The wireless giant is establishing a $500 million venture capital division. Qualcomm Ventures will invest in start-ups that use or market its patented Code Division Multiple Access technology, a high-capacity mobile standard capable of supporting Internet content. Through its VC investments, Qualcomm is angling to build a marketplace for CDMA, which is in a horserace to become the favored standard among telecom companies.
Indeed, while some other Fortune 500 companies have entered the venture capital arena in the hope of giving their bottom lines modest boosts, Qualcomm has much more at stake. Since selling its digital cell phone business to Kyocera Corp. last year, Qualcomm has become increasingly reliant upon CDMA as a revenue source.
Qualcomm makes about $750 million annually from licensing CDMA to companies such as Motorola Inc. and Lucent Technologies Inc., and stands to reap a good deal more if the market expands. "Qualcomm wins when CDMA wins in the market," said Jeff Jacobs, senior-VP of business development. "We want to ensure through this venture fund that it happens sooner rather than later."
Qualcomm Ventures will invest between $2 million and $10 million in up to 20 start-ups a year. Its portfolio companies will range from Internet infrastructure firms to content plays. Qualcomm executives will take advisory roles in the companies in which its VC arm invests.
They will also use Qualcomm's clout to aid its portfolio companies in building their marketing programs. For example, it will provide them access to its coveted client base, Jacobs said. "We have a unique set of relationships with carriers," he said.
An aggressive player
Qualcomm's proven adeptness at getting telecom companies to use its technologies bodes well for its VC foray.
"They are young and aggressive and have been innovative about penetrating tough infrastructures," said Anthony Abbattista, managing partner at Diamond Technology Partners Inc., a Chicago-based consultancy. He said Qualcomm Ventures' portfolio companies could create a captive market for CDMA. "This creates pull-through," he said.
Qualcomm's VC experience should serve it well. Over the past several years it has invested about $100 million in 15 companies, including Phone.com and Handspring Inc. The creation of the new unit formalizes its San Diego-based parent's venture capital moves and gives them added structure, Jacobs said.
Qualcomm's executives decided the cooling down of the VC and capital markets made now an opportune time to broaden its investing strategy. "We think valuations are more reasonable than they were a year ago," he said.
Qualcomm Ventures is intended in particular to strengthen the parent company's b-to-b business. As executives increasingly use mobile phones not only for talking but also for Internet access, Qualcomm could benefit, Jacobs said. "More phones are shipping today than laptops," he said. "People that are used to doing b-to-b over their laptops will access exchanges over phones."
No sure thing
Qualcomm Ventures' launch comes as the telecom companies are hunting about for the standard that will best support the booming mobile Internet marketplace. And while CDMA has taken an early lead (it is used by some 70 million people in 35 countries), its success is by no means assured. Adoption in both the nascent U.S. and more mature Japanese marketplaces is spotty, and other standards, such as Global System for Mobile Communications, are gaining some traction.
Jacobs is confident Qualcomm Ventures will quicken CDMA adoption and, ultimately, Qualcomm's success. "We believe we have a unique set of wireless technologies, and we have a unique set of technical talent," Jacobs said.