Steve Mollenkopf says telecoms groups could disrupt market leaders Apple and Samsung

May 29, 2018

The chief executive of US chipmaker Qualcomm has predicted that the arrival of 5G will propel Chinese technology companies to the top of the global smartphone industry, threatening to disrupt today’s market leaders such as Apple and Samsung.

The bold forecast comes as policymakers have seized on the transition to the next-generation wireless technology as a key test of national security and competitiveness.

Steve Mollenkopf, Qualcomm’s chief executive, told the Financial Times in an interview that the industry is shifting “much more quickly” than when operators and device makers started to move to 4G a decade ago.

The big difference this time, he said, is China. The country’s telecoms groups lagged behind the rest of the world in deploying 4G by several years but will start to roll out 5G as soon as 2019.

“Historically what's happened is when you've had big ‘G’ transitions, the structure of the industry changes,” Mr Mollenkopf said. Before the rollout of 4G, he recalled, “the discussion was about Motorola and Nokia and BlackBerry”.

Those companies have now faded, in part because 4G hastened the shift towards more versatile touchscreen smartphones that began with the iPhone in 2007.

“5G has an open door for a lot of these type of changes to occur [again],” Mr Mollenkopf said. “On top of that, it is the first time in the history of the industry where you have significant and sophisticated handset manufacturers from China who have the ability to service the entire world. You did not have that at the beginning of the 4G transition. And they are ambitious.”

But Qualcomm still counts Apple and Samsung among its largest customers. “Our job is deliver [5G] at scale and let the market decide,” he said.

Mr Mollenkopf’s comments came as the company has been caught in the middle of a trade battle between the Trump administration and the Chinese government.

President Donald Trump blocked a $142bn takeover of Qualcomm by rival chipmaker Broadcom in March, citing the risk the deal posed to national security. The development of 5G was a key element of that decision.

Mr Mollenkopf blamed tensions between Washington and Beijing for delaying China’s approval of Qualcomm’s $47bn acquisition of NXP Semiconductors, the Dutch chipmaker. With Beijing finally set to pass the deal— almost two years after the company made its first bid — Qualcomm and its investors are looking to 5G to take the group into entirely new markets.

These range from the automotive sector, where NXP is strong, to new kinds of video-streaming devices. Qualcomm and its rivals, including Intel and Huawei, also hope it will enable a new cohort of connected devices — the so-called “internet of things”.

“There are a really small number of key players that do the fundamental research for the technologies that make these things work on a global basis — and that number is getting smaller,” Mr Mollenkopf said.

Qualcomm’s growth in China stems from its 2015 settlement of an antitrust investigation for $975m. That deal also led to a change in its patent licensing model and unlocked a huge wave of deals with Chinese tech companies, many of which rely on its Snapdragon mobile processors at the heart of their smartphones.

Last year, almost two-thirds of Qualcomm’s revenues came from chip customers and intellectual-property licensees in China, up from 53 per cent in fiscal 2015, according to the company’s annual reports. In January, the company struck 5G partnership deals with China technology groups Xiaomi, Lenovo, Oppo and Vivo.

Qualcomm’s reliance on China has only increased in the wake of a costly legal battle with Apple, one of its largest US customers. The iPhone maker has withheld royalties from Qualcomm’s patent licensing business until the dispute is resolved.

Mr Mollenkopf is optimistic that the multibillion-dollar fight will be over by the end of the year as the case goes to courts around the world. “Those legal milestones, until you get close, there is no incentive for either side to sit down and have meaningful discussions. As you get closer, the environment gets better to do a deal,” he said.

The longer the case drags on, however, the more it could bolster the push by former executive chairman Paul Jacobs to take the company private. Mr Jacobs, who is trying to raise the financial backing for what would be the biggest buyout in history, could capitalise on the disquiet among Qualcomm’s shareholders that was revealed during the Broadcom bids.

Mr Mollenkopf admitted that there is a “disconnect” between Qualcomm’s share price and “what we think is the intrinsic value” of the company. Nonetheless, he added: “If people had a proposal that compensated our shareholders for what we think is the value of the asset, we would look at it.”

Qualcomm’s Chinese relationships

At a Qualcomm conference on 5G earlier this year, the US chipmaker boasted of its “very tight” partnerships in the country, writes Yuan Yang in Beijing.

“We see ourselves as part of the Chinese ecosystem,” Cristiano Amon, the company’s president, told reporters at the event in the Chinese capital.

Qualcomm’s relationships in the country are wide and deep, judging by the range of executives that were gathered. They included officials from Xiaomi, Oppo, Vivo, ZTE, Lenovo and Wingtech Tech, all of which rely on the US company’s chips.

Most of the executives from those businesses spoke out against Broadcom’s attempted acquisition of Qualcomm, with Lin Bin, Xiaomi’s president, questioning whether the chipmaker would still be able to produce “era-defining communications products” if the deal was approved.

“Qualcomm has been eager to offer technology partnerships to China in the course of seeking regulatory approval for its acquisition of NXP,” said Dan Wang of research firm Gavekal Dragonomics in Hong Kong.

But the reliance on China could also prove a challenge for Qualcomm. President Xi Jinping’s Made in China 2025 industrial policy aims to make a number of companies world leaders, including building a domestic semiconductor industry that will overtake its foreign peers.

Qualcomm’s relationships have been a boon but could prove costly in the longer term.