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QUALCOMM Incorporated (QCOM)
25th Annual ROTH Conference Transcript
March 19, 2013 4:30 PM ET
Bill Davidson - Senior VP and General Manager
Krishna Shankar - ROTH Capital Partners
Krishna Shankar - ROTH Capital Partners
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Thank you very much. During today’s discussion, I may make forward-looking statements regarding future events or future results of the company. Actual events or results could differ materially from those projected in the forward-looking statements. Please refer to our SEC filings, including our most recent Form 10-K and 10-Q, which contain important factors that could cause actual results to differ materially from those in the forward-looking statements.
Okay. I would like to take this opportunity to just -- in the introduction, do a brief reminder of this unique business model that we’ve created that, has not only lead to QUALCOMM success but the great growth that we’ve seen in our industry.
And so, if you turn back the clock, a long came QUALCOMM when the rest of the industry had largely settled on a standard to move forward to take the networks from analog to digital and it was CDMA, GSM, same basic technology.
And so a long came QUALCOMM we said, we had a better idea. And the important context is that the time no one else really believed in what we talked about. What we thought was ultimately going to be capable through CDMA.
And it’s important context because therefore we had to do all that work ourselves. The industry was well down another path of standardization and deployment of technology. We took on therefore the responsibility to give our technology the opportunity to see the light of day.
We were accused of selling vaporware. Our CEO I think was called the crackpot that this would never work. My guess is there are few companies out there today who wish maybe they hadn’t listen to that and participated earlier on, but it left it to be up to us.
So I think our founders would tell you. We’d got passed the point of people having to mortgage their homes to keep the company going. We were real risk of not seeing the light of day for our great idea when our legal department said, we have some patents we’ve been issued, approximately 50, I think was the number at the time, 50.
So maybe we could drive some licensing revenue from a couple of these patents. We could go out to the industry and license them. And it was actually those first potential licensees that said to us, we know you are the only one working on this. I frankly think they gave us very little chance of being successful. So they said, why don’t you just license us all of your patents that you have, so that we never have to deal with you again. That was the grand birth of our portfolio licensing program.
So it really was never part of a well thought out plan in terms of how to capitalize QUALCOMM and enable us to move forward. But then we did capitalize on that and took a step further to say, we’ll not only license you the patent we have today, but we’ll pick a period of time going forward under which any new innovations that we develop are automatically licensed to you for no increase costs.
What that ultimately led to is a program we have in place today where the vast majority of our licensees are on a perpetual agreement. Their agreement we use for the life of the most recently used patent. They only need while a one claim of one patent to prove the worth of the patent portfolio for us to receive our full royalty. There is on average 30 claims per patent.
So we just created this dynamic shift in the marketplace where prior to our existence it was really only large manufacturers that could support the building of infrastructure, handsets and chipsets that powered those handset, not because they were doing anything wrong, but because you need that kind of scale. So there were three very large manufacturers that largely control the marketplace at that point.
So what we came along and did was really revolutionize the use of patents. If you think our most companies used their patents. They use it as a way to protect their invention for product that they are building themselves.
What this model ultimately delivered was us licensing our patents out to enable an industry. We are in aggregation of research and development for the industry we serve and therefore rather than using our research and development on our own handsets, which we did for awhile to prove out that the technology.
We were thankfully able to exit our handset business back in 2000, our infrastructure business in ’99. We kept the chipset because we were good at it and there the path to market for innovation.
But we really created this very vibrant marketplace by virtue of passing out our intellectual properties through our licensing program. So a very revolutionary model and one that still serve us quite well today.