Qualcomm

1. 0:00 – 3:03

   Live show setup in Lisbon + why Qualcomm matters

   1. DRDavid Rosenthal0:00

      I walked in, and the first thing I saw was the bottom of the big crane boom arm with the weights, and I was like: "Why are there Olympic weights here?" [laughing]

   2. BGBen Gilbert0:08

      [laughing]

   3. DRDavid Rosenthal0:08

      And then I was like: "Oh, because we've got a professional boom arm camera. This is amazing."

   4. BGBen Gilbert0:14

      All right, let's do it.

   5. SPSpeaker0:16

      Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight. Another story on the way. Who got the truth?

   6. BGBen Gilbert0:32

      Welcome to season eleven, episode six of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

   7. DRDavid Rosenthal0:47

      And I'm David Rosenthal, and I am an angel investor based in San Francisco.

   8. BGBen Gilbert0:51

      And we are your hosts. There's an incredible property of the universe where electromagnetic signals can be broadcast and travel through space at the speed of light to be received at a different point in the universe. Now, a tiny fraction of these frequencies are detectable by humans as visible light. Some other frequencies can be dangerous, like X-rays or gamma rays, but there's a part of the spectrum that is not detectable to humans, and it's not harmful at modest doses, that can be used to transmit invisible messages all around us all the time, without any of us having any idea.

   9. DRDavid Rosenthal1:30

      It's like magic.

   10. BGBen Gilbert1:31

       Yeah. [chuckles] These frequencies have been used for over a century to broadcast TV and radio shows, presidential messages, and important news updates. In the last fifty years, humans have gotten tremendously clever at purposing some parts of the RF spectrum to be used for cell phones. But the story of how we got from transmitting small messages on a single frequency to having billions of humans concurrently sending megabytes or gigabytes of data every minute, has been an incredible journey of invention and entrepreneurship. The company most responsible for the mind-bending system of how it all works today is Qualcomm. And today, we will dive into their entire history and strategy, unpacking their products, which, to the outside observer, is really best described as a layered series of magic tricks.

   11. DRDavid Rosenthal2:21

       And spoiler alert for listeners, this is an incredible story. I had no idea before we dove into the research, like-

   12. BGBen Gilbert2:28

       Yeah, me neither.

   13. DRDavid Rosenthal2:28

       This one is up there with, like, Nvidia, TSMC. There is so much stuff you can't make up in this story. It's incredible.

   14. BGBen Gilbert2:34

       Largest fabless chip company in the world.

   15. DRDavid Rosenthal2:37

       Indeed.

   16. BGBen Gilbert2:38

       The other thing we should say, listeners, uh, this was super fun to do this episode live, in person, in Lisbon. Our huge thank you to the Solana Foundation for hosting us at Solana Breakpoint. Many longtime listeners will know Austin Federa from the Slack. He was kind enough to invite us, and, uh, and really fun to do it there, especially given Solana's tie to Qualcomm, with Anatoly having worked there for over ten years.

   17. DRDavid Rosenthal3:02

       Indeed.

2. 3:03 – 5:51

   Sponsor segment: Fundrise and democratizing private tech investing

   1. BGBen Gilbert3:03

      Well, for our presenting sponsor this episode, we are back with Fundrise. CEO Ben Miller has more to share with us on how they came across the idea for their new growth tech investing arm, the Fundrise Innovation Fund.

   2. DRDavid Rosenthal3:15

      I think people have loved, throughout the season, hearing the Fundrise story itself and how you guys raised a hundred and fifty-five million dollars from the retail investing public without actually going public yourself. Can you remind everyone how you did that, A, and then, B, how you're now opening this up to every private company?

   3. SPSpeaker3:37

      When we started Fundrise in 2012, like, the mission was to give individual investors direct access to real estate because we saw when money's intermediated, problems happen. Intermediaries don't have the same interests as the owners. And so we scaled that business of democratizing real estate investing, having sort of a direct-to-consumer model. And then when we went to raise, we said: "Well, why don't we walk our own talk? Why, why don't we raise money directly from the individual investors in the same way we do for real estate?" And that was 2017. It was extremely uncertain, like, no one's ever done it before, and we didn't know if it was gonna work. And so we launched it. We think we raised seventeen million dollars in the first, like, twenty-four hours, it was, like, very successful. And we said: "Okay, aha, this is the future. [chuckles] This is the way to do it." And we scaled up, raised a hundred and fifty-five million dollars from thirty-five thousand investors for Fundrise itself, for the tech company, not just for the real estate. So we said: "What's the next thing? We should do it for other tech companies, and we should wrap it in a structure that-- so that all the company has to do is what they normally do with an institutional investor, right? One company on your cap table, but behind it is, like, a mutual fund with millions of investors." And if you're a private company, you should want to have retail investment from the masses as soon as possible, 'cause it's gonna increase your brand awareness, it's gonna smooth your transition to public markets, and it's gonna get you a lot of customers.

   4. BGBen Gilbert5:11

      Our thanks to Fundrise. If you want to join the over three hundred and fifty thousand people investing with Fundrise, you can click the link in the show notes, and if you're a founder who wants to get in touch about the Innovation Fund participating in your next round, email notvc, that's notvc@fundrise.com. After this episode, come talk about it with us. There are thirteen thousand other smart, kind people in the Slack, acquired.fm/slack. Without further ado, on to our live show at Solana Breakpoint. And listeners know that this is not investment advice. David and I may have investments in the companies we discuss, and this show is for information and entertainment purposes only.

3. 5:51 – 7:49

   The definitive Qualcomm history source + Edwin Land’s ‘acts of creativity’

   1. DRDavid Rosenthal5:51

      Well, one small bit of ado before we dive into the story is we owe a big thank you to Dave Mott-... the author of the incredible book, The Qualcomm Equation-

   2. BGBen Gilbert6:04

      Yep.

   3. DRDavid Rosenthal6:04

      -which is not well known, but is the definitive history of Qualcomm, and ranks right up there with among the best business books that, business histories that we've used as a source on Acquired throughout the whole history of the show. It's awesome. Uh-

   4. BGBen Gilbert6:17

      And the book's not even really published under, like, a real publisher. It's published under an industry association. There's no audiobook, there's no Kindle. You have to read the physical book.

   5. DRDavid Rosenthal6:25

      Yeah, it's-- you, it's amazing. I literally, the other day, texted Ben a photo that I noticed on the back cover, [chuckles] and Ben, of course, had seen it, too, uh, of one of the blurbs. I'm gonna, I'm gonna read it here now. It says: "Dave Mach helps uncover the single most important business story, single most important business story that has yet to be told, how Qualcomm came to rule the wireless industry. Think of it as a recipe book of, for one of the most innovative and leveraged business models of all time."

   6. BGBen Gilbert6:56

      Right.

   7. DRDavid Rosenthal6:56

      Whose words does that sound like, Ben?

   8. BGBen Gilbert6:58

      That sounds like a deep business model thinker and someone who, uh, who truly appreciates capitalism at its finest.

   9. DRDavid Rosenthal7:03

      And is willing to go find the rare gems, the rare diamonds in the rough. That is written and said by none other than Bill Gurley-

   10. BGBen Gilbert7:11

       [chuckles]

   11. DRDavid Rosenthal7:11

       -of Benchmark Capital, for this almost unknown book. I bet it's gonna be a lot more known after this episode.

   12. BGBen Gilbert7:17

       Yep.

   13. DRDavid Rosenthal7:19

       Well, Dave starts the book, and it's such an apt place to start, with a quote by Edwin Land, who I was not familiar with until recently, when David Sender on the Founders podcast familiarized us with Edwin. Edwin was the founder of Polaroid and Steve Jobs' hero, uh, and he had this quote that Dave starts this book with: "True creativity is characterized by a succession of acts, each dependent on the one before and suggesting the one

4. 7:49 – 16:28

   Act One: Hedy Lamarr, frequency hopping, and the birth of spread spectrum

   1. DRDavid Rosenthal7:49

      after." So with act one of the Qualcomm story, we start in Austria, here in Europe, in the mid-1930s, in the pre-World War II era, as Hitler and Mussolini and the Nazis were rising to power. [inhales] And we start-

   2. BGBen Gilbert8:08

      Also, is this the first time we've been able to say, "Here in Europe," on Acquired? [chuckles]

   3. DRDavid Rosenthal8:11

      Uh, it is the first time. It is the first time. Uh, and we start... You might think, if you know anything about Qualcomm history, you think of mid-'30s, you're like, "Oh, I didn't know Irwin Jacobs, co- co-founder and CEO of Qualcomm, was born in Europe." He was not. He was born in New Bedford, Massachusetts. We start with somebody very different. We start with one of the most famous film actresses, Hollywood film actresses, of all time, a woman named Hedy Lamarr. And-

   4. BGBen Gilbert8:41

      Side note, the fact that we're starting with Hedy Lamarr on the story of how modern telecommunications came to be is so cool. I remember we reached out to the NZS Capital folks and said, "Hey, l- you know, do you have any great resources on, on Qualcomm?" And they sent back this excerpt of, "You should go read up on Hedy Lamarr." I was like: Are they trolling me right now?

   5. DRDavid Rosenthal9:00

      Yeah. You cannot make this stuff up. This is, like, why we do this show. So Hedy was an incredible-- She was, like, just an incredible human being. She was world-famous, incredibly talented actress, incredibly beautiful. She would later be billed, like the way MGM, she was one of the MGM starlets, marketed her, was as the most beautiful woman in the world. She was also a genius. So she starred in Samson and Delilah, Ecstasy, Zigfield Girl, many, many more. Uh, but what most people at the time, even up until her death, did not know, and certainly her husband at the time, in Austria in the mid-1930s, did not know, was that she had incredible powers of observation and was way more intelligent than anybody else around her. So this said husband, he's quite the character, uh, his name was Friedrich Mandl, and he was not a good dude. Uh, he was a Nazi arms dealer, which made him very rich at the time, which is probably how he met Hedy, and they became married. Hedy, though, uh, probably unknown to Friedrich and certainly unknown to his business associates, including Hitler and Mussolini, Hedy was, uh, Jewish. [chuckles] And, um, so Friedrich would bring his beautiful, you know, film actress, world-renowned film actress bride, to his business meetings, you know, with the Nazi military powers, and, uh, Hedy was listening in to everything- [chuckles]

   6. BGBen Gilbert10:33

      Mm.

   7. DRDavid Rosenthal10:33

      -that was going on. And as, uh, the situation deteriorated, in 1937, she disguised herself as a m- as one of her maids and escaped to Paris, and then from Paris, made it to the US, went to Hollywood, and lived in Hollywood for most of the rest of her life. Um, when she came to the US, though, she knew, like, an incredible amount of inside information about the Nazi war effort. [chuckles]

   8. BGBen Gilbert11:00

      Yep.

   9. DRDavid Rosenthal11:00

      And she was incredibly motivated because obviously, she was from a Jewish family. She hated the Nazis, hated her former husband, uh, and wanted to contribute. And specifically, she knew that the Nazis were working on, uh, and using to great effect, a radio jamming technique for radio-guided torpedoes that would be dropped from airplanes to attack Nazi submarines.

   10. BGBen Gilbert11:27

       It's also pretty amazing, at this point in history, that we had, as humans, the capability to radio guide the torpedo, and the torpedo, you know, gets propelled, and you could guide it using radio frequencies d- deciding which way to turn the rudder. I did not know that technology existed in the '30s.

   11. DRDavid Rosenthal11:43

       Th- this is crazy. Like, the computer does-- the digital computer doesn't exist yet. The concept of digital doesn't exist yet, 'cause we're gonna get to that in a minute. [chuckles]

   12. BGBen Gilbert11:50

       Right.

   13. DRDavid Rosenthal11:51

       Uh, this is all being done essentially with FM radios. Uh, and so Hedy wants to contribute to the, uh, Allied war effort.

   14. BGBen Gilbert12:00

       And when you say with FM radios, therefore pretty easy to jam. If you know that someone's broadcasting on, you know, Jammin' ninety-two point three, and, uh, you start another signal on ninety-two point three, you disrupt their signal, and they're not able to hit their target with the weapon.

   15. DRDavid Rosenthal12:14

       Totally. So Hedy [chuckles] teams up with her new Hollywood neighbor-... a composer, a music composer, named George Antheil, bear with us here, I, I promise this is getting to Qualcomm, [laughing] uh, who is a film music composer. And they, with her ideas and his musical prowess, they develop a concept that they patent, and they get issued a confidential patent that stays confidential for decades in the US military.

   16. BGBen Gilbert12:43

       By the way, this, I believe, did not become declassified until 1981.

   17. DRDavid Rosenthal12:49

       Wow.

   18. BGBen Gilbert12:49

       That's how long it was buried-

   19. DRDavid Rosenthal12:50

       Wow

   20. BGBen Gilbert12:50

       ... inside the US government.

   21. DRDavid Rosenthal12:51

       It was issued in 1942, so four decades that this history was completely unknown. Uh, they develop a novel technique to defeat RF frequency jamming by using frequency hopping, and what they describe becomes the origin of something called spread spectrum technology. So if you're familiar at all with, like, the wireless world or Qualcomm or anything, you hear spread spectrum, and you're like, "Oh, that sounds familiar." Spread spectrum technology, this is the first, like, description of it in a technical document and a patent by these two, like, incredibly unlikely people. Uh, and, and-

   22. BGBen Gilbert13:28

       And, and what it basically means is any way that you're gonna transmit a single message across a variety of spectrums, so rather than just on... I'm gonna keep saying jam in 92.3 to ground it in radio. Uh, but instead of just broadcasting on one frequency, they came up with this idea to hop, so change frequencies during different points in the message to evade anyone trying to jam the signal and move to a different frequency.

   23. DRDavid Rosenthal13:54

       And the reason she teamed up with a music composer for this is that the way you make this happen is you have incredibly precise time syncing on, in this case, the two ends, but in, you know, wireless use case, all endpoints of the communication channel, incredibly precise syncing so that all endpoints know when to hop frequencies. And you're hopping frequencies, like, dozens or hundreds of times a second, and this can defeat jamming. This is great for cryptography. This is great for sending coded messages. It turns out this was not on anybody's radar, pun intended, at the time. It turns out that this is also the most efficient way to use radio bandwidth.

   24. BGBen Gilbert14:36

       But let's put a pin in that for now, and first, let's go back to this specific use case of we want to transmit from a plane to a torpedo, and we want to be hopping around to different frequencies, and we want to change that at incredibly precise times, so the transmitter knows to change the frequency, and the receiver knows to start receiving the message on a new frequency at very specific points in time. The concept of digital hasn't been invented-

   25. DRDavid Rosenthal15:01

       Yeah. [chuckles]

   26. BGBen Gilbert15:01

       ... so how are we doing this, David?

   27. DRDavid Rosenthal15:03

       Totally. [laughing]

   28. BGBen Gilbert15:03

       What's the technology used to synchronize a schedule of frequency hops between a torpedo and an airplane?

   29. DRDavid Rosenthal15:11

       So here's where if this were a, you know, Hollywood movie, like one of Hedy's films, this single-handedly would've, like, defeated the Nazis and all that. [chuckles] Unfortunately, the reality is there, there was no digital computing at the time. It, it, it wasn't possible. The US military tried very hard during World War II to make this happen, the whole Allied military. Um, they couldn't make it work because, like, think about what you're trying to do here, and that vacuum tubes and analog computing was what was happening at the time. You would literally need to put, like, ENIAC on a torpedo and drop it from the sky- [chuckles] ... to make this happen. Uh, that was not feasible.

   30. BGBen Gilbert15:45

       It's worth sharing h- how their prototype worked, though. So the way that they prototyped this, He- Hedy, in the, you know, 19- early 1940s, is they took two player piano scrolls that had the, the same basically song, and they mapped each note to a new frequency, and they put the same player piano in the receiver- the same scroll in the receiver that they did on the transmitter, and they pressed play on the player piano song at the same time. So it would know exactly where to hop around.
5. 16:28 – 20:51

   Act Two: Claude Shannon invents the ‘bit’ and information theory limits

   1. DRDavid Rosenthal16:28

      Oh, totally. Okay, so that is the origin, the you-can't-make-this-up origin of spread spectrum technology. That's act one. Act two, we stay in World War II. Around the same time, but a few years later, there is a young PhD grad, PhD grad, from the Massachusetts Institute of Technology, the august Massachusetts Institute of Technology, who was working on code breaking for the Allies, very famously, at Bell Labs and at the Institute for Advanced Study in Princeton, New Jersey, where he intersects with luminaries like Albert Einstein, John von Neumann, Alan Turing. We're not talking about any of those three folks, but by process of elimination, you can probably figure out who we are talking about. We're talking about Claude Shannon, uh, literally the father of information theory, uh, one of the fathers of computer science, and the inventor of the concept of digital, of the bit of information. Like-

   2. BGBen Gilbert17:30

      Yep

   3. DRDavid Rosenthal17:31

      ... digital did not exist before Claude. So during the war, all of this effort culminates in what he publishes after the war, his, his master work, A Ma- A Mathematical Theory of Communication, which defines a bit, the new, uh, field of information theory, ushers in the digital era for the world. And combined with the other folks who we mentioned, Einstein, Turing, von Neumann, uh, and Bell Labs' work on transistors during the war, these things come together to create the modern era of humans and the digital computer.

   4. BGBen Gilbert18:09

      Yep.

   5. DRDavid Rosenthal18:10

      So we've described, like, the Hollywood part. We described here in act two, Claude Shannon, you know, birth of computing, all that.

   6. BGBen Gilbert18:17

      A- and it's worth maybe sharing a little bit about information theory. If... Can I take a second, David?

   7. DRDavid Rosenthal18:21

      Of course.

   8. BGBen Gilbert18:22

      All right, so I had heard people reference information theory or communications theory, um-... dozens of times over the years, and every time I'd open up the Wikipedia page, I'd see a bunch of complicated math equations. Uh, and you quickly wanna get to like, okay, but what is this? Why does everyone keep describing it as so important? And I think there's a pretty key concept that was an aha moment for me, which is all communication must happen through a medium. There's no communication that happens through nothing. You need some way to send signal from a transmitter to a receiver, and the method by which you communicate, the way you send signal, is governed by that medium. And so what I mean by that in particular is, let's use the analogy of, uh, a conversation. Well, if you're in a super loud room, then your message needs to be very loud, and it needs to sort of not be very noisy. It needs to be a super clear, super loud message because there's a lot of noise in the room. Whereas if you're in a really quiet room, then you can have kind of a, a message with a bunch of noise. Imagine someone talking, but there's a bunch of static. Well, that's okay if the medium itself, the room that you're communicating in, doesn't have a lot of noise itself. So there's this, this relationship between how noisy a message can be and how noisy the medium is that you're communicating in. And I, I think this is this very interesting aha moment, where what he basically deduces is, uh, there is a theoretical limit to the amount of signal that you can pump through any given medium based on how noisy the medium is and based on the level of entropy or randomness in the, um, in the, the message that you're trying to describe. So when I say entropy, l- let's say, David, you're expecting me. You think there's a ninety-nine percent chance that I'm coming to deliver the message to you: I just had breakfast. Well, if it's a, in a really loud, noisy room, and, you know, there's, uh, I'm, I'm sick, and I'm coughing, and I tell you I just had breakfast, because you were expecting it, it's fine if it's in a really garbage medium. But if you have no idea what I'm about to tell you, and it could be everything from, like, uh, "Hey, uh, you're fired," to, "I j- I just had breakfast," a- and, and you have no idea, like, we need to have that in a pretty pristine environment with really nice volume or gain on the signal. So that's sort of the high-level concept of, of information theory and more specifically of, um, uh, Shannon-Hartley theorem describing, uh, the, the relationship between signal and medium.

6. 20:51 – 26:26

   Act Three begins: Irwin Jacobs’ path from hotel school to Shannon’s protégé

   1. DRDavid Rosenthal20:51

      Yeah. Super, super cool stuff. Um, the... So where this all comes together in act three of our story here, which is gonna be a little longer 'cause we're gonna get into Qualcomm as part of this, uh, is one Irwin Mark Jacobs, an American born in 1933, as we mentioned, in scrappy New Bedford-

   2. BGBen Gilbert21:16

      Bedford

   3. DRDavid Rosenthal21:16

      ... Massachusetts, which used to be, I believe, the wealthiest town in America during the whaling era-

   4. BGBen Gilbert21:21

      Yes

   5. DRDavid Rosenthal21:21

      ... as we discussed during Standard Oil or Berkshire? I think it was Berkshire, actually, that we discussed.

   6. BGBen Gilbert21:25

      It was Berkshire because forty-five years before Irwin Jacobs was born in New Bedford, the, uh, Hathaway Manufacturing Company-

   7. DRDavid Rosenthal21:36

      That's right

   8. BGBen Gilbert21:36

      ... was started.

   9. DRDavid Rosenthal21:37

      In New Bedford.

   10. BGBen Gilbert21:37

       In New Bedford.

   11. DRDavid Rosenthal21:38

       That's right.

   12. BGBen Gilbert21:38

       Before it merged with Berkshire and before, of course, Warren Buffett.

   13. DRDavid Rosenthal21:41

       Even, even by, uh, 1933, New Bedford was not the New Bedford- [chuckles]

   14. BGBen Gilbert21:46

       [chuckles]

   15. DRDavid Rosenthal21:46

       ... of the whaling era, shall we say. So Irwin is a pretty amazing American story. So he grew up in, like, a very middle-class family in this super scrappy, uh, area of the country. Um, his dad worked a bunch of jobs, uh, and ended up running a local restaurant called the Boston Beef Market. Irwin was highly gifted in math and sciences as a kid going through school. He wanted to study math and science and probably would have wanted to study engineering if he, like, knew it existed [chuckles] in college. Uh, but his high school guidance counselor famously told him that there's no future for math and science in New Bedford, and frankly, his high school guidance counselor was probably right. [chuckles] Uh, so Irwin, though, had very good grades growing up, and the guidance counselor encouraged him to go to the world-famous Cornell School of Hotel Management so that he could learn the hospitality management business and come back and work in the family business at the Boston Beef Market. [chuckles]

   16. BGBen Gilbert22:53

       Which he did.

   17. DRDavid Rosenthal22:54

       Which he did-

   18. BGBen Gilbert22:55

       Like, the founder-

   19. DRDavid Rosenthal22:55

       Go to ho- the School of Hotel Management

   20. BGBen Gilbert22:57

       ... This engineering genius, this, like, American pioneer of the wireless and communications industry, that is what he went to college for.

   21. DRDavid Rosenthal23:05

       And he would later credit the year and a half that he spent in the hotel management school at Cornell before transferring to electrical engineering. He would credit that year and a half with really helping him start first Linkabit, his first company, and then Qualcomm, get out of academia and s- and become an entrepreneur because he actually learned about, like, business accounting, [chuckles] the real-world applications, and found that, like, he kinda loved that, too.

   22. BGBen Gilbert23:29

       Yep.

   23. DRDavid Rosenthal23:30

       Um, a- amazing. So after a year and a half at Cornell in the hotel management school, he learns about engineering and is like: "Oh, you can make money with math and science." [laughing]

   24. BGBen Gilbert23:39

       [chuckles]

   25. DRDavid Rosenthal23:39

       "This is actually, like, in demand. Maybe not in New Bedford, but, like, in the rest of America." And, uh, so he goes to the dean at Cornell. He tells this story, and he's like, uh: "Hello, sir. You know, I- I, sophomore at Cornell, uh, I would like to transfer from hotel management to electrical engineering." And the dean's like: "Oh, you mean electrical engineering to, to hotel management, right?" [chuckles] He's like: "No, no, no, no, no. Hotel management to electrical engineering."

   26. BGBen Gilbert24:03

       "No, I wanna do the harder one."

   27. DRDavid Rosenthal24:04

       "I wanna do the hard stuff." [chuckles] Uh, after the dean, like, picked himself up off the floor, he, uh, he allowed it, uh, perhaps with a degree of suspicion, um, which he need not have because Irwin is another genius in this string of geniuses. Um, he would graduate, go on to a PhD at MIT, which he would do in three years, finishing his PhD in 1959, studying under none other-... then Claude Shannon himself, who after the war, returned to MIT as a professor.

   28. BGBen Gilbert24:36

       It's pretty interesting 'cause so many of these stories that we tell, there's an, an immense element of genius. No question, Irwin Jacobs and Jensen at, at Nvidia and Steve Jobs, geniuses. And also-

   29. DRDavid Rosenthal24:50

       There were, like, ten people in the world-

   30. BGBen Gilbert24:52

       Well
7. 26:26 – 37:55

   Linkabit: defense consulting turns into products (Walmart + cable scrambling)

   1. DRDavid Rosenthal26:26

      at Jet Propulsion Labs, working on the US space program, uh, and communications with, with satellites in the US space program at the time, where he intersects, fatefully, with another recent MIT electrical engineering PhD grad, one Andrea, or Andrew, as it was anglicized, Viterbi, a Jewish immigrant from Italy, who got his PhD from MIT in 1957, who was working at JPL, and they become fast friends. So fast friends, in fact, that when Irwin returns back to Boston, to cold, snowy, [chuckles] uh, bleak Boston, near his upbringing in Massachusetts, uh, after his sabbatical, Irwin then gets a call shortly thereafter from one of his former professors at Cornell that a new engineering school in San Diego is being started, the new UC San Diego, and there's an opportunity for Jacobs to come out and start the electrical engineering department at UCSD. He says, "Well, I really enjoyed my time out there. I've got this great friend, Andy. Let's do it!" [chuckles] I would make the exact same decision. So he and his family, Irwin and his family, move out to UCSD, and while he's out there, he continues doing his contracting work with defense contractors and JPL and the US space program.

   2. BGBen Gilbert27:54

      And this is sort of one-off at the-- at, at this time. I mean, he's, like, doing it under his own name. He hasn't really started a company. It's just kind of Irwin doing contracting.

   3. DRDavid Rosenthal28:02

      Totally. He is, like, the first, you know, like, electrical engineering professor at UCSD. That's his full-time job, but because he's in such close proximity to everything going on at JPL and NASA and the like, um, he's doing that on a kinda like one day a week-ish. And one day, he and Andy and another professor from UCLA are up at NASA Ames in Mountain View, doing consulting work up there. They're flying back, and they're all kinda lamenting. They're like, "This is super cool that we're doing this. We're making more money than academia. We're helping our country. We're participating in the space race, um, but it's kinda hard to, like, balance all this stuff that we're doing."

   4. BGBen Gilbert28:38

      Yep.

   5. DRDavid Rosenthal28:38

      And they're like: Hey, what if the three of us band together and form a company, kind of a shell company, to just kinda manage this consulting work that we all get? We could probably get some, you know, efficiencies here, maybe hire an assistant, help us out, that kind of stuff. And they say, "Great! You know, we don't intend this to be a real company. We're not gonna make any products or anything. This is just to manage our, our consulting." Um, uh, they sort of tongue-in-cheek decide to call it Linkabit, like linking a bit. [chuckles] Uh, a very, like, academic joke. Uh, so who, who is this third partner in Linkabit? Um, he ends up not kinda gelling with the other two, uh, leaves shortly thereafter. His name is Len Kleinrock, and I read that the first time, and I was like...

   6. BGBen Gilbert29:26

      I've heard that name before.

   7. DRDavid Rosenthal29:27

      I know that name. [chuckles]

   8. BGBen Gilbert29:28

      And I'm gonna guess ninety-nine percent of listeners haven't heard that name, but if you're you and me, and all we do all day is study tech history and, you know, the history of the internet, that name should ring a bell.

   9. DRDavid Rosenthal29:36

      Yeah. Well, you know, at first, you, you read this history, and you're like: Man, bummer for Len. He missed out on founding Qualcomm. Well, he actually ended up okay because instead of founding Qualcomm, he founded the Internet. [laughing]

   10. BGBen Gilbert29:49

       He literally was the, the... I think, the founding engineer on the ARPANET project-

   11. DRDavid Rosenthal29:53

       Yes

   12. BGBen Gilbert29:53

       ... at DARPA.

   13. DRDavid Rosenthal29:54

       You know what? Many people were involved in the ARPANET project-

   14. BGBen Gilbert29:56

       I guess I meant ARPA? I don't know if it's-

   15. DRDavid Rosenthal29:57

       Uh, ARPA, ARPANET.

   16. BGBen Gilbert29:58

       Yeah.

   17. DRDavid Rosenthal29:58

       ARPANET, which was the precursor to DARPANET, which was the precursor to the Internet. Len and one of his grad students at the time at UCLA, like, the next year, right after this has happened, this is all happening at the same time, they sent the first message on ARPANET ever, like, the first internet transmission ever from UCLA to Stanford. He's one of the core founding fathers of the Internet. So he ended up doing okay. He probably didn't make as much money, [chuckles] but-

   18. BGBen Gilbert30:26

       Not probably

   19. DRDavid Rosenthal30:26

       ... uh, he will be remembered in history. Pretty amazing. Um, so Andy and Irwin-... They're mostly continuing to work on NASA and Navy defense projects in San Diego, because, of course, San Diego is a US Navy town. Um, and most of what they're doing is working on satellite communications. Uh, if you know anything about satellite communications, the bandwidth that you have available to you is very, very narrow. [chuckles]

   20. BGBen Gilbert30:53

       Yep.

   21. DRDavid Rosenthal30:54

       And you need to be very, very efficient with your communications.

   22. BGBen Gilbert30:58

       And that's still true to this day. I mean, any, any, uh, company in the sort of emerging space economy, it's a totally different engineering problem than you're used to today. Because if you ship code up to your satellite and you find a bug, it's, like, very expensive and very slow to go get enough bandwidth and actually make sure you have the right time window to update the code on the satellite. So it still kinda works the way that computers worked 30, 40 years ago.

   23. DRDavid Rosenthal31:24

       Yep. And so they're tr- you know, it, it wasn't them, like, this was the military. There was this... They got exposed to this, trolling around to find the most best, most efficient ways to use this narrow bandwidth channel that they had. And what ends up getting used but this old patented spread spectrum technology [chuckles] from the World War II era, invented by Hedy Lamarr and George Antheil.

   24. BGBen Gilbert31:47

       And the, the timing is perfect, because the time of Linkabit is this sort of early '80s, where the p- uh-

   25. DRDavid Rosenthal31:55

       Early '70s.

   26. BGBen Gilbert31:56

       Oh, Linkabit's early '70s.

   27. DRDavid Rosenthal31:57

       Early, yeah, late '60s, early '70s.

   28. BGBen Gilbert31:58

       So they have 15 years of Linkabit before-

   29. DRDavid Rosenthal32:00

       Oh, yeah. Oh, yeah, there's a long-

   30. BGBen Gilbert32:02

       Ah.
8. 37:55 – 43:03

   Sale to MACOM and the spark for Qualcomm: cellular demand meets capacity limits

   1. DRDavid Rosenthal37:55

      So great. That's Irwin and Andy right there. Um, so in 1980... They do this for the whole decade of the '70s. Um, in 1980, the, uh, Linkabit, the company, gets acquired by a East Coast radio technology company called MACOM, I think is how it's was pronounced. It used to be actually MACOM, and then it, you know, this, like, weird '80s branding stuff, they changed the brand to M slash A dash COM. [chuckles] Microwave Communications, I think. Um, anyway, they sell the business for twenty-five million bucks in, um, 1980, which like-

   2. BGBen Gilbert38:30

      Nice early win.

   3. DRDavid Rosenthal38:31

      Not bad for some former academics, twenty-five million bucks in 1980 dollars, like, that's awesome.

   4. BGBen Gilbert38:36

      And, and they had a lot of people at this point. I think there was, like, over a thousand employees.

   5. DRDavid Rosenthal38:40

      It grew within... I, it was on its way there, but then it grew over the next five years within MACOM to that big. So I don't think it was... It grew to fifteen hundred people eventually.

   6. BGBen Gilbert38:48

      Okay.

   7. DRDavid Rosenthal38:49

      Like, this is a big freaking business. Like, you can imagine, the things we're talking about, like [chuckles] a lot of other retailers started using, you know, satellite networks. A lot of other cable TV, [chuckles] you know, channels wanted to use these to like... And there were other products that they were building. Like, this is a huge, like-

   8. BGBen Gilbert39:02

      Yeah.

   9. DRDavid Rosenthal39:02

      Basically, they made a big mistake selling the company. Um, you know, they, they hadn't listened to Acquired. They didn't have all the lessons.

   10. BGBen Gilbert39:08

       They wouldn't have had Qualcomm if they didn't sell the company.

   11. DRDavid Rosenthal39:11

       Uh, well, that's true. They made absolutely the right decision in selling Linkabit then. [chuckles] Uh, so they stay with MACOM for five years, and then there's a leadership change at MACOM, and, like, this is an East Coast technology company. So they all leave in 1985, and they sit around for a couple months, and, you know, they're like, "Like, we made more money than we ever, like, dreamed we would. We got to be part of so many cool things, but, like, we're still young, and, like, the wireless communications industry is kinda just getting started."

   12. BGBen Gilbert39:45

       Yep.

   13. DRDavid Rosenthal39:45

       And this is 1985, so, uh, the cellular telephone industry exists at this point.

   14. BGBen Gilbert39:53

       It had just started. We had the... You know how we, we're on 5G now, and everybody remembers the iPhone 3G, that, that second phone, and the Edge network that, that the first iPhone launched with was, uh, uh, 2G. It was a little ad- advancement on 2G. This was 1G.

   15. DRDavid Rosenthal40:07

       This was 1G, which was analog. No digital yet in, in cellulars. Analog cellular.

   16. BGBen Gilbert40:13

       And cellular had just been an innovation. I mean, this notion that rather than, you know, communicating over long distances, we were actually going to put cell towers so that you only needed to communicate with your local tower, and that, that could be relayed, and you had this sort of cellularification of all the geography that you needed to cover. Um, that was new, and it's funny how today we, we don't even think about what the word cellular means, but that was the most recent innovation at the time.

   17. DRDavid Rosenthal40:41

       Yeah, it's cra-- So, you know, Irwin and Andy, like, they're, they are first-rate aca- academics, you know, as hopefully we've told the story here, like, among the most brilliant minds in the world. But they're also, like, especially Irwin, like, incredible businesspeople, market analysts. Like, they're very aware, like, the products they developed at Linkabit, they're aware that this market is coming, and, and the reason they're so aware, like, technically, it exists now, cellular, it's all car phones at this point in time-

   18. BGBen Gilbert41:09

       Yep

   19. DRDavid Rosenthal41:09

       ... because the way it works is it was essentially, it was just like the torpedoes back in the day. It was e- essentially a FM radio broadcaster that you would wire up into-

   20. BGBen Gilbert41:22

       Super high power

   21. DRDavid Rosenthal41:22

       ... your car. Super high power. You needed, like, a lot of freaking power.

   22. BGBen Gilbert41:25

       You had to put it in a car for what you're talking about, and because you couldn't, like... The, there was not a battery available to, uh, have-

   23. DRDavid Rosenthal41:32

       You needed a running internal combustion engine to make this thing work.

   24. BGBen Gilbert41:35

       To power this thing.

   25. DRDavid Rosenthal41:36

       Yes.

   26. BGBen Gilbert41:36

       On the-

   27. DRDavid Rosenthal41:37

       On the endpoints. [chuckles]

   28. BGBen Gilbert41:38

       Yes.

   29. DRDavid Rosenthal41:38

       On the endpoints. Um, and bandwidth was super limited, and, like, these systems were thousands and thousands of dollars, in early '80s dollars. And despite all that, the consumer demand for car phones was insane. Like, in, like, this was just, like, you know... There were wait lists years long for consumers to get car phones installed, and the fledgling carriers at the time, like, they only had so much bandwidth they could fit because literally, it's, you know, there's no [chuckles] you- there's no, um, efficient use of channels. It's just like the torpedoes back in the day. Uh, like, they couldn't keep up with all the demand. I, I remember when my parents, who were lawyers, like, they had car phones in the '80s. Did your parents have one?

   30. BGBen Gilbert42:25

       Uh, no, my great uncle had one. But it is interesting thinking about, you know, when you're listening on an FM radio, you have ninety-nine point one, and then you click up on the dial, and it says ninety-nine point three, and then you click up, and it says ninety-nine point five, and you can't even have point two, point four, point six, because that's too close. There would be interference. So you start thinking about... And this isn't e- exactly right. I'm gonna oversimplify this a little bit, but you start thinking about, well, geez, how many slots are there-
9. 43:03 – 58:20

   Qualcomm is founded + CDMA concept, patents, and the Moore’s Law bet

   1. DRDavid Rosenthal43:03

      Yeah. I mean, you think about how many radio stations there are, [chuckles] like, it's not much more than that. Uh, so, you know, the Linkabit folks, Irwin and Andy, they, they see this, they know, and they're like, "Oh, [chuckles] this industry is in its infancy. We see this amazing demand. We are literally the best- We know there's a better way to do this. We know you can do this digitally. We know you can do it way better. We know how to do it the best." So they found a new company in July of 1985 with seven tot- seven in total, Andy, Irwin, and five other of the best Linkabit engineers. They meet at Irwin's house, and they decide to start this new company, and they name it Qualcomm.

   2. BGBen Gilbert43:46

      Quality Communications.

   3. DRDavid Rosenthal43:47

      Which is short for Quality Communications, which I had no freaking idea, [laughing] until we did the research. But then you're like, oh-

   4. BGBen Gilbert43:54

      Duh

   5. DRDavid Rosenthal43:54

      ... Quality Communications. [chuckles]

   6. BGBen Gilbert43:56

      Yep.

   7. DRDavid Rosenthal43:56

      And then when you know all this history, it makes sense. Like, they are the highest quality, you know, but they, they know how to do quality communications. This is a communications company, and they can provide quality that nobody else can.

   8. BGBen Gilbert44:06

      There's so many companies named this way, too. These things become these household brands, and then it's, it's like you don't even think about what the original meaning was.

   9. DRDavid Rosenthal44:12

      Totally. Totally. Because, like, the industry was still so early, and, and, and you think for a minute about what is involved in building out a cellular telephone network, there is enormous CapEx. Like, you know, laying, like, cable, we've talked a little bit about the cable industry history on Acquired. Like, that required enormous CapEx. Like, this is, like, literally putting towers in the ground, putting base stations on them, building these thousand-dollar mobile phones. It requires a lot of money to participate in this.

   10. BGBen Gilbert44:42

       It's money, and it's a bunch of competencies because not only when you-- are you thinking about the real estate for the tower and putting in the tower and putting the base stations on the tower, well, then you need to figure out, well, how are those towers... What's the protocol? What's the technical method that it's communicating with phones and making sure that the phones have all the correct hardware? And it's not just antennas, it's very specialized chips. And so then you're like: Okay, well, do we need to then make phones, and do we need to build a consumer brand, and do we need to market to consumers?

   11. DRDavid Rosenthal45:13

       Yes. [chuckles]

   12. BGBen Gilbert45:13

       Do we need to be our own carrier? Do we sell to carriers? There's a way to sort of, like, bite and try and eat the whole elephant here. Or you could say, "Okay, we're just gonna try and be one small part of this, 'cause we have an idea for how to make this better." But if you're just doing one small part of it, in-inventing the means by which the, the technical method that the phones communicate with the towers, there's a bunch of stakeholders that you've gotta get on board with your thing: carriers, the government in terms of licensing spectrum, phone manufacturers, chip makers, base station makers. So there's this really interesting-

   13. DRDavid Rosenthal45:45

       Pretty good

   14. BGBen Gilbert45:46

       ... crux that they're at, at this point of the company, where they're saying, "We know we can do this better. We have a specific idea about how to make this better," which we'll get to in a second. Uh, but they're-

   15. DRDavid Rosenthal45:56

       We can't do it yet

   16. BGBen Gilbert45:56

       ... really trying to figure out how much of the elephant to try to eat themselves.

   17. DRDavid Rosenthal46:00

       And this story, you know, this, um... hopefully, this first, you know, forty-five minutes of the episode was interesting, with, [chuckles] you know, fun telling this, like, crazy World War II, Hollywood, you know, history of all the technical aspect that comes to this. The business history of Qualcomm, just like Bill Gurley said on the blurb of this book, i-i-it is one of the most brilliant strategic executions of entering a market, uh, period, you know, like, writ large, ever. Like, this is on par with Nvidia, i-if not-

   18. BGBen Gilbert46:28

       Yeah

   19. DRDavid Rosenthal46:28

       ... honestly, more brilliant.

   20. BGBen Gilbert46:30

       It seems more difficult, 'cause if you were to-

   21. DRDavid Rosenthal46:32

       Way more difficult

   22. BGBen Gilbert46:32

       ... pitch me this idea a priori, as an investor, I would tell you immediately no, because I see fifteen different needles, all of which you must thread perfectly, a story that's entirely path-dependent, so you're not gonna get one thing until you get the previous thing, and that was a needle that you were threading. So the likelihood of success is unbelievably low.

   23. DRDavid Rosenthal46:51

       And yet, [chuckles] here we are talking about Qualcomm. So they knew two things at the outset of founding. One, this is a massive opportunity that they eventually wanted to pursue, was bringing their expertise to bringing cellphone, terrestrial cellphone networks into the digital era and building the dominant guerrilla company in this soon-to-be massive industry. And two, they knew they couldn't do it yet. So they actually started in the same fashion that Linkabit did. They're like, "Okay, we're gonna bootstrap up by doing consulting work."

   24. BGBen Gilbert47:24

       Yep.

   25. DRDavid Rosenthal47:25

       So one of the first consulting projects they do is with Hughes, you know, like, one of the defense primes, Hughes, like Howard Hughes. [chuckles] Like, um, uh, pretty awesome, uh, on a proposal to the FCC for a mobile satellite network. They're like, "All right, well, we'll learn about consumer mobile, you know, telephony services-

   26. BGBen Gilbert47:43

       Yeah

   27. DRDavid Rosenthal47:43

       ... uh, enter the market. We'll work on the satellite network."

   28. BGBen Gilbert47:45

       And we're talking, like, Jurassic Park sat phones.

   29. DRDavid Rosenthal47:48

       Yes.

   30. BGBen Gilbert47:48

       You know, that, that- [chuckles]
10. 58:20 – 1:08:19

    OmniTRACS: the cash-flow engine that funds the real war

    1. DRDavid Rosenthal58:20

       Uh, that's right, that's right. Looking ahead, foreshadowing. Uh, Qualcomm doesn't enter the wireless industry until 1989. What happens in the interim? [chuckles] This is, this is the next Walmart. Oh, it's so good. You literally just can't make this stuff up. Uh, so they get approached to bid on another contract, the fledgling Qualcomm does, from a company called OmniNET, which has this idea that they think the Qualcomm folks are gonna be perfect to implement. They want to make a mobile satellite network specifically to connect commercial semi trucks on the roads in America, and, uh, network them up to the distribution centers for retailers [chuckles] and other, uh, people who, uh... companies who ship a lot of things in the US. This is right in their wheelhouse. Qualcomm and, and Irwin are like: "Great, we're gonna bid on this contract." They win it, they start working with OmniNET, [lips smack] and they make it work, and one of the very first customers is, of course, Walmart-

    2. BGBen Gilbert59:29

       I had no idea

    3. DRDavid Rosenthal59:30

       ... which implements it on their own proprietary fleet of trucks-

    4. BGBen Gilbert59:32

       Ah.

    5. DRDavid Rosenthal59:33

       - building further their technical advantage over just about every other retailer in America. [chuckles]

    6. BGBen Gilbert59:38

       And at this point, they've walked away from the satellite contract, right? They, they sort of like-

    7. DRDavid Rosenthal59:42

       Yeah, they wa- the, the, the Hughes satellite thing, that, that actually just never happened. [chuckles]

    8. BGBen Gilbert59:47

       So they developed this technology, they patent it, they were like: "Oh, but there's no money here 'cause the g- the contract they had up-

    9. DRDavid Rosenthal59:51

       Yeah, the FCC was like: "Yeah, satellite, Jurassic Park phone's not gonna be a thing."

    10. BGBen Gilbert59:55

        Right. So instead, they're focused on this OmniNET-

    11. DRDavid Rosenthal59:59

        So they focus-

    12. BGBen Gilbert59:59

        deal

    13. DRDavid Rosenthal59:59

        ... on this, and they also have, like, a lot of the business, you know, relationships already from the previous iteration of what they were doing at Linkabit, including with Walmart and many of the other large companies and retailers. Um, uh, I believe it's Schneider, uh, Trucking-

    14. BGBen Gilbert1:00:15

        Yep

    15. DRDavid Rosenthal1:00:15

        ... um, becomes one of the, actually, the first customer, I think, for that. Um, so, uh, they work on building that. It becomes pretty clear, like, this is gonna be the interim main product. Uh, Qualcomm and OmniNET merge in 1988. They raise three-point-five million dollars in funding as part of that. They bring the product to market at the end of 1988 as OmniTRACS. People might have heard of it. [chuckles] Uh, it was part of Qualcomm for a long time before I believe it ended up getting spun out to private equity.

    16. BGBen Gilbert1:00:44

        Mm.

    17. DRDavid Rosenthal1:00:44

        Um, and in 1989, in the first year of business for OmniTRACS, they do thirty-two million dollars in revenue. [chuckles] In 1989. [chuckles]

    18. BGBen Gilbert1:00:53

        Which is w- something like- it's, like, inflation-adjusted a hundred million dollars?

    19. DRDavid Rosenthal1:00:57

        It's a lot of money, and there's a lot of demand for this product.

    20. BGBen Gilbert1:00:59

        In the first year of the product launch.

    21. DRDavid Rosenthal1:01:01

        Year one. Um-

    22. BGBen Gilbert1:01:02

        Now, there's a lot of cogs, like, this isn't SAS revenue-

    23. DRDavid Rosenthal1:01:05

        No, yeah, yeah

    24. BGBen Gilbert1:01:05

        ... we're talking about.

    25. DRDavid Rosenthal1:01:06

        Um, and w- there's particularly a lot of cogs because one of the things they learn from doing this, and one of the reasons the companies merge, they first, kinda like the Linkabit days... You know, they- remember, Walmart was their customer for the Linkabit satellite, you know, thing. Walmart is very happy to integrate and implement technology themselves.... most other customers are not. So they go around and they're like, you know, pitching this to trucking companies and retailers and the like, and, and most of them are being like, "Well, this is, like, cool, but, um, we're not gonna operate our own dispatch centers and messaging."

    26. BGBen Gilbert1:01:38

        Right. We try to have as small an IT department as possible.

    27. DRDavid Rosenthal1:01:40

        Yeah, why is this technology so-

    28. BGBen Gilbert1:01:41

        Why on earth are you asking us to do all this work and just handing us this pile of technology?

    29. DRDavid Rosenthal1:01:45

        Yeah. So Irwin, uh, is like, "Well, what if, um, what if we just operate it for you, and we provide a whole full-stack solution? We don't sell you a technology, we sell you a solution." [laughing]

    30. BGBen Gilbert1:01:58

        Which is, like, every enterprise company that you ever-
11. 1:08:19 – 1:20:38

    The CTIA 2G spec opens the door + ‘Holy Wars of Wireless’ begin

    1. DRDavid Rosenthal1:08:19

       Thank you, Brex. So in September of 1988, all these factors, you know, they've got the financing capability to take a swing at this. They see a path with Moore's law to it being technically feasible. They've got the patent. [chuckles] They're literally the only ones that can do this, and then the market timing. So in September 1988, the US Cellular Telecommunications Industry Association, or CTIA, as most people know it, and then, uh, its related entity, the TIA, the Telecommunications Industry Association, they release performance requirements, uh, the spec for performance requirements for the planned upgrade of the US's cellular networks from the analog 1G networks to the new digital 2G networks.

    2. BGBen Gilbert1:09:06

       And this is just the US one. Europe has its own standards body.

    3. DRDavid Rosenthal1:09:09

       Europe's already well on its way.

    4. BGBen Gilbert1:09:10

       Yep.

    5. DRDavid Rosenthal1:09:11

       GSM, Ericsson, TDMA, it's all happening here in Europe.

    6. BGBen Gilbert1:09:14

       Yep.

    7. DRDavid Rosenthal1:09:15

       Um, the Qualcomm folks, of course, they eagerly anticipate the release of this spec, and they look at it, and they're like: Oh, my God, this could not have been written better.

    8. BGBen Gilbert1:09:23

       It's, it's written for us. It's perfect.

    9. DRDavid Rosenthal1:09:24

       This is a dream. It's written for us. They realize two things. One, of course, TDMA is the, the front-runner and Ericsson and all that to, like, you know, do the US, too, 'cause they're successfully doing it in Europe.

    10. BGBen Gilbert1:09:32

        And, and not only is it, it being done in Europe, it makes sense to adopt in the US, too, because it's kinda nice to have a global standard and because it's quite believable. Like, okay, one big thing I have to believe is we're switching to digital. I can believe that. Another big thing I have to believe is that you're able to use the same frequency for several conversations at once through cutting up, you know, d- different time windows. Okay, I can believe that, but gosh, how much new stuff are you trying to invent all at the same time?

    11. DRDavid Rosenthal1:09:58

        And ShowMe can-

    12. BGBen Gilbert1:09:58

        Anything further than that feels like I gotta take a leap of faith.

    13. DRDavid Rosenthal1:10:01

        And ShowMe can work, and Ericsson's well on the way to, like, pilots proving, showing it works. This actually works.

    14. BGBen Gilbert1:10:05

        They're big companies.

    15. DRDavid Rosenthal1:10:06

        Yeah.

    16. BGBen Gilbert1:10:06

        They've succeeded before. They're the right vendors that everyone trusts.

    17. DRDavid Rosenthal1:10:09

        So the spec that the CTIA publishes, the Qualcomm guys, they just must've just been, like, beaming ear to ear. Uh, they realized that TDMA, because of the capacity limits of TDMA, it's not gonna meet spec. Like, you can have the best implemention- implementation of TDMA, it's not gonna allow for enough compression to actually meet the spec that the US wants to hit.

    18. BGBen Gilbert1:10:30

        So here, th- this is, uh... I've been, I've been, like, waiting to bring this thing up. So at this point in history, the US standards body ha- is correctly forecasting the incredible popularity of cell phones in the US, so they, they're setting a really high bar for the amount of phones that need to be able to use this network. Um, and the reason that they have, uh, since changed their tune is, in 1980, this is a fun bit of trivia, AT&T, who has been the incumbent for 100 years on all things telecommunications, commissioned McKinsey & Company to predict-

    19. DRDavid Rosenthal1:11:04

        [chuckles] McKinsey

    20. BGBen Gilbert1:11:04

        ... cell phone-

    21. DRDavid Rosenthal1:11:05

        It all goes back to McKinsey always.

    22. BGBen Gilbert1:11:06

        Always. To predict the cell phone usage in the United States in the year 2000, so flash forward 20 years in the future, the consulting group argued that cellular te- telephony would be a niche market.

    23. DRDavid Rosenthal1:11:19

        Ah, yes, of course.

    24. BGBen Gilbert1:11:20

        They forecasted 900,000 people would be subscribed to a cellular telephony network in the year 2000.

    25. DRDavid Rosenthal1:11:27

        I think I have 900,000 cellular connections personally. [laughing]

    26. BGBen Gilbert1:11:31

        [laughing] So, as you know, that number was off, uh, by over 100x.

    27. DRDavid Rosenthal1:11:36

        [chuckles]

    28. BGBen Gilbert1:11:36

        There were 109 million people, not 900,000, 109 million subscribed in the year 2000. So i- it does make the point that in 1980, it was super not obvious. Like, you had some of the smartest people in the world, both in domain depth at AT&T and just good business model thinkers at McKinsey, wildly misforecasting this. And to illustrate how big the miss was, AT&T eventually bought McCaw Cellular for $12.6 billion to become AT&T Wireless, which is the AT&T we actually all know today, and catch up in mobile telephony.

    29. DRDavid Rosenthal1:12:10

        Right.

    30. BGBen Gilbert1:12:10

        So th- this, like, 2G spec that was written is, is right around the time that a, a lot of the people in the industry are starting to realize, like, "Uh-oh, were we super wrong in what we all thought just a few years ago the potential of this thing was?"
12. 1:20:38 – 1:24:48

    Proving CDMA works: demos, early carrier wins, and South Korea’s leap

    1. DRDavid Rosenthal1:20:38

       ... that are just incredibly valuable. So they start the roadshow pretty quickly in February of 1989. Uh, one of the largest carriers in the Southern California area, PacTel Wireless, is interested 'cause they get it, like, this economic argument, like, it's... You know, basically, they're like, "All right, if this works, like, yeah, you got us." [chuckles] Um, so they put up a million dollars to fund a prototype. They're like: "Okay, prove to us that this works. Build a prototype." Qualcomm, for the rest of the year, works on this. November of 1989, they host a demo, you know, with the PacTel money, but they invite the whole rest of the industry in San Diego. Uh, and there's [chuckles] famously a little hiccup where, like, they're about to... You know, uh, Irwin's giving, like, a big speech, introducing it, then they're gonna do the actual demo. They've got vans driving around the city, and then, like, a base station back at Qualcomm HQ, uh, and they're gonna make it all work. Um, he's giving the intro speech, and one of the engineers is, like, frantically waving in the back, like, "Keep talking, keep talking!" They had to reboot the GPS system. [laughing]

    2. BGBen Gilbert1:21:35

       [laughing]

    3. DRDavid Rosenthal1:21:35

       And so, like, he's, you know... Anyway, he makes a little quip of, like, "As a former professor, it was easy for me to keep talking." He's told this story, like, a million times. Anyway.

    4. BGBen Gilbert1:21:42

       There, there is something funny, too, about this original demo, where they, they're not a consumer m- uh, hardware manufacturer yet. They've never built a phone. They're, they're a bunch of academics and consultants and, you know, the, the, uh, electrical engineers. And so for this demo, the, the cell phone that they build basically looks like a mini fridge with, like, a handset hanging off of it.

    5. DRDavid Rosenthal1:22:02

       Yeah.

    6. BGBen Gilbert1:22:02

       I mean, they build the most-

    7. DRDavid Rosenthal1:22:03

       There's a photo of it in the book

    8. BGBen Gilbert1:22:04

       ... huge cabinet. [laughing]

    9. DRDavid Rosenthal1:22:04

       It's awesome. It's awesome. Uh, we'll come back to building handsets in a sec. Um, so it works, and then, like, PacTel's like: "Great, we're in." Uh, and then some of the other-

    10. BGBen Gilbert1:22:14

        Which PacTel, by the way, would eventually get rolled up into Verizon.

    11. DRDavid Rosenthal1:22:17

        Yeah.

    12. BGBen Gilbert1:22:17

        I think they're basically Verizon's West Coast operator at this point.

    13. DRDavid Rosenthal1:22:20

        Yep. Um, uh, some of the other industry folks who come, they're like: "Well, this is impressive. It works, but, like, San Diego is a pretty forgiving environment for cellular technology. Like, this is a very, like, geographically easy city to operate wire- for in terms of wireless signals. Prove to us that this can work in, like, an urban jungle environment." And, uh, Qualcomm's like: "Okay, how about New York?" [laughing] And they're like: "Well, we'll see you there." So in February of 1990, they do a successful demo in Manhattan, in New York City. On the back of that, they sign, uh, NYNEX, NYNEX Mobile, which is one of the largest, uh, New York carriers. Um, and then in August, they sign Ameritech, which is one of the largest-

    14. BGBen Gilbert1:23:01

        Chicago, I think.

    15. DRDavid Rosenthal1:23:02

        Chicago, yeah. Uh, I think in a big chunk of the Midwest.

    16. BGBen Gilbert1:23:05

        Midwest.

    17. DRDavid Rosenthal1:23:05

        Um, uh, and then they make another brilliant move. They start going international. So, like, here in the US, there's all this, like, forward momentum that's already happened with the 1G analog services and, you know, the TDMA and all that. They're like: What if we go out to countries where it's just tabula rasa, like clean slate, and we pitch this as, like, the obvious best technology? And famously, South Korea, back to the [chuckles] like government-mandated standards, the South Korean government is like: "Yep, this is clearly the best," government-mandated, all... You know, they were building out the first cellphone networks in San Kor- in South Korea that were gonna be these digital, you know, next-gen networks.

    18. BGBen Gilbert1:23:41

        Yep.

    19. DRDavid Rosenthal1:23:41

        All CDMA, all Qualcomm. Uh, South Korea, for a time, was, I think, close to forty percent of Qualcomm's revenues-

    20. BGBen Gilbert1:23:49

        Wow!

    21. DRDavid Rosenthal1:23:49

        ... 'cause the whole country, like... [chuckles] And it was one of the, you know, most advanced mobile countries, um, all just using Qualcomm.

    22. BGBen Gilbert1:23:55

        There's lots of benefits to the free market and freedom and, uh-

    23. DRDavid Rosenthal1:23:59

        There's also benefits to, uh-

    24. BGBen Gilbert1:24:00

        rights of individuals

    25. DRDavid Rosenthal1:24:00

        ... regulatory and government capture. [chuckles]

    26. BGBen Gilbert1:24:02

        Yes, yes. Coming in over the top with an edict is also beneficial.

    27. DRDavid Rosenthal1:24:05

        Yeah. [chuckles] Um, in, uh, December of 1991, on the back of all this, they go public. Uh, there is a paltry sixty-eight million dollars in their IPO. Uh-

    28. BGBen Gilbert1:24:15

        Like a Series B.

    29. DRDavid Rosenthal1:24:16

        Yeah, totally. [laughing]

    30. BGBen Gilbert1:24:18

        [laughing]
13. 1:24:48 – 1:34:09

    Bootstrapping the ecosystem: JVs for infrastructure + handsets, and fabless silicon as the masterstroke

    1. DRDavid Rosenthal1:24:48

       they raise another five hundred million on the public markets. Um, so they're very well-capitalized. And why are they raising all this money? Back to the Omnitracs and, like, this, you know, solutions discovery of, like, enterprise. You know, the people that they're pitching as their core customers, the wireless carriers, they are sophisticated operators, but there's a whole ecosystem of technology providers to them, and they already, uh, except in the case of South Korea, um, you know, they already have built out, like, towers, infrastructure. They've gotta replace all that. And so, you know, it's a big ask. Even with the economic advantage, it's a real big ask for a PacTel or, you know, NYNEX or any of these folks.

    2. BGBen Gilbert1:25:27

       Oh, if, if you're PacTel, you're like: "It sounds great to me that you are going to have this much better standard and this much better technology," um, but-

    3. DRDavid Rosenthal1:25:36

       Are you gonna replace my towers? Are you gonna replace my base stations? Are you gonna replace all of my customers' handsets? Like-

    4. BGBen Gilbert1:25:42

       Right. Like, all of our customers buy phones from phone manufacturers, so are those phone manufacturers signed up?

    5. DRDavid Rosenthal1:25:48

       Yeah, right. This- it quickly becomes a, uh-... rat's nest of, uh, industry dependencies. You know, Qualcomm, they're like this, you know, still relatively small San Diego, you know, technology startup. They can't do all this stuff. So they do start signing some partnerships with both base station infrastructure providers and handset makers. They sign Nokia, big win, big European manufacturer as a, as a partner. But they realize, you know, to do this whole solution, like specifically, there's kind of four parts to making a CDMA wireless network work. We've talked about all of them, but just to enumerate them here, you need the core IP and technology that we've talked about. You know, Qualcomm's got that for sure. You need the infrastructure, the CDMA, like base stations that go on the towers-

    6. BGBen Gilbert1:26:30

       Yeah

    7. DRDavid Rosenthal1:26:30

       ... you know, all that, like the back ends, the switching, all that. You need that infrastructure needs to be CDMA. The old stuff's not gonna work with it. The TDMA stuff's not gonna work with it. Um, you need the handsets for consumers to work. Same deal, it's gotta be CDMA. And then probably most importantly, in order to make those two sets of infrastructure work, you need the silicon, the semiconductors that go into them.

    8. BGBen Gilbert1:26:53

       Yep.

    9. DRDavid Rosenthal1:26:53

       And so somebody's gotta do all four of those things. Uh, you know, like all four of those things need to happen. Qualcomm's for sure got number one covered. The question is, who's gonna do two, three, and four? Qualcomm's like, you know, they sign- start signing partners, but they're like, "You know, we really need to spur adoption. I think we kinda gotta do everything ourselves."

    10. BGBen Gilbert1:27:11

        We need to offer the complete solution.

    11. DRDavid Rosenthal1:27:13

        The complete solution, and this is a major undertaking. This is why they raise all this money in the public markets, um-

    12. BGBen Gilbert1:27:20

        Whi- which is quite interesting because despite... I mean, none of us are buying Qualcomm phones today. Like, qu- no, Qualcomm-branded phones.

    13. DRDavid Rosenthal1:27:28

        Yeah.

    14. BGBen Gilbert1:27:28

        So-

    15. DRDavid Rosenthal1:27:28

        Today, spoiler alert, Qualcomm today is the largest fabless semiconductor company in the world. [chuckles]

    16. BGBen Gilbert1:27:34

        Isn't that crazy? Bigger than Nvidia.

    17. DRDavid Rosenthal1:27:36

        Bigger than Nvidia, and they don't make handsets-

    18. BGBen Gilbert1:27:37

        And, and bigger than Apple

    19. DRDavid Rosenthal1:27:38

        ... and they don't make infrastructure. [chuckles]

    20. BGBen Gilbert1:27:39

        I think.

    21. DRDavid Rosenthal1:27:40

        Bigger-

    22. BGBen Gilbert1:27:40

        B- bigger than Apple.

    23. DRDavid Rosenthal1:27:41

        Oh, yeah, yeah. For sure-

    24. BGBen Gilbert1:27:42

        In terms of numbers of orders they're placing with chip foundries-

    25. DRDavid Rosenthal1:27:46

        Yeah

    26. BGBen Gilbert1:27:46

        ... Qualcomm is the biggest.

    27. DRDavid Rosenthal1:27:47

        Yeah.

    28. BGBen Gilbert1:27:47

        So-

    29. DRDavid Rosenthal1:27:48

        How do you get from there to here? [chuckles]

    30. BGBen Gilbert1:27:49

        So they did need to run this really interesting playbook where even though it wasn't going to be the thing that they necessarily did long term, in order to get their solution adopted, they had to do it in the moment.
14. 1:34:09 – 1:39:31

    1999 restructuring + the 2000 stock mania: QCT (chips) and QTL (licensing)

    1. DRDavid Rosenthal1:34:09

       you would think Wall Street would love the stock. [chuckles] That Wall Street bets would be going nuts for this stock, uh, the equivalent at the time. Not at all the case. The stock is, like, basically flat. Wall Street kind of hates it because the manufacturing operations and the JVs require so much capital, and they're tying up all the profits-

    2. BGBen Gilbert1:34:29

       Yeah

    3. DRDavid Rosenthal1:34:29

       ... of the company.

    4. BGBen Gilbert1:34:30

       It gets- the stock gets punished basically all the way up until January of 1999, and a few interesting things happen. Are you okay jumping to '99?

    5. DRDavid Rosenthal1:34:38

       Yeah, great, let's- I was going there anyway.

    6. BGBen Gilbert1:34:40

       So a few interesting things happen in '99. One, uh, Qualcomm starts to realize it's a pretty serious drag on our business to have this super capital-intensive m- manufacturing operations. We're funneling all this money that could be free cash flow for the business or could let us reinvest in new R&D into making phones and making base stations. We gotta do something about this. So in March of '99, they sell their infrastructure business, the base stations, to Ericsson, which was-

    7. DRDavid Rosenthal1:35:08

       Which is amazing

    8. BGBen Gilbert1:35:08

       ... formerly one of their competitors.

    9. DRDavid Rosenthal1:35:09

       Their big competitor.

    10. BGBen Gilbert1:35:11

        Uh, their-

    11. DRDavid Rosenthal1:35:12

        As part of a licensing deal of all the laws- or a, a settlement deal of all the lawsuits that popped up between-

    12. BGBen Gilbert1:35:18

        Yep

    13. DRDavid Rosenthal1:35:18

        ... the two companies along the way. They're like, "Oh, great, we'll sell you our manufacturing division." [chuckles]

    14. BGBen Gilbert1:35:23

        The, the, this- I mean, and this is basically them looking and saying, "I don't think we need that to bootstrap our strategy anymore. I think at this point, we've got enough momentum that we don't need to make our own base stations. We don't need to make our own cell phones." So, uh, a thousand of the ninety-five hundred Qualcomm employees become Ericsson employees. Uh, then they look over at their mobile phone business.

    15. DRDavid Rosenthal1:35:44

        One, one fun little, um, uh, not fun at the time, but fun now, little, um, footnote on that sale to Ericsson. [chuckles] The, um, the employees that got transferred as part of that were so freaking pissed-

    16. BGBen Gilbert1:35:57

        I bet

    17. DRDavid Rosenthal1:35:57

        ... that they lost their Qualcomm stock options, [chuckles] and they got Ericsson.

    18. BGBen Gilbert1:36:00

        Oh.

    19. DRDavid Rosenthal1:36:00

        And I don't think they even got equity at Ericsson at all. Uh, they actually filed a class action lawsuit against Qualcomm to, like, get their stock options back.

    20. BGBen Gilbert1:36:07

        I mean, over the next eighteen months, the stock would basically be Tesla stock.

    21. DRDavid Rosenthal1:36:11

        Yeah.

    22. BGBen Gilbert1:36:11

        Like, that's the- this crazy moment that we're about to talk about. December 1999, Kyocera buys Qualcomm's mobile phone business, so they now officially just sell chips-

    23. DRDavid Rosenthal1:36:22

        And they-

    24. BGBen Gilbert1:36:22

        ... that they call QTC-

    25. DRDavid Rosenthal1:36:24

        Yeah

    26. BGBen Gilbert1:36:24

        ... the Qualcomm CDMA Technologies Group. And then they've got a second group, QTL, which is Q- Qual- Qualcomm Technology Licensing. So-

    27. DRDavid Rosenthal1:36:31

        It's just one info.

    28. BGBen Gilbert1:36:32

        The business model is now set. They make silicon, they make-

    29. DRDavid Rosenthal1:36:37

        IP

    30. BGBen Gilbert1:36:37

        ... licenses. [chuckles] They make, uh, they sell very high-margin revenue licenses to their patent war chest. That's the business model for the future. They no longer have this drag on them.
15. 1:39:31 – 1:44:56

    3G and beyond: CDMA’s dominance, 4G pivot via Flarion, and Snapdragon’s rise

    1. DRDavid Rosenthal1:39:31

       -uh, all day long these days. Um, yeah, pretty great. So, you know, that's, that's like the core just crazy business story of Qualcomm. To, to take it from there to today, the next generation of cellphone networks, 3G, uh, which Ben and I probably vi- vi- vividly remember, probably many folks listening-

    2. BGBen Gilbert1:39:51

       Yep

    3. DRDavid Rosenthal1:39:52

       ... do, too. Um, 3G, you know, there, that's when there was a lot of debate, especially in the US, about GSM versus CDMA and all, you know, and I'll think of like, uh, uh, naively, you would think at the time, like, "Oh, well, all the folks who are going GSM, like, that's bad for Qualcomm." GSM switched to CDMA [chuckles] anyway, so, like, all, basically all of 3G was CDMA.

    4. BGBen Gilbert1:40:13

       In Europe-

    5. DRDavid Rosenthal1:40:14

       It was just different flavors

    6. BGBen Gilbert1:40:15

       ... and in the US, just-

    7. DRDavid Rosenthal1:40:16

       Yeah

    8. BGBen Gilbert1:40:16

       ... w- worldwide. I mean, they, they just ran the table.

    9. DRDavid Rosenthal1:40:18

       Yeah. And, and the reason for that was 3G was all about data speeds, broadband internet data speeds, and CDMA was just, like, the vastly superior technology for-

    10. BGBen Gilbert1:40:27

        Uh, totally. You didn't have to, you didn't have to encode anything from analog to digital. When you're talking into your phone, you've gotta encode the signal. But if you're downloading a website, or you're sending an iMessage, or you're sending a tweet, all that's digital information anyway, so it's already packets. It, like, it lends itself perfectly to CDMA's digital required infrastructure.

    11. DRDavid Rosenthal1:40:46

        Totally. Um, then in 2005, Irwin, uh, retires as, uh, as CEO, um, I believe, and also as, as, as chairman, um, of Qualcomm. And interestingly, his son, one of his four sons, uh, Paul Jacobs, takes over and becomes the company's CEO. Paul actually has a PhD in electrical engineering as well.

    12. BGBen Gilbert1:41:07

        Yep.

    13. DRDavid Rosenthal1:41:08

        Um, spent his whole career at Qualcomm, rose through the ranks, um, becomes the CEO.

    14. BGBen Gilbert1:41:13

        So an important thing-- remember I put a pin in the idea that 20 years from 1985, when they filed that first patent, something else would happen? So Paul Jacobs becomes CEO. Also, in 2005, Qualcomm buys Flarion Technologies for $600 million. Now, Flarion did some interesting... Like, they had some interesting products, but they had a lot of patents that would become essential for 4G. So when we talked to some industry analysts about this, one view was, and I quote, "It was to refill the pot of missiles that Qualcomm promises not to fire at their customers if they pay additional money." So the key set of technologies here were OFDMA, which is- w- we're not gonna get into it, but it was sort of-

    15. DRDavid Rosenthal1:41:57

        That's what 4G becomes. It's sort of-

    16. BGBen Gilbert1:41:59

        4- 4G was based on OFDMA instead of CDMA, orthogonal frequency-

    17. DRDavid Rosenthal1:42:04

        Division multiplexing.

    18. BGBen Gilbert1:42:05

        Yeah. We're not gonna dive into it-

    19. DRDavid Rosenthal1:42:06

        Right

    20. BGBen Gilbert1:42:06

        ... but it was more efficient than CDMA. CDMA, while w-, it was the, definitely the knight in shine- shining armor versus the previous set of technologies, it didn't quite hold up to the claims or the future-proofing of sort of its evolution path that, that-

    21. DRDavid Rosenthal1:42:21

        Which makes by this point in time, it's a 20-year-old technology.

    22. BGBen Gilbert1:42:23

        Totally.

    23. DRDavid Rosenthal1:42:24

        Like, um-

    24. BGBen Gilbert1:42:25

        So, so but what we do see here now is after the Flarion acquisition, Qualcomm is able to continue their same exact business model because all of the patents that would be required for 4G and LTE and all that going forward, they own a lot of those, too.

    25. DRDavid Rosenthal1:42:38

        Yeah. It's interesting, you know, um, so the Paul, uh, the Paul Jacobs era of Qualcomm from 2005 to 2013, I think, '13, '14, so somewhere about a decade.

    26. BGBen Gilbert1:42:49

        Yep.

    27. DRDavid Rosenthal1:42:49

        Um, you know, I think it's, like, very viewed in a very mixed light. Um, his big strategic initiative was getting Qualcomm into IoT. IoT didn't really become a thing, at least at that time-

    28. BGBen Gilbert1:43:00

        Well-

    29. DRDavid Rosenthal1:43:00

        ... in the sense. I mean, maybe-

    30. BGBen Gilbert1:43:01

        Starting to work now, but-
16. 1:44:56 – 1:59:38

    The era of conflict: Apple/FTC lawsuits, Broadcom’s hostile bid, and 5G complexity

    1. BGBen Gilbert1:44:56

       So I, I've got the timeline from here. So, uh, going to 2009, this is when, like, all the litigation really starts to happen, and people's flip from, "Qualcomm, we think really highly of you, and you're a pioneer of technology and true inventors," which they are. They still spend a ton of the company's revenue and reinvest that into R&D. But where they really start to be known by their customers and the media and the ecosystem as value capture pioneers. And so, [chuckles] uh, they lose a, a lawsuit-

    2. DRDavid Rosenthal1:45:30

       Value capture pioneers. [laughing]

    3. BGBen Gilbert1:45:32

       [laughing]

    4. DRDavid Rosenthal1:45:32

       That's a new- we should make... That's another Acquired T-shirt, value capture pioneer. [chuckles]

    5. BGBen Gilbert1:45:36

       Or what's the w- phrase that I use for Apple? Maximally extractive over their ecosystem.

    6. DRDavid Rosenthal1:45:41

       [chuckles]

    7. BGBen Gilbert1:45:41

       Uh, so Qualcomm loses a lawsuit with Broadcom in 2009, has to pay $900 million. In 2012, uh, Paul Jacobs w- at the helm, makes a, a, a really bad bet, uh, maybe it was a good bet, but bad outcome, on a reflective display technology called Mirasol.

    8. DRDavid Rosenthal1:46:00

       Oh, oh, I remember.

    9. BGBen Gilbert1:46:00

       They spun up a $2 billion fab to make it. Um, well-

    10. DRDavid Rosenthal1:46:04

        They actually made a fab?

    11. BGBen Gilbert1:46:05

        Yeah.

    12. DRDavid Rosenthal1:46:05

        Uh-

    13. BGBen Gilbert1:46:05

        There's ultimately zero customers for this next gen- the promise was cool.

    14. DRDavid Rosenthal1:46:08

        Real companies don't have fabs.

    15. BGBen Gilbert1:46:09

        It was supposed to be like a screen that looks like a magazine page, but they were never really able to reproduce the, the, the image quality properly.

    16. DRDavid Rosenthal1:46:17

        That's right. I was working at the Wall Street Journal at this time and like, oh, man!

    17. BGBen Gilbert1:46:21

        That was the future. Uh, 2013-

    18. DRDavid Rosenthal1:46:22

        Turns out the iPad was the future.

    19. BGBen Gilbert1:46:24

        Yes. Steve Mollenkopf comes in and becomes CEO, or I suppose, gets promoted, uh, to become CEO. Very technical leader, um, sort of-

    20. DRDavid Rosenthal1:46:32

        He was COO before.

    21. BGBen Gilbert1:46:33

        Was COO before. Uh, but the problems, uh, problems... They keep growing revenue, they keep doing well as a company, but the, the ecosystem issues for them and ecosystem reputation continues. So in 2015, uh, they enter into not just an issue with other companies, but now with nations. So they have a licensing dispute with China. You have an activist investor who comes in that same year, Jana Partners, to try to split up the licensing and the chip business.

    22. DRDavid Rosenthal1:47:00

        Mm.

    23. BGBen Gilbert1:47:00

        The, that activist investor is kind of saying, "Why do these need to be the same company? The licensing business is printing cash. It has-

    24. DRDavid Rosenthal1:47:07

        And at this point in time, many semiconductor companies have split out the actual, like-

    25. BGBen Gilbert1:47:11

        Yep

    26. DRDavid Rosenthal1:47:12

        ... chip operations and the IP. Like, a lot of old semiconductor companies are basically just litigation companies [chuckles] at this point.

    27. BGBen Gilbert1:47:19

        Yeah. So that's the Broadcom model.

    28. DRDavid Rosenthal1:47:22

        Yeah.

    29. BGBen Gilbert1:47:22

        So it's interesting to say, okay, what is Broadcom at this point? Broadcom is actually a company called Avago, where the CEO of that ha- uh, basically made a bet and said, "I think the semiconductor industry is no longer experiencing growth. I think that industry should be harvesting profits," 'cause I think, I think it's predicated on Moore's law decelerating. But basically saying, "I don't think that this industry should be reinvesting as much in R&D anymore because it's a, it's a settled frontier, and what should be happening is we should be rolling up these companies." So Avago buys Broadcom, takes Broadcom's name, buys some other stuff like LSI Logic.

    30. DRDavid Rosenthal1:48:02

        LSI Logic! Oh-
17. 1:59:38 – 2:27:46

    Apple modem dependency, Qualcomm’s next bets (Nuvia), and today’s bull/bear outlook

    1. BGBen Gilbert1:59:38

       So, um, Apple, l- going back to the Apple lawsuit, Apple sort of realizing, uh, we're screwed here if we don't have Qualcomm as our customer, so they settle with Qualcomm, uh, and this is in 2019. Apple says, "We will continue using Qualcomm's radios for now." I think they negotiated some discount to the exorbitant fees that they were having to pay Qualcomm. Uh, they- a- Apple also paid $4 billion, now switching over to the licensing side of the house, uh, to secure the patent licenses over the next six years. I think it was $4.5 billion for a six-year deal. Um-

    2. DRDavid Rosenthal2:00:14

       Wow!

    3. BGBen Gilbert2:00:15

       ... it's actually unclear who really wins here. I think Qualcomm wins in the short term because Apple's backup solution of Intel's modem fell entirely behind. But in the long term, I mean, what ended up happening is Apple actually bought that division away from Intel, and they've been developing their own cellular modems in-house. We know based on, uh, I don't know if it was a slip of the tongue or an intentional thing, but we know from the most recent Qualcomm earnings call a week ago that, uh, the next version of the iPhone that comes out in November of 2023 will continue to use Qualcomm's chips. Like, even though Apple has been working on their own-

    4. DRDavid Rosenthal2:00:58

       So they're trying to do the PA Semi on the modem.

    5. BGBen Gilbert2:01:00

       Yes. It's ludicrously hard to build the stuff that Qualcomm has built, so even next year's iPhone will have Qualcomm-

    6. DRDavid Rosenthal2:01:09

       Wow

    7. BGBen Gilbert2:01:09

       ... RF front ends and, uh, I think they use RF front ends and cellular modems. But after that, Apple's definitely gonna try and take this in-house. But, uh, Cristiano, the CEO of Qualcomm, said on the most recent earnings call, "After that, we do anticipate having almost zero dollars come from Apple-

    8. DRDavid Rosenthal2:01:28

       Wow

    9. BGBen Gilbert2:01:29

       ... in our chips business."

    10. DRDavid Rosenthal2:01:30

        In the chips.

    11. BGBen Gilbert2:01:30

        So at least their sha-

    12. DRDavid Rosenthal2:01:32

        [chuckles]

    13. BGBen Gilbert2:01:32

        ... foreshadowing to their shareholders, Qualcomm is, that they think Apple's gonna succeed at this. It's just gonna take a couple of years.

    14. DRDavid Rosenthal2:01:38

        Well, this feels, um, like the perfect time to talk about [chuckles] the other strategic, uh, chess move that Qualcomm made here.

    15. BGBen Gilbert2:01:44

        Yes, Nuvia?

    16. DRDavid Rosenthal2:01:45

        Nuvia. [chuckles]

    17. BGBen Gilbert2:01:46

        So-

    18. DRDavid Rosenthal2:01:46

        Yeah

    19. BGBen Gilbert2:01:47

        ... uh, this is another 2021 move. So Qualcomm bought this company called Nuvia for $1.4 billion. Now, what is Nuvia? Well, Nuvia was founded by former Apple silicon people, including the chief architect of the A-series chips. That seems like a good get.

    20. DRDavid Rosenthal2:02:04

        Yeah.

    21. BGBen Gilbert2:02:05

        And so-

    22. DRDavid Rosenthal2:02:05

        Back to PA Semi.

    23. BGBen Gilbert2:02:06

        Yes. So this... One way to look at it is this is Qualcomm's ticket into the laptop CPU/system-on-a-chip market. They already make Snapdragons for the high-end Android phones, and soon they'll be able to make a competitor to Apple's M-series chips for laptops and desktops and maybe even servers.

    24. DRDavid Rosenthal2:02:23

        And phones, too. I mean, like iPads, phones, tablets, like-

    25. BGBen Gilbert2:02:27

        So this-

    26. DRDavid Rosenthal2:02:27

        This is crazy.

    27. BGBen Gilbert2:02:28

        This is where it gets interesting. So Snapdragons, th- for anyone who listened to our ARM episode, you'll remember the difference between ARM makes a instruction set architecture that you can license, or you can go big with them and just buy one of the actual ARM-designed chips off the shelf.

    28. DRDavid Rosenthal2:02:46

        Like buying a solution, you might say.

    29. BGBen Gilbert2:02:47

        Yes. Snapdragons use an off-the-shelf ARM design for their CPU.

    30. DRDavid Rosenthal2:02:53

        Mm.

Episode duration: 2:27:47