Apple's iPhone and the Future of Qualcomm

Qualcomm (QCOM) has been reaping the benefits of the worldwide mobile industry boom for a while. Qualcomm engages in the design, development, manufacture, and marketing of digital wireless telecommunications products and services based on its Code Division Multiple Access [CDMA] technology, a key competitor to GSM, the other standard.

In fact, while most of the world has standardized on GSM, the US market continues to be fragmented, with two of its major carriers each on GSM (Cingular AT&T (T) and T-Mobile) and CDMA (Verizon (VZ) and Sprint Nextel (S)). Meanwhile, all those who use CDMA technology are required to pay royalties to Qualcomm, making the company a great growth story.

This summer, Apple (AAPL) enters the market with its iPhone, carried exclusively by Cingular. Each of Verizon and Cingular AT&T have about 56 Million subscribers in North America, and are two of the largest. This means, that Apple has put a stake in the ground to have gone with GSM. Verizon is testing dual-standard, hedging its bets, and could also standardize on GSM in the next few years.

If the iPhone becomes a grand success, then one of two things would happen:

All the carriers would have to play ball with Apple and, if Apple so desires, they will all think about lining up behind GSM to tackle the global interoperability issue once and for all.

Or, Apple will play nice and support both standards.

In the former case the iPhone will gradually push CDMA out, while in the latter case, CDMA can keep going.

Apple has a great knack for aligning the arrowheads of an industry, and since the global interoperability and standardization problem is already bugging the mobile industry, they just may decide to force the issue to resolution.

This would not spell good news for Qualcomm.

[Much of the analysis in this article was already done by Tristan Louis back when the iPhone was still in a speculative phase.]

Comments

[chb_manderson:]

Ummmmmmm....What!!??? You do know how clueless you are, don't you? Is it your contention that the world is migrating TO GSM? You are correct that I-phone V1.0 is a GSM phone on the AT&T/Cingular Network. Are you also aware that there is also a AT&T/Cingular W-CDMA high speed network? Do you really believe the visionaries at Apple aspire to have their product operate on a much slower and very antiquated 2-G technology? 3G......ever hear of that? Care to wager on how long it takes for Apple to slip in a Dual-mode (GSM/W-CDMA) version of the I-Phone? Do you get it that the "CDMA" at the end of W-CDMA might suggest that the revenue stream that you allude to might not be going into the GSM Euro-coffers? At the end of your article you mention that much of the research was previously conducted by someone else. Please exert a little effort and journalistic integrity rather than mindlessly putting out an article that has little basis in fact and demonstrates no knowledge of wireless technology or the underlying business dynamics.

2007 May 10 08:41 AM

[stephenpoirier:]

Sramana,
You have no idea what you are talking about.All of europe and Cingular are migrating to the UTMS standard.Do you know what UTMS standard is w-CDMA. Do you understand that Nokia and Qualcomm are in major negotiations over the royalties that Nokia has to pay QCOM over UTMS. QCOM will become bigger than microsoft and if I were you I would own some of their stock!

2007 May 10 09:10 AM

[george.mardre:]

Simply said, the upgrade path for GSM to high speed is through CMDA. Author is clueless.

2007 May 10 11:22 AM

[bradah:]

It would seem this author has the experience and qualifications to have an informed opinion.

sramanamitra.com/bio/

Although, from my own reading I'd have to agree with the previous 3 posts.

2007 May 10 12:47 PM

[bruce van ...:]

sorry but the first three comments are right on. she clearly has limited understanding of what she is talking about.

the best one is this:
If the iPhone becomes a grand success, then one of two things would happen:

# All the carriers would have to play ball with Apple and, if Apple so desires, they will all think about lining up behind GSM to tackle the global interoperability issue once and for all.

Come on. There is not an MNO on the planet that will spend the billions on ugrades and subjugate their network to a handset vendor. it works the other way around.

Plus the iphone will not even come close to the 10Million handsets spouted by jobs. A couple of months ago ATT said they had interest from a million consumers - and that was at the peak of the PR frenzy. Even if true, getting the additional 9 million is going to be extremely hard.

2007 May 10 01:28 PM

[Fmanzo:]

I'd question the value of any analysis that falls so completely for the GSM guild propaganda. The world is migrating to CDMA or its very close cousin wCDMA, which has nothing to do with GSM, no matter what they want to call it. Technically GSM is so last century it isn't funny. Of course, if the guild continues to seal Qualcomm IPR it can keep GSM afloat, but it runs the risk of triple damages every time it tries this stunt. Just ask Nokia about its "we're too stupid to understand our own contracts" defense.

2007 May 10 02:10 PM

[bradah:]

I wonder what, then, would prompt such an ill-informed analysis of Apple's situation regarding the iPhone? Especially, since it seems so obvious.

2007 May 10 02:43 PM

[Fmanzo:]

Sorry for the misspelling. That's "steal," as in using IPR without permission or payment in order to keep an obsolete technology alive.

2007 May 10 02:54 PM

[Alan Williams:]

bruce van nice,

Apple has sold over 100 million iPods. The iPhone is a cell phone, a camera, a hand held, WiFi equipped, internet browsing device, a hand held computer with a full fledged, Unix based, computer OS and, last but not least, it is the best video iPod ever made.

This iPhone is also a wide screened, video iPod capable of carrying and playing 2 to 6 full length feature films. Every happy iPod purchaser wants one. Jobs' prediction of 10 million iPhones sold by the end of 2008 is extremely conservative.

Get with the program. iPhone is not just a smart phone. It's much, much more and unlike all other phones, it will just work.

2007 May 10 11:39 PM

[bradah:]

As some posters do.....it'd be interesteing to see Sramana Mitra respond to some of these comments.

2007 May 11 12:12 PM

[beinloth:]

Well - she may be more right than the rest of you give here credit. Yes, 2G-GSM and 2G-CDMA do use different physical layers, TDMA & CDMA respectively. Yes - 3G-UMTS uses a CDMA physical layer, but UMTS uses the network backend more closely related to GSM. Qualcomm has its own 3G solution known as EVDO, which is used by Verizon, Sprint, and widely in Korea. The rest of the world is going with UMTS, including ATT/cingular and T-mobile. Apple could swear off doing business with Verizon & Sprint and try to mount a stand against Qualcomm. Many in the industry would applaud such an audacious bid. Personally, I would like to see the drama. By the way, 4G uses yet another physical layer called OFDM, but again the network backend is controlled by the GSM cabal - it's called 3GPP-LTE. Take that alphabet soup and smoke it !!

2007 May 18 03:25 PM

[bastianschoell:]

Not to rehash, but i completely agree with the first commenter. The author should not stop blogging, just should stop blogging about things she doesn't have a clue about with an air of authority.

The whole contention of the article is the incredible hubris that a single device is what drives a 60million subscriber mobile operator to change their technology. That assertion by itself makes me question the author. Has ANY device in the history of mobile technology ever done that?

The iPhone, while clever, is nothing but a converged, network connected mobile device. It is not groundbreakingly new like the Palm PDA was in its time, and it is highly dependent on the entire ecosystem of the mobile providers. For both Sprint and VzW to change their networks to GSM is ludicrous, especially given the fact that an Iphone is not deeply rooted in GSM. Change out the RF portion, which from probably a modular piece of the BOM and this could just as easily be a HSDPA or 1xEVDO or for that matter WiMax device.

Come on Sramana, before you do a series of "How the Iphone will change everything", do a little due diligence.

2007 May 30 12:55 PM