MGT 3663 Georgia Tech Current A Case Study of Qualcomm Incorporated You should answer the questions that follow below. Answer each question (1, 2, 3, and 4

MGT 3663 Georgia Tech Current A Case Study of Qualcomm Incorporated You should answer the questions that follow below. Answer each question (1, 2, 3, and 4) separately. For questions 1-3 you should refer to the period covered by the Qualcomm Inc. 2009 case. For question 4 you should refer to the entire period covered by case and attached articles.

Question 1 (total 30 points):

a) What are the key elements of Qualcomm’s licensing strategy that account for its economic success? (20 points)

b) What are the key elements of Qualcomm’s strategy beyond licensing that you think were critical to its success? (10 points)

Question 2 (total 10 points):

Does Qualcomm’s business model benefit from supply-side or demand-side increasing returns to scale? Explain why or why not.

Question 3: (total 20 points)

Compare Qualcomm and Arm Holdings business models. Identify key similarities and differences and explain how these similarities and differences relate to each firm profits and competitive advantage.

Question 4 (total 20 points): (Refer to the two Bloomberg Cases at bottom of the Midterm Exam assignment sheet in attachments)

How sustainable is Qualcomm’s competitive advantage in the wireless industry?

*The attached articles for question 4 are attached at the bottom of Midterm Exam assignment sheet in attachments*

***Do Not Do Part B*** Technology Strategy. Midterm exam (take-home; individual)
MGT 3663, TECNOLOGY STRATEGY: Spring 2019
INDIVIDUAL MIDTERM EXAM
Directions
Please answer the questions below by Sunday, March 3 at 11:59pm via
Canvas>Assignments as an attachment using either an Acrobat or Word file.
You can use the Feb 26 and 28 classes to work on the exam (we will not meet in class
that day).
You should only use information contained in the case or other class material such as
class notes, assigned readings, guest speaker notes or slides, or other class material
posted on Canvas. Note that the exam will be examined through Turnitin software
integrated into Canvas to detect potential violations of the academic honesty/Honor Code,
posted below.
Academic Honesty/Honor Code
The instructor and students of this class, as members of the Georgia Tech community, are
bound by the Georgia Tech Academic Honor Code. The full text of the honor code may be
found at http://honor.gatech.edu. Note that the acts that qualify as academic misconduct
include, “Submission of material that is wholly or substantially identical to that created or
published by another person or persons, without adequate credit notations indicating
authorship (plagiarism).”
What counts as plagiarism? Plagiarism refers to the direct quotation of text without
appropriate attribution. Every quotation must have a citation, and no amount of text can
be quoted without citation. Furthermore, when paraphrasing, borrowing or building upon
the work of another author, citation is also required. There are many styles of citation (in
the text, in footnotes, etc.). Note that it is NOT acceptable to simply include the quoted
source in a list of general references. If you are quoting, you must indicate which specific
sections of your text are taken from which specific sources. Using materials from other
students is also considered plagiarism, except for notes obtained from other students
when missing a class. However, the notes elaboration must be your own. Suspected cases
of academic misconduct are investigated by the Office of Dean of Students.
Page 1 of 2
Technology Strategy. Midterm exam (take-home; individual)
PART A (80 points): INDIVIDUAL CASE ASSIGNMENT
Please prepare a roughly 5-7 page report (12-point, double spaced, 1” margins T/B/L/R,
including exhibits) on the “Qualcomm Incorporated 2009” available for free at
https://hbsp.harvard.edu/import/613236 (professor purchased licenses for students
registered in this class), and the news articles attached to this exam (also available on
Canvas>Modules> Week 8: Take-home Midterm Exam).
You should answer the questions that follow below. Answer each question (1,
2, 3, and 4) separately. For questions 1-3 you should refer to the period
covered by the Qualcomm Inc. 2009 case. For question 4 you should refer to
the entire period covered by case and attached articles.
Question 1 (total 30 points):
a) What are the key elements of Qualcomm’s licensing strategy that account for its
economic success? (20 points)
b) What are the key elements of Qualcomm’s strategy beyond licensing that you think
were critical to its success? (10 points)
Question 2 (total 10 points):
Does Qualcomm’s business model benefit from supply-side or demand-side increasing
returns to scale? Explain why or why not.
Question 3: (total 20 points)
Compare Qualcomm and Arm Holdings business models. Identify key similarities and
differences and explain how these similarities and differences relate to each firm profits
and competitive advantage.
Question 4 (total 20 points):
How sustainable is Qualcomm’s competitive advantage in the wireless industry?
PART B (20 points): INDIVIDUAL REPORT ON GUEST SPEAKERS
Prepare a 2-4 pages report (12-point, double spaced, 1” margins T/B/L/R). Discuss key
learning points for 2 guest speakers (out of 5) and explain how these fit (or not) with our
Technology Strategy class so far.
Page 2 of 2
Apple and Qualcomm’s BillionDollar War Over an $18 Part
The iPhone maker pays $2 billion a year in
patent fees, and it’s had enough.
By Max Chafkin and Ian King, October 4, 2017
IPhone season, that extravaganza of novelty and surprise, began in mid-September with a
two-hour-long presentation at Apple Inc.’s brand-new, spaceshiplike campus. Amid oohs, ahs,
and an embarrassing number of standing ovations, Chief Executive Officer Tim Cook introduced
two phones. The iPhone 8, an updated version of the current model, is already out in the wild.
True Apple devotees are holding out for the iPhone X, the 10th anniversary edition, which will
cost $1,000 and go on sale in early November. “This really is the future,” Cook said.
The iPhone X—which will boast a full-screen display and facial recognition capabilities
and is made out of a “special Apple-designed alloy that’s both durable and more pure,”
according to marketing materials—is almost certain to be a hit. There will be block-length lines
in front of Apple Stores, moody TV spots, and ecstatic unboxing videos. By Christmas, 75
million or so people will have bought new versions of a device that, before any of this pomp and
circumstance, was already the most successful consumer product of all time.
But Apple can be as coldly calculating as it is dazzling. There will be lots of romantic
stories about 10 years’ worth of iPhones published in the coming weeks. This is not one of those
stories. This is a story about the power dynamics in one of the world’s largest industries.
It’s based in part on court documents filed as part of a dispute over one of the most
expensive and, arguably, most important parts of the phone: the wireless modem. The story starts
two summers ago, at a conference in Idaho, where a senior Apple executive, probably Cook, and
a senior Samsung Electronics Co. executive, most likely Vice Chairman Jay Y. Lee, shared a
quiet word.
Samsung is Apple’s biggest rival. The two companies have spent almost a decade in a
bitter patent infringement dispute stemming from Apple’s claim that Samsung copied aspects of
the iPhone. On the other hand, Samsung is also a top iPhone supplier and an ally in another
contentious patent fight, against Qualcomm Inc., one of the world’s largest semiconductor
companies.
Most people, save for electrical engineers and Los Angeles Chargers fans (Qualcomm’s
name was on the NFL team’s old stadium in San Diego before the Chargers moved), don’t know
much about Qualcomm, which has more than tripled its revenue over the past decade, thanks in
part to an unusual business model. In addition to selling modems and other chips, Qualcomm has
amassed a portfolio of more than 130,000 patents covering, among other things, the key
technologies that allow phones to send and receive data. If you want to sell a phone capable of
connecting to the internet at high speeds, you need a license from Qualcomm. The company
charges a royalty of as much as 5 percent of the average selling price of the phone, which can
come to more than $30 per device.
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Qualcomm says its pricing scheme is fair, and, seen from a certain angle, it is. Thirty
bucks, after all, is a small price to pay for the ability to pull data straight out of the sky. Cell
phone manufacturers refer to it as “the Qualcomm tax,” and the practice has been investigated by
regulators in China, Taiwan, South Korea, Japan, the European Union, and the U.S. A few phone
makers, including Nokia OYJ and Ericsson AB, have unsuccessfully taken Qualcomm to court.
The rest have simply tried to negotiate volume discounts.
Apple, the biggest smartphone manufacturer by revenue, was well-positioned to
negotiate, and it persuaded Qualcomm to agree to rebates that brought the price of Qualcomm’s
license down to about $10 per phone, according to analyst estimates. To get that price, Apple
promised not to challenge Qualcomm’s patents. Crucially, though the agreement prevented
Apple from encouraging regulators to crack down on Qualcomm, it allowed Apple to truthfully
answer questions in any investigation already under way.
At the conference in Idaho, according to documents Qualcomm filed earlier this year,
Apple saw an opportunity to put itself in front of investigators. Qualcomm claims that at the
event—almost certainly the Allen & Co. conference in Sun Valley, which both Cook and Lee
attended—the Apple executive urged Samsung to pressure South Korean antitrust regulators to
intensify an investigation into Qualcomm that had been open since 2014. “Get aggressive,” the
Apple executive said, according to Qualcomm’s filing, adding that this would be the “best
chance” to get Qualcomm to lower its prices.
Qualcomm’s allegation—that Apple got Samsung to use its influence with the Korean
government to push regulators to go after Qualcomm as part of a global conspiracy to pressure it
to reduce prices—is explosive, particularly given that Lee was later convicted of bribing the
country’s former president, Park Geun-hye, in an anticorruption crackdown in Korea. The
crackdown also led to the resignation of the vice chairman of the Korea Fair Trade Commission,
which brought the case against Qualcomm. Apple says nothing improper happened. “I don’t
know what conversation they are talking about,” says Bruce Sewell, the company’s general
counsel, in an interview at headquarters in Cupertino, Calif. “For Apple to have said to Samsung,
‘You guys are in Korea and you should be watching this case carefully,’ doesn’t seem to me to
be anything beyond simply the kind of conversation two CEOs might have.” Samsung declined
to comment on the allegation. A KFTC official, Yoo Young-wook, says the agency began the
investigation on its own and that Samsung was “only one of the companies we enlisted for
reference.”
Whatever the impetus, the KFTC did get aggressive with Qualcomm, fining the company
$850 million at the end of 2016 “for abuse of market dominance” and announcing that it would
order Qualcomm to change its pricing scheme. Three weeks later, the U.S. Federal Trade
Commission accused Qualcomm of anticompetitive tactics. Qualcomm denies all wrongdoing in
both cases. The FTC complaint, the company says, “seeks to advance the interests and
bargaining power of companies that have generated billions in profit from sales of products made
possible by the fundamental 3G and 4G cellular technology developed by innovators like
Qualcomm.”
Just three days after the FTC filed its complaint, Apple sued. It’s asking a California
court to order Qualcomm to pay $1 billion in damages and to offer technology licenses at a
much-reduced price. Apple also cut off royalty payments to Qualcomm, a revenue stream of
about $2 billion a year.
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Within a matter of weeks, Qualcomm, which had been valued at more than $100 billion
in December 2016, had lost a quarter of its market capitalization, an outcome that Qualcomm
executives say was Apple’s intent all along. “Apple’s game plan is to squeeze people until they
finally say, ‘OK, the pressure’s too hard. I’ll just take a deal,’ ” said Derek Aberle, then
Qualcomm’s president and the company’s chief negotiator, in an interview in July. Apple, on the
other hand, presents the dispute as a matter of fairness. “It’s not that we can’t pay,” Sewell says.
“It’s that we shouldn’t have to pay.”
The case, which could go to trial in a San Diego federal court as early as next year, could
have a profound impact on the mobile phone business. A Qualcomm win would hamper Apple’s
efforts to cut costs and preserve margins that have allowed it to capture most of the profits
generated by smartphone makers worldwide. If Apple wins and succeeds in ending the
Qualcomm tax, that could marginalize one of the most powerful American technology
companies and upend the balance of power in the semiconductor industry.
“Apple’s game plan is to squeeze people until they finally say, ‘I’ll just take a deal’”
There are two ways of looking at any new Apple product. The first, the way Apple
prefers, is to focus on the exterior. At launches, executives linger over the technology’s
physicalities, enthusing about new materials, new manufacturing processes, and the seamless
integration of hardware and software. Apple has always cared about a phone’s technical
capabilities, but it’s tended not to call attention to those things as such. “It just works,” cofounder Steve Jobs liked to say.
The second way of looking at a phone, the one Qualcomm prefers, is to focus on what’s
inside. Modern smartphones, thanks in no small part to chipmakers such as Qualcomm (and
Apple, which now designs its own chips), are computers that can more or less do everything a
desktop can while producing little heat and using almost no electricity. They do it all wirelessly:
A 4G, or fourth-generation, cell phone can receive and transmit data at speeds comparable to
those of your home Wi-Fi network, from almost anywhere in the developed world. Most of us
have gotten so used to this that we’ve stopped being impressed by it. “You pay roughly the same
per month today as you did 20 years ago, and you get a million times more data,” says Matt
Grob, Qualcomm’s executive vice president for technology. “That’s because of the advances in
the craft of digital wireless communications.”
Grob, one of the company’s top engineers, is standing in front of a robotic arm that has a
mannequin’s head where a hand would normally be. This is at one of Qualcomm’s several dozen
labs at the San Diego headquarters, part of a research and development operation that spends
more than $5 billion a year. “There’s a lot of heads and body parts,” Grob says matter-of-factly
when asked about the lab’s Frankenstein quality. He explains that each body part is filled with a
viscous saline solution—“a particular standardized goop”—designed to simulate the goop inside
a real body. The idea is to test how the presence of flesh affects signal strength and to make sure
Qualcomm’s modems adjust for it.
After accounting for all the things that can mess with the strength of a signal, wireless
companies have to manage spectrum. Imagine an enormous radio dial. In the U.S., the major cell
phone carriers each own some spectrum—as do TV networks, radio broadcasters, the Coast
Guard, and so on. Inside a given block of spectrum are channels. Carriers get hundreds of
channels each, and each phone needs access to at least one of them. The trick, if you’re in the
wireless business, is in figuring out how to cram lots of phones’ data into a single channel, and to
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then transmit those signals between phones and radio towers even when they’re bouncing off
buildings, moving at highway speeds, or blocked by foliage.
Pre-Qualcomm, cell phone carriers accomplished this by giving each caller a narrow time
slot—less than a millisecond—to send a burst of data. Callers had the illusion of a continuous
conversation, but, in fact, everyone was taking turns; your phone was sending data in little
chunks, which were then reassembled by the receiver’s phone. This system, which is still used on
older networks, works well, with minimal lag during calls and download speeds fast enough to
allow users to browse the web slowly or maybe stream music. But because there are only so
many time slots, it’s inefficient, as if you gave a dinner party in which only one person were
allowed to talk at a time.
Qualcomm’s big innovation, developed by co-founder Irwin Jacobs, a former computer
science and engineering professor at the University of California at San Diego, was to have all
the conversations play at the same time, each identified by an individual code. This system,
based on a protocol known as code division multiple access, or CDMA, allowed five times as
much data to be exchanged on the same amount of spectrum. Your cell phone listens only for
data packets that are coded to it, in the same way your brain picks out individual conversations in
a crowded room.
Qualcomm’s CDMA specification was approved by the wireless industry in 1993 and
was included in the spec for 3G, the high-speed data protocol that hit the market in 1999. It took
almost a decade for 3G to catch on—the first iPhone lacked the technology—but it ultimately
paved the way for the popularity of smartphones, including Apple’s. Since then, Qualcomm’s
licensing revenue has almost tripled, from $2.8 billion in 2007 to $7.7 billion last year. About 85
percent of that was profit.
Visitors to Qualcomm’s headquarters, situated in a suburban office park a few miles from
Jacobs’s old UCSD lab, are greeted by a monument to this business: the Patent Wall. The twostory-high installation displays hundreds of Qualcomm filings. Jacobs’s original CDMA patent is
there, blown up and annotated, and his original CDMA specification has been printed out and
preserved nearby, in its 685-page glory, behind glass in a separate corporate museum. Other
works given prominent placement: U.S. Patent 6,725,060 (“Method and apparatus for conserving
power in an integrated electronic device that includes PDA and a wireless telephone,” which
Qualcomm claims is a patent for the first smartphone); Patent 7,099,663 (“Safe application
distribution and execution in a wireless environment,” essentially an app store); and Patent
8,516,607 (“Facilitating data access control in peer-to-peer overlay networks,” which
means … something).
“I can’t think of a keystroke that you can do on a phone that probably doesn’t touch a
Qualcomm invention,” says Steve Mollenkopf, the company’s low-key chief executive officer,
who succeeded Paul Jacobs, Irwin’s son, in 2014. Mollenkopf is, like most Qualcomm senior
managers, an electrical engineer by training. In addition to noting that he’s CEO, Mollenkopf’s
business card has the word “inventor” stamped at the bottom right-hand corner, a distinction
employees earn if they’ve been awarded a patent. Mollenkopf has 13. Grob has more than 70.
Inventors in the cell phone business strike agreements with industry standards bodies to
charge a price that’s “fair, reasonable, and nondiscriminatory”—“Frand” in industry-speak—as a
condition of their inclusion in a given wireless standard. The system provides guaranteed income
to the companies that invent the standards and makes it relatively easy for upstarts to build
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handsets without worrying about getting sued for patent infringement, as long as they pay the
prescribed royalties. In theory, the fairness requirement prevents a company such as Qualcomm
from squeezing its customers for patents that are part of the standard.
“Our business is really designed to allow as many players as possible to go into the
industry,” Mollenkopf says. He notes that Essential, the new smartphone company founded by
Android creator Andy Rubin, began selling a handset in August that more or less matches the
new iPhones feature-for-feature despite being produced by a company that has about 100
employees and $300 million in venture capital. Reviews of the new phone have been mixed, but
that the Essential handset is even being compared to the iPhone X is an achievement given that
Apple spent more than $10 billion on R&D in 2016. “We have democratized access to mobile
connectivity,” Mollenkopf says. “I mean, anybody can do it.”
“Anybody can do it” is not necessarily good for Apple, though. By offering its
technology for a fee based on the price of a device, Qualcomm is in effect giving manufacturers
of inexpensive phones a discount—at a time when iPhone sales have been unchanged and sales
of phones by Chinese upstarts have been spiking. According to an estimate by technology
consulting company International Data Corp., Huawei Technologies Co. increased shipments by
20 percent in the second quarter of 2017, which puts it just …
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