The Problem Child

Almost from the moment of its birth Qualcomm had to fight the world. It is hard for us to understand today just how much the entire mobile industry was set against Qualcomm from the earliest days of CDMA. No one wanted CDMA – the regulators, the infrastructure vendors, the standards bodies, the handset vendors, and even the operators. Against all that opposition, Qualcomm was able to succeed. (And if you would like to hear more of that story check out our podcast on the topic.) To accomplish that, Qualcomm had to hunker down and fight every battle as if its existence depended on the outcome, because it usually did. But now, decades on, we are starting to wonder if the habits the company acquired in its formative years are working against it.

This is a company that still seems to be fighting on all fronts. Most notably, Qualcomm is a very tense relationship with Apple, its largest customer. It is being sued by one of its most important suppliers, Arm. In the past decade, it has been investigated by regulators across the globe, with most of those repeat investigations. The company narrowly avoided the first hostile semiconductor acquisition in memory. Qualcomm’s relationship with other major tech companies is not great. They have very little interaction with Amazon, beyond some IoT business. They do have a good relationship with Meta, as evidenced by Meta’s recent announcement that it was going to disband its internal chip team for VR and instead work more closely with Qualcomm, but that is still a small business. And while Qualcomm does seem to be in good standing with Microsoft as the only provider of Arm-based CPUs for Windows, behind the scenes we have to imagine the decade of work required to get that working did not leave a great feeling on either side. Ask industry old-timers what one adjective describes the company and they will all say “Arrogant”. We have many friends at Qualcomm, we worked there for a period. And we can say with a high degree of confidence that the ratio of truly arrogant people at Qualcomm is no different than any other company. But at the same time, we fully understand how the company has this reputation.

We were reminded of this recently when we learned that Qualcomm’s relationship with Google is very frosty behind the scenes. We have written a lot about how important Android (and here) is to the future of Qualcomm and often wondered why Qualcomm is not working more closely with Android’s owner, Google who would likely benefit heavily from the attention that Qualcomm could provide.

From what we can tell, a large part of the latest tension between the two companies stems from Google’s Pixel phone. This is a small volume line of smartphones, but one that Google cares about a lot for its own reasons. It seems that Qualcomm, which provides the modems for Pixel treats the brand in accordance with its market share. A small customer has to pay full price. This has meant recent devices have been very mid-range, or priced too high, to avoid losing money. From what we can tell, no one at Qualcomm is looking at Google strategically. The Qualcomm sales rep responsible for Pixel does not have the leeway to offer better pricing, and our guess is that the only way to get around that would be a CEO-level decision.

Bleak as this sounds, it should be a solvable problem. Qualcomm has long been dogged by its organizational chart. The company did not have anyone in charge of sales until just a few years ago, and its sales culture is still highly underdeveloped. Selling chips to mobile phone makers did not really need a complex sales team with a strong sales lead, a large team of application engineers sufficed. And customers are more likely to know the name of the Qualcomm lawyer leading any negotiation than the head of the sales team. We think the company recognizes that it needs a new approach to go after automotive customers, but what they really need is a much broader change to customer relationships across the company.

Most large companies have “Key Account Teams” focused on strategic relationships that extend beyond the remit of a single supply deal or design win. It is clear to us that Qualcomm could use something like that with all their big partners – Apple, Samsung, Meta, Microsoft, Xiaomi, the BBK Group (Oppo/Vivo et al), and definitely Google. Again, this is not a radical idea, it is common across large sales organizations. The account leader for each team should be given a broader mandate beyond this year’s phones, and have the leeway to set terms that reflect strategic merit. They would also be responsible for sourcing new lines of business within their targets. It is noteworthy that while Qualcomm’s CEO has talked about providing ASIC services to help its customers bring their own chips to market, no one else at the organization seems to talk about it all. So instead Google uses arch-rival Broadcom to bring chips like the TPU to market. There are easy gains out there for Qualcomm to pick up.

Unfortunately, we suspect that few at the company are really thinking along these lines. There is a big opportunity here, not only for Qualcomm to gain revenue but also to turn around the very real, very tangible animosity that so many in the industry feel towards the company.

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