Technology

Qualcomm's Crystal Ball


Recent investments suggest the chipmaker sees a future beyond the cell phone—and will expand into sensors, TV, and gaming

Anyone seeking clues as to new wireless technologies that may be coming down the pike in coming years may want to take a gander at what's attracting investments from mobile-phone chipmaker Qualcomm.

In 2000, San Diego-based Qualcomm set up Qualcomm Ventures, a $500 million fund for backing startups with promising new technologies. Among the fund's earliest investments: PacketVideo, a maker of software for watching video and surfing channels on mobile phones.

Fast-forward to 2007, when Qualcomm (QCOM) is poised to launch its mobile-television service called MediaFLO with partner Verizon Wireless, the second-largest U.S. wireless company. It remains to be seen how quickly U.S. mobile-phone users will take to watching TV on their cell phones, but mobile TV is nevertheless a significant area of interest—and investment—at Qualcomm, which announced MediaFLO in 2004 and ultimately plans to take the company public.

Extending Its Reach

MediaFLO is expected to be Qualcomm's biggest investment this year, requiring an estimated $1.5 billion in all to get off the ground, figures Albert Lin, an analyst with American Technology Research (see BusinessWeek.com, 4/3/06, "A Big Push for the Small Screen").

Several Qualcomm investments have succeeded. Handspring was acquired by Palm (PALM) in 2003. Mobile-phone-game maker Jamdat went public in 2004 and was later acquired. PayPay was acquired by eBay (EBAY) in 2002.

Other startups that have caught the eye of Qualcomm Chief Executive Paul Jacobs and company founder Irwin Jacobs include companies that offer televised gaming and mobile payment services, confirmation that in the coming years Qualcomm wants to see its technology reach far beyond the cell phone into PCs, TVs, vending machines, cash registers, and even cars. "In 5 to 10 years, half of devices using Qualcomm's chips will not be cell phones," says Richard Doherty, director at consultancy The Envisioneering Group.

Motion-Based Menus

It makes sense for Qualcomm to look to new markets. The company devised the so-called Code-Division Multiple-Access (CDMA) technology for powering cell phones. But emerging technologies are jockeying for share of the market, while mobile-phone makers such as Nokia (NOK) are pressing Qualcomm for lower royalty fees for use of its patented technology. To keep its high margins, Qualcomm needs to grow its share of technology and software content in phones, even as it branches out into other devices. "They want to become a one-stop shopping center for wireless appliances and PCs," says Doherty.

Lately, some of Qualcomm Ventures' investments have included startups specializing in sensors, crucial for machine-to-machine interaction. On Jan. 3 it announced second-round financing of an outfit called InvenSense, which makes tiny devices called gyros that work as motion sensors. Today these gyros are used for image stabilization in video cameras (basically, to reduce the shaking and the jerking). But in the future, the components will be used in computer mice and remote controls, allowing users to scroll through menus by pointing at a TV and waving the little gadget about. The device could also allow for new, motion-based menu navigation in cell phones.

The technology could also allow consumers to use a cell phone or an ultra-mobile PC as a TV remote control. That opens the possibility for Qualcomm's silicon and software to be used not only in phones but also in TVs.

Clues to the Future

Indeed, the TV seems to be an area of keen interest for Qualcomm. Recently, it provided a second round of funding for AirPlay, a company headed by Morgan Guenther, a former president of TiVo (TIVO). The startup lets consumers play cell-phone games against each other while watching TV. "MediaFlo is their entry into television on the handset," says Guenther. "We are [Qualcomm's] entry into the mass-market of television."

But Qualcomm clearly is looking well beyond the living room. Consider the company's October investment in Validity Sensors, a San Jose (Calif.) company that makes ruggedized fingerprint sensors. The startup's technology is now only used in PCs, but it could come in handy in cell phones and other devices for, say, mobile payments. You might be able to authorize a payment simply by waving your cell phone in front of a cash register while holding a finger on the sensor. In September, Qualcomm also led a $7 million round of funding for a startup called Obopay, a sort of PayPal for the mobile phone.

Arguably, some of these investments are simply made in support of Qualcomm's bread-and-butter CDMA technology and multimedia Brew software. For now, Qualcomm says its main investment focus is MediaFLO. "There's a lot of excitement over that capability," says Qualcomm Chief Financial Officer William Keitel. But as PacketVideo's example shows, Qualcomm Ventures' investments give some good clues about where Qualcomm's interests may lie down the road.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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