to build this out, of course, the initial review they they say we're we now have 5G. In fact they even rebranded a bunch of LTE stuff to be five G so it would show up as five G on your phone. ATT did this, right? Like they were like all of a sudden because I was on ATT at the time.
Used to say four G L T and then all of a sudden it just said five G on my phone. Five G E? Really five G E? Like that
No that's exactly the same stuff I was using before, but now you've rebranded it. So occasionally you'd walk by something that actually had a millimeter wave tower and it would over and be like, Oh my god, this is the fastest internet I've ever experienced, and then you'd like walk across the street and I remember like Neh at the birds doing like um Yes.
Nee is like the world's expert on the street. Yeah, yeah, yeah. Like on a specific street corner in like New York City or San Francisco getting like and then you take one step to the right and you're like back on 4G. So here we are in 2022, five years after the initial hubbub about 5G started for consumers.
And
Um
What is five G? Well, the industry has decided to
A lot to more areas of spectrum that are not millimeter wave and are easier to work with and are cheaper to build infrastructure for, and are slower.
as 5G also. So now what that does to chipmakers is it says if you're building
a cellular modem in your phone, you have to have a really complex RF front end, or what Qualcomm is calling their RFFE business.
The the the RF front end basically needs to at any given point adjust in real time depending on what flavor of 5G currently available. Yes. So far across.
The spectrum bands that like
Yeah, there's oh man, think about like back to the original Hedi Labarne frequency hopping, like
It was all within one band. Yeah. A crazy number of bands.
So um
Apple look going back to the Apple lawsuit, Apple sort of realizing
Uh we're screwed here if we don't have Qualcomm as our customer.
So
They settle with Qualcomm.
Uh
And this is in twenty nineteen. Apple says we will continue using Qualcomm's radios for now. I think they negotiated some discount.
to the exorbitant fees that they were having to pay Qualcomm.
Uh they a Apple also paid four billion now switching over to the licensing side of the house.
uh to secure the patent licenses over the next six years. I think it was four and a half billion dollars for a six year deal.
Um
It's actually unclear who really wins here. I think Qualcomm wins in the short term because
Apple's backup solution of Intel's modem fell entirely behind.
But in the long term
I mean
What ended up happening is Apple actually bought that division away from Intel, and they've been developing their own cellular modems in-house.
We know based on uh I don't know if it was a slip of the tongue or an intentional thing, but we know from the most recent Qualcomm earnings call a week ago that
Uh
the next version of the iPhone that comes out in November of twenty twenty three.
Will continue to use
Like even though Apple has been working on their own. So they're trying to do the PA semi on the modem.
ludicrously hard to build the stuff that Qualcomm has built. So even next year's iPhone will have
Qualcomm, wow. RF front ends and uh
I think they use RFRs and cellular modems.
But after that, Apple's definitely gonna try and take this in house. But uh
Cristiano, the CEO of Qualcomm, said on the most recent earnings call after that, we do anticipate having almost zero dollars come from Apple in our chips business. So at least they're
Sh foreshadowing to their shareholders, Qualcomm is that they think Apple's gonna succeed at this. It's just gonna take a couple of years.
Well this feels um
Like the perfect time to talk about the other strategic uh chess move that Qualcomm made here. Yes, Nuvia. Nuvia.
So
Uh this is another twenty twenty one move.
So Qualcomm bought this company called Nuvia for 1.4 billion dollars.
What is Nuvia?
Well, Nubia was founded by former Apple Silicon people, including the chief architect of the A Series chips.
That seems like a good get.
Yeah. Yes. So this
One way to look at it is this is Qualcomm's ticket into the laptop CPU slash system on a chip market. They already make Snapdragons for the high end Android phones, and soon they'll be able to make a competitor to Apple's M series chips for laptops and desktops and maybe even servers.
And phones too. I mean like iPads, phones, tablets, like.
This is crazy. This is where it gets interesting. So Snapdragons
The for anyone who listened to our ARM episode, you'll remember the difference between ARM makes a instruction set architecture that you can license.
Or
you can go big with them and just buy one of the actual arm design ships off the shelf.
Like buying a solution, you might say.
Snapdragons use an off the shelf
arm design for their CPU.
Apple just uses the ARM instruction set, but has done their own custom design to get the most performance. And that's why Apple Silicon is so far ahead of the competition.
The Nuvia team
Can just
do their own custom design of chips and actually be differentiated from stock ARM CPUs just like Apple is doing.
Unfortunately, like Qualcomm
Everything cool about the
Um
The Snapdragon chip doesn't actually include the CPU. The CPU is just a standard issue. So this is the path for
Snapdragon to get on par with Apple Silicon. Yes. And for their CPUs to actually exactly so but one caveat to this whole th thing about like maybe they'll do laptops, maybe they'll do servers.
Qualcomm actually doesn't really want to do any of that.
Qualcomm historically has failed every time they've tried to do servers or watches or smart home or displays, like every time they've strayed too far from their core competency, it it hasn't been good.
Twenty bucks from Apple for every iPhone. I think that's a reasonable path forward. The CEO is pitch a much broader story than that to shareholders these days. So what
Qualcomm actually wants
is
for the Nuvia team to s sort of like
invest where they see the frontier going, where they see a much bigger TAM, where where Qualcomm sees a multi hundred billion dollar opportunity, and that is IoT, automotive, and the RF front end.
And so they they sort of describe
phone modems and phone um systems on a chip as almost like a legacy business and they're highlighting these other areas as sort of the the growth business as the frontier.
Interesting. But either way, Nuvia seems to be the ticket,'cause if you can custom design
Chips using the ARM ISA, but B like the performance of Apple Silicon, I don't care what you're putting those in, that's a really good
Yeah. Power thing.
Well just I mean even like for
Technology
the technology industry at large, to have
Just like with Android, you had a
Um you know.
iPhone rivaling operating system available off the shelf for any kind of application that lets you know.
A million flowers bloom. Yep. To have the same thing for apple silicon, like
That's pretty cool.
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There are two other small things that happened that I think let's just sort of skip. Um I'll mention them briefly, but let's get into analysis. Uh Paul Jacobs got kicked off the board of Qualcomm in 2018. He tried to take the company private through a buyout.
uh when there was all this sort of tumult about is it going to be bought by Broadcom, all this stuff, and the board said if you're gonna try and make a hostile takeover and LBO the company yourself, uh you can get right off the board. And so there are no members of the Jacobs family on the board of directors anymore. The other thing that happened in 2016 to 2018.
Uh Qualcomm tried to acquire NXP semiconductors, but I think eventually China sort of just like dragged their feet enough to kill people. It got tied up in the whole Broadcom thing and I think that's a good thing.
But
quick review of where they are today and then we'll go into analysis.
Qualcomm today has a$120 billion market cap.
Which
Two things. One
That's astonishing. That's impressive. They're technological pioneers and they're amazing at value capture.
Two, that is the same price that it was worth at the peak of the dot com bubble. Wow, and uh just about the same amount that Broadcom offered to buy it for, right? Yep.
Which is interesting.
You know, by revenue.
And probably also the number of chips they're the largest.
Fabulous semiconductor company in the world bigger than NVIDIA. But a way lower market cap than NVIDIA.
Here's my view on the Qualcomm versus Nvidia. Do you bet on the intelligent connected edge, as as the CEO Cristiano Oman would put it, or do you bet on AI?
And like they're both mega trends, AI has a far bigger potential, in my opinion, than the intelligent connected edge, which is wonderfully buzzing. Although I do really have a genuine appreciation after doing this episode for like the amount of
engineering that goes into
Wir haben.
Technological advances.
Which is
Almost at a Moore's Law like well, much slower than Moore's Law like pace, but a steady drum beat have continued to
improving because I mean now there's like no difference between five G and like home broadband. Like
Um and that's like standing on the right street corner. Okay. They do$44 billion in revenue, chips make up most of that at thirty-seven billion. Licensing fees make up only seven billion.
The license is
are a much higher margin business. It's a sixty nine percent
um margin, I think it's earnings before tax margin on licensing versus only 34% for the chips. So there's a a super efficient business there in licensing.
Revenues are growing 32 percent, earnings are growing 47 percent year over year. This is an amazingly high growth rate company. Yeah, that's pretty awesome. They almost doubled their revenue over the last couple of years, too. So that the Cristiano is definitely coming in on high doing a good job. Cristiano is the new CEO uh as of last year. I think he's been for been in for about a year.
So into analysis.
What power?
Do you think?
Qualcomm has.
Is that a cornered resource?
Oh I think.
Yeah, Hamilton in Seven Powers I think he does say patents are accorded.
I think they're
And the canonical distribution of recording research. That for sure.
Um
They
Had at least
Maybe still do have a
Network economies.
in the infrastructure side of
The telecommanding.
Mm-hmm.
industry and the handset side.
Like one locks in the other. Like if you control the infrastructure standard.
All the handsets will have to use that.

X Y Z standard than the infrastructure after you get so like being able to control both. Like I think there actually was a network effect there.

I also think there's scale economies if you are a fabless
uh chip company then is worth all the R and D to creating a Snapdragon, designing and creating a Snapdragon and re realized across a huge number of customers.
So like it's really hard to start the next Qualcomm if the front the frontier you want to compete on is making a better snapdragon, that's not gonna happen.
Uh I've got a fun one here. Um
That's both fun to talk about'cause it always is, but
I think actually as a
I feel reasonably confident in I think
Qualcomm del during the
Golden years that we told the history of.
had real process power.
I think it was equivalent to the um Pixar Brain Trust. Like that set of people
Working together under those set of circumstances.
were wholly unique.
in the industry and
the world. Yep. Um and actually it's interesting. Like I I read a lot, you know
Al besides um the Qualcomm equation book from Dave Mock, which is amazing. There's ton of history out there about Qualcomm, especially in like local San Diego, like like the uh lots of local San Diego publications and history books and stuff. Especially because the Jacobs has given hundreds of millions of dollars to support the conversation. Erwin is one of the great philanthropists of the past.
Century. Like
Uh
Und to UCST, the U C system, so many like so much of
building infrastructure in San Diego comes from Qualcomm and the Jacobs family. So going and doing all the research, all these local San Diego publications and and um you know historical documents, they all talk about the like
wealth the the the wellspring of
Startups and other technology companies that came out of Qualcomm. And indeed they're like, you know, Linkabit and Qualcomm.
They're like
A hundred plus.
um in the San Diego area that came out of Qualcomm.
But you compare that to like the Silicon Valley, like what came out of Intel, what came out of Fairtail, what came out of the Trader State, there's not the same
uh diaspora of success in callcomes like plenty of success in you know.
Solana and Toli is part of the Qualcomm. So it's not like there's none, but not at the same scale. And I think that actually
de facto shows there was process power. Like it was that unique group of people in that unique situation. Yeah.
Yeah.
Deductive proof.
Do you want to talk about the Baron Bull case for the company?
I have a few.
Okay, go for it.
All right.
So here's the bear case.
Qualcomm has very real competition from the low end that we didn't talk about.
Uh
An example is MediaTek, who not only makes the baseband modem chip, but also systems on a chip using the stock ARM CPU designs. So MediaTek's systems are way cheaper than Qualcomm.
And I think they actually just surpassed Qualcomm in terms of uh number of units shipped. And so all the low and mid end
Android phones are using
MediaTek. And so Qualcomm kind of needed to buy Nuvia in order to differentiate the CPU and not just be using the stock ARM design that MediaTe and everyone else is using on much cheaper chips.
Let's see.
Um
Historically, they failed that everything that was not a phone that we talked about before, and now they're sort of saying the future is IoT and automotive.
Things that are not phones.
We'll see.
Uh they're just constantly in lawsuits. I mean uh we didn't talk about this, but like
China, South Korea, EU, Taiwan, all these companies, all these nations have sued or just be making a fortune off of this industry.

Um and the last one for the the bear case for me is I really think that they finally poked the bear, talking about their customers, enough to make them want to actually do something about it. The goal for Qualcomm should have been
Make as much money as you can without pissing people off too much. And I think over the last decade
They really upset.
Samsung, Apple, so many people that are starting to at least make their own radios, or even consider systems on a chip. And so now that there's very viable alternatives for silicon that people could either use in-house or competitors coming around at different angles.
Qualcomm may lose their leverage to actually get a royalty out of each phone sold. Now licensing business is going to continue to be a juggernaut, smaller in revenue, but higher in margin.
But
You know, that that is the sort of bear case on the current
Silicon business.
Now, the bull case, like maybe the lawsuits thing is actually a bull case. They managed to keep making more and more money and have been reaffirmed over and over again at a bunch of jurisdictions that um
You know, they settle their way out of these lawsuits or they whatever, but they're able to keep making tons of money.
Um the big bull case is you believe that this shift to automotive, IoT, and uh 5G RF frontend is real.
And so for those keeping track at home, everything I'm about to say is a part of the CHIP segment that does that thirty-seven billion dollars in revenue.
Automotive does two billion in revenue.
That's a very real business.
The RF front end business that we were talking about, that does four billion dollars a year in revenue. It's interesting. I mean uh we rented a car
Here in Lisbon. Um
And uh for the family. And um
Of course it has.
Yeah.
data built in, you know, uh four D or five D data right in as as does like just about every new car these days.
Yep.
Uh the IOT segment is now doing over seven billion dollars a year.
Qualcomm thinks overall this is a$100 billion opportunity.
Uh there's a bigger narrative that Cristiano is trying to espouse around this intelligent connected edge that they call a$700 billion uh opportunity. That's getting the Massa number. I know it reminds me a lot of the qu the um NVIDIA slide that talks about their trillion dollar TAM.
Uh
I mean
They're executing very well, but I think that's the thing.
They're trying to sell a story in terms of addressable market that is
Uh hand wavy.
Yeah.
Alright, playbook.
So
In the early days, this is a thing that we didn't talk about. We talked about the some of the ecosystem stuff, but there was this incredibly delicate dance of needing to be the best supplier to win deals, but also have other credible suppliers.
No phone company was going to take a dependency on the CDMA technology when just one vendor existed. And so they needed to evangelize and create their own competitors so that
their customers could feel safe with this new technology.
But of course, as long as they kept some things secret of how to eke out the absolute best performance from the innovations, they actually could still be the leader. So it was like figure out how to get a bunch of other people just good enough which
Is is fascinating and It's such an amazing case study in bootstrapping an industry. Yes.
Yes.
Similarly, they had a clever tactic in their IP strategy. So at Qualcomm
Where I think they have something like seventeen thousand patents now, there's a decision every time there's a novel piece of technology
about whether they should patent it or keep it a trade secret.
And there's enough things patented so that
You you can't
Achieve any of these things.
these magical things that we've been referring to all episode, these layers of magic. Without
paying Qualcomm. But they don't patent everything because they wanna keep
an advantage for like
consulting revenue or implementation fees or signing big deals where they say not only do you get access to our patents, which may expire at some point, but if you work directly with us, you get access to the trade secrets and you can pay us
To
You know.
Trevor Burrus, Jr. I I was thinking about this for Playbook as we were going too. There's this.
Really interesting dynamic to this industry.
That lends itself well to the IP and
patent um monetization scheme that Qualcomm has adopted, which is that the successive
generations of wireless network, you know Gee's happen just fast enough that it's within the patent lifetime. Yes. Uh so that like, you know, all that core CDMA patent like all those patents are expired now.
But it doesn't matter'cause we're so many generations beyond that like those patents are now
Worth it.
Patent.
And then when it's you know
A genera it's not like a generic drug where like, you know, Advil is still or title nor whatever is still like, you know
Useful.
That's a great point. It's also interesting that if you miss the window, like if Qualcomm had missed the window in the early 90s of evangelizing the technology for 2G, they may not have survived long enough to catch the next window ten years later for three G. So this is like one of the few industries where
Okay.
There's these super quantized time windows that exist when you can actually get in.
Yeah.

Uh
Another one that I thought was pretty interesting uh because I mentioned I think the businesses actually make sense together.
The licensing business offers Qualcomm predictable high margin revenue that they can basically use to fund RD. So because they know they're gonna keep getting that, and because it's a big revenue stream, it lets them sort of take bets.
on new R and D and when they do more R D, that fuels the flywheel where they both get
new products and they get more IP that they can continue putting into the licensing flywheel. So there is I think there is a credible argument of why you want to keep them together. There's also a
Trevor Burrus, Jr.: Totally. The not very credible argument is this thing's a cash cow and we want to keep our rich uncle around to make this a nice place to work. And you know, like they have several, I think they have nine airplanes.

Um
Well San Diego's a very nice place.
Yes.
I do think the big picture is that the U.S. government's patent system has granted Qualcomm a monopoly.
And
I I think there's like
This is one of the few things we've covered on the show where
The business
exists because of the US's regulatory system. They've basically said
And then reaffirmed in a lot of these rulings, you are allowed to capture a ton of value from this. And there's so many good debates about.
uh whether the patent system exists uh and serves its intended purpose of
Enabling.
uh people to spread the news about their innovation so other people can add it and the way we compensate you is we give you a twenty year exclusivity window, or whether something like this is an abuse of the system. But there's no way to argue that this is anything but a perfect execution of the game on the field.
It strikes me telling this whole story that like

Early stage.
Venture capital company building and the like, you know, and you know, you said Ben, we were telling the story. If you were to
Give a venture capitalist the qualcom pitch. And like there's so many there are like at least six or seven
different hops where
You know, X anti.
It looks like well.
And then a miracle happens and then we succeed at this. And then another miracle happens and then we succeed at that.
And like usually
You know, my pattern matching as an investor in early stage companies is like anytime there's a single and then a miracle happens.
Automatic.
But
But sometimes
Yeah. If you have a team that because this wasn't just like and then a miracle happens, if you listened closely and like really knew this team.
They they like really knew. They had really high degree of confidence that all of these
Tight, you know, threading the needle moments.
We're gonna happen.
And it really to a degree that just blows my mind. I've never heard anything like it. Um
And it just makes me think that like somet like to maybe just be a little more open to that, you know, that like
Sometimes.
If I've some some person off the w off uh walked in off the street and said, Like, give me the clock on pitch.
For sure it would not work.
For sure.
And and the hardest thing about being a technology investor or someone participating in this ecosystem in any way is
It's a power law dynamic. This is a business of exceptions. And I've seen and I'm sure you have too so many counterfactuals too where
Incredibly credible teams walk in off the streets with miracle like then a miracle happens and
Yeah, it still doesn't work. Like, you know. But sometimes. But sometimes it does. But sometimes. It never works, but sometimes it does. But sometimes it does. That's what makes our industry fun.
All right. So we're gonna not do grading because we've decided to kill grading until we otherwise resurrect it, but I do think it's worth articulating a little bit of a takeaway.
So my takeaway on Qualcomm is the the last decade
was basically the best decade for their business model and being in the right place at the right time to have an incredible business model around
Capitalizing on mobile.
And in order for the next decade to be as successful
They need to be absolutely correct about
their growth businesses around IoT, around automotive, and around whatever the intelligent connected edge ends up describing, because I think those are technologies that we don't quite know what they are yet. I think if they continue to try to
run the same playbook in just the handset market that they have been, the best days are behind them because people have caught on to their games a little bit and and are gonna gonna squeeze them from a bunch of different directions.
Yep. Well
Yes, totally agree. I think to paint the best version of the intelligent connected edge that I've heard Cristiano articulate is

Hey, we all agree that like the cloud is like a thing. Like we did the AWS episode. There's over a hundred billion dollars in like revenue backlog in the cloud. We talked about on the AWS episode, like snowball and snowmobile, like
Getting data.

It's like
still like one of the major pieces of lock in.
And like you think about how data gets in and out of the cloud.
Most of it's not by
Snowmobiles. Most of it is wireless. Connected on the edge.
And so if you think about it like that, you're like, Okay, yeah, I can b I can buy that this is a you know trillion dollar market.
But how do you capture value in that and can they capture it in the same way that they have in the past? Like very much open questions.
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Oof, listeners.
That was a total blast. David, crazy to do a live show like that with no guest for two and a half hours on stage, just you and I. Yes. And a professionally operated boom arm.
Camera.
Yes. If you haven't watched the video version of this, uh, just go check it out on on YouTube or Spotify or anywhere just to see what that looked like. It was a very fun spectacle to get to do that.
Our huge thank you to the Solana Foundation for hosting us at Breakpoint this year. It's a really great event and fun to be in Lisbon.
When you finish this episode.
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