Updated from 11:28 a.m. EDT
Predicting a period of robust growth in the wireless communications business brought about by demand for untethered Internet access,
officials said Tuesday that they will spin off the company's semiconductor business.
The new company will bear responsibility for making the technological guts of wireless handsets, leaving Qualcomm to concentrate on developing wireless Internet technologies and promoting Code-Division Multiple Access, an encoding system known by the acronym CDMA.
Qualcomm, which has more than 1,000 patents and patent applications for elements of CDMA, said it will transfer some of those to the new company. It also offered tacit acknowledgement that Global System for Mobile Communications, a rival encoding system known by the acronym GSM, presents a threat. Qualcomm said the new company will use CDMA patents to gain access to GSM technology by negotiating cross-licenses.
In a conference call with analysts, Richard Sulipizio, president and chief operating officer of Qualcomm, said that the move does not imply CDMA's importance has diminished. "There is no question in anybody's mind that CDMA, in any flavor, is the future of wireless," he said.
"Years from now you will be able to tell your friends and relatives that you were at the launch of what will become the largest telecommunications semiconductor business in the world," Sulpizio said. "We now will have more effective access to third-party technology."
CDMA, developed by Allied intelligence officials in World War II, sends signals across a full spectrum, distinguishing each by a random digital sequence. In contrast, GSM and many other technologies assign a specific frequency to each user. Qualcomm created communications chips for the classified CDMA technology, then claimed the initial patents when the technology became publicly known.
Qualcomm will continue to file patent applications for and generate royalties from CDMA, the company said.
"The wireless industry is on the verge of its next major growth phase based on wireless Internet access," said Dr. Irwin M. Jacobs, chairman and chief executive officer of Qualcomm, in a statement.
San Diego-based Qualcomm said it intends to distribute stock in the new company to its shareholders in the form of a tax-free dividend by August 2001. The plan must be approved by Qualcomm's directors, and the
Internal Revenue Service
could block the tax-free aspects. The company reserved the right to call off the transfer should market conditions change.
It has yet to name the new business. Jacobs will also serve as chairman of the new company. Its chief executive will be Sulpizio.
The announcement came less than a week after Qualcomm
reported earnings that met Wall Street's expectations. On Monday,
, the top U.S. maker of computer chips for wireless phones,
predicted accelerated sequential growth in semiconductor sales and revenue growth in the wireless business.
Qualcomm closed up 4 3/4, or 7.5%, at 68 3/8.