Qualcomm's decision to sell its subscriber equipment division reflects its plan to get back to the basics and refocus efforts on its core chip set business.
By Ellen Jensen, Managing Editor, Wireless Networks Online
San Diego-based Qualcomm Inc. has sold its terrestrial-based handset business to Japan's Kyocera Corp. The agreement includes its phone inventory, manufacturing equipment, and customer commitments.
The consumer products division was established to ensure that there were CDMA phones available as the first CDMA carriers launched service, said Qualcom chairman and CEO Irwin Jacobs in a press conference. Other manufacturers were slow coming to the table with CDMA phones, and Qualcomm continued with its phone business.
Consolidation in the wireless arena changed the playing field, shrinking the number of potential customers. This can be a good thing in that when you have a sale, it's a larger one, Jacobs said. However, fewer carriers and intense competition among phone manufacturers causes cutthroat pricing, creating the need for a very efficient operation, Jacobs said.
Enter Kyocera (Back to Top)
Although Qualcomm had been in discussions with several phone companies, after weighing the strengths and weaknesses of each, Qualcomm determined that Kyocera offered the assets that it needed most: a worldwide presence, including a strong sales and manufacturing base.
"We do the innovative part, and let others do the manufacturing worldwide," Jacobs said. He added that Qualcomm would continue to work on innovations that will drive CDMA by leveraging its own strengthsit's chip sets and software.
Another benefit that Kyocera brought to the table was that it agreed to purchase a majority of its CDMA chipsets and system software from Qualcomm for five years. It will also continue its existing royalty-bearing CDMA license agreement with Qualcomm.
For Kyocera's part, the alliance represents a major breakthrough for the manufacturer in North America, where it has only recently begun to market its wireless phones. With the newly acquired business and its existing manufacturing operations, Kyocera estimates that it will produce approximately 16 million wireless handsets, including CDMA, in the fiscal year ending March 31, 2001essentially doubling its cumulative shipments to date.
"Kyocera will now have a comprehensive global infrastructure for producing and delivering CDMA handsetsfrom world-leading R&D and production, to sales, marketing, and support,'' said Yasuo Nishiguchi, president of Kyocera Corp., the group's parent company headquartered in Kyoto, Japan. "With this North American business base, and our existing operations in Japan and South Korea, our wireless handset business covers the three largest regional markets for CDMA equipment. We are ready to provide handsets to any CDMA carrier in the world."
The Employees (Back to Top)
The agreement affects nearly 4,000 employees, including both the consumer products and manufacturing divisions. Qualcomm will form a new subsidiary that will employ the majority of people from the Consumer Products division, which was the business of design and development, marketing, and customer support. The status of those employees will not change, said Paul Jacobs, president of Qualcomm's Consumer Products Division. Kyocera will contract for the service of those employees on an exclusive and cost-plus basis, he said.
On the manufacturing side, Kyocera will be directly responsible for the majority of the manufacturing division, according to Paul Jacobs. Selected employees of Qualcomm Personal Electronics (QPE), a manufacturing joint venture between Qualcomm and Sony Electronics, will be transferred to the newly formed unit of Kyocera. Qualcomm will incur a one-time charge in the first quarter of fiscal 2000 of approximately US$30 million before taxes.
Family Tree (Back to Top)
Kyocera's newly formed unit will be a wholly owned subsidiary of San Diego-based Kyocera International Inc., the Kyocera Group's North American headquarters and holding company. It will be responsible for integrating Qualcomm's handset design, development, manufacturing, and marketing expertise with Kyocera's global R&D and technology resources. The new Kyocera unit will lease selected Qualcomm facilities.
The transaction is expected to close by the end of February 2000. The financial terms of the agreement, which is subject to regulatory approval and other customary closing conditions, were not disclosed.