SAN FRANCISCO (MarketWatch) — When Paul Jacobs took over management of Qualcomm Inc., he faced a dual challenge: leading a company that was seen as a heavy bet on a singular wireless technology, while the company’s very business model was being challenged in the courts.
Nearly six years later, the 48-year-old chief executive has effectively spread the company beyond its heavy emphasis on the CDMA wireless technology that it invented, though that technology is still key to the company’s revenue base. He has also settled the raft of litigation that had cast a pall over the stock for the bulk of the last decade.
The result has been a company seen by investors as a broad play on the fast-growing market for connected mobile devices. The sharp rise of so-called smartphones and tablets has driven enthusiasm for Qualcomm (QCOM 53.11, -1.36, -2.50%) on Wall Street, which has pushed the stock up 70% over the last nine months, compared with the 30% rise of the S&P 500 in that time.
“When I came in, we were still trying to drive the notion of wireless Internet, but people didn’t necessarily believe it then,” Jacobs said in an interview.
A key catalyst for the change in perception, Jacobs said, was the iPhone. First unveiled by Apple Inc. (AAPL 341.19, -3.37, -0.98%) in January 2007, the iPhone’s streamlined user interface and touch screen popularized the notion that a cell phone could also be a mobile computing and entertainment device. And even though the first iteration of the iPhone used a competing wireless technology, Jacobs said it was still “a big positive for us.”
Today, Qualcomm stands astride the wireless device market. It sells chip sets used in both smartphones and tablets, as well as other device categories. It also derives a significant portion of its revenue from royalties from a vast base of intellectual property used in most wireless products working today — even those that don’t use the company’s chips.
It also provides key support to the various mobile platforms competing for market share — which helps to shield the company from the risk of backing the wrong technology if consolidation were to occur.
The company is popular on Wall Street, with three-quarters of the brokers covering Qualcomm rating the stock a buy.
“We see Qualcomm as one of the best plays on 3G growth,” said Stacy Rasgon of Bernstein Research, who rates the stock outperform, with a $65 price target, implying an upside of about 18% from its current level.
Not a ‘kingmaker’
In today’s smartphone market, several operating systems, or platforms, are competing intensely for share.
At the top is Android, developed by Google Inc. (GOOG 587.68, -4.12, -0.70%) , which has quickly taken up a leading spot in the market, according to IDC data released earlier this week.
Other major players are the BlackBerry platform from Research In Motion Ltd. (RIMM 54.79, -1.29, -2.31%) and Apple’s iOS platform, which powers both the iPhone and the iPad tablet. Microsoft (MSFT 25.55, +0.07, +0.27%) launched Windows Phone 7 last year, and Hewlett-Packard (HPQ 40.34, -0.64, -1.56%) has the webOS operating system, which it picked up in its acquisition of Palm Inc.
Qualcomm currently has products on all those platforms. The company was a key launch partner for Windows Phone 7 and has its chips in the next generation of Palm devices coming from H-P later this year, including the TouchPad tablet.
Another benefit was derived from Apple’s expansion of the iPhone 4 to Verizon (VZ 38.61, +0.14, +0.36%) , which uses a CDMA-based network. Analysts say Qualcomm still draws royalties from the GSM iPhone on AT&T (T 30.77, +0.15, +0.49%) through its patents, though the device does not employ Qualcomm’s chips.
The company also sells its chips to mobile-phone makers such as HTC and Samsung, which are major players in the Android space. Motorola Mobility (MMI 23.63, -0.87, -3.55%) has not used any of Qualcomm’s chip products in its latest array of Android phones, though the company is run by a former Qualcomm president, Sanjay Jha.
Many analysts believe the market for operating systems will eventually shake out to comprise just a few players. Jacobs, however, was reluctant to predict an outcome, saying the company’s interests were better served by working across all platforms.
“Apple and Google clearly have a lot of power now, but the nature of this business is that things change fast. I can still remember when Motorola had a lot of power with the StarTAC,” Jacobs said, referring to one of the industry’s first thin, fold-up cell phones, which hit the market in the mid-’90s.
Jacobs said that it’s not clear who the major winners will be among platform providers, noting that wireless carriers retain power in the market, given their distribution channels and handset subsidies.
“The nice thing is [that] we’ve been able to work with all these people across the ecosystem, which doesn’t put us into a competitive position with any of them,” he said. “We don’t want to be kingmakers. We want to be enabling other people to bring their innovations to market.”
A major accomplishment for Jacobs has been clearing the minefield of lawsuits that had besieged the company through much of its existence.