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4G+4G Divided By Wi-Fi=?

QUALCOMM INC.

CEO: Paul Jacobs.

Revenue: $14.96 billion in FY 2011; $10.9 billion in FY 2010.

Net income: $4.26 billion in FY 2011; $3.24 billion in FY 2010.

No. of local employees: 10,509.

Headquarters: Sorrento Valley.

Year founded: 1985.

Stock symbol and exchange: QCOM on Nasdaq.

Company description: Manufacturer and developer of semiconductors used in wireless devices; licensor of wireless technology.

Key factors for success: Continuous innovation; wide variety of products; stable management; high investment in research and development.

Wireless carriers such as AT&T and Verizon Wireless are moving aggressively to sell extra-fast 4G Internet service to people with smartphones and tablets.

4G rides on the cell tower networks of those big corporations.

However, one team of equity analysts says that Wi-Fi — the short-range Internet connection technology that people can often get for free — might spoil the 4G party.

People can surf the Internet with mobile devices using either Wi-Fi or fast cellphone service, such as 4G. They can also use 3G, which is roughly 10 times slower than 4G.

Thomas Seitz and six other analysts from Jefferies & Co. Inc. suggested in a Jan. 25 industry note that less-expensive Wi-Fi service might increasingly attract 4G users, drive down the demand for 4G, and drive down 4G prices.

The shakeout has implications for San Diego, home to scores of wireless technology companies and a telecom brain trust.

The Jefferies analysts say their conclusions are a simple matter of economics: “The key issue is that substitute products (Wi-Fi in our case) exert price pressure on the core product (mobile data), undermining pricing power — in direct contrast to current concerted efforts by carriers globally to monetize mobile data better by introduction (of) tiered data tariffs.”

AT&T, which is expanding its 4G LTE network, sells its 4G data service by the megabit. So does Verizon. In other words, if you use more, you pay more. People who go over their limits generally pay a penalty.

The Numbers

AT&T said recently that it is launching 4G LTE in 11 new markets, including San Diego. AT&T hasn’t tallied the investment for 2011 as yet, but from 2008 to 2010 it invested $375 million locally on its wireless system, upgrades to the legacy landline system and other technologies.

Verizon Wireless claims to operate the nation’s largest 4G LTE network. Since 2010, it has expanded the advanced network to cover 195 U.S. markets with a population of 200 million. The wireless carrier is a joint venture of Verizon Communications Inc. and the British carrier Vodafone Group PLC.

Verizon Communications recently reported wireless data revenue of $6.3 billion during the fourth quarter, an increase of 19.2 percent from the year-ago quarter. Average revenue per user — an important metric for wireless carriers — for retail postpaid data customers rose 14.3 percent compared with the year-ago quarter.

“Operators are all trying to figure out how to control data usage,” said Rory Moore, CEO of CommNexus San Diego, a nonprofit organization that serves the telecommunications industry and related fields.

The analysts cite statistics from Internet equipment maker Cisco Systems Inc. that 65 percent of wireless data usage takes place indoors. If that is correct, 4G and other cellular technologies are largely used by people working in offices and potentially under a Wi-Fi umbrella.

That percentage will likely grow to 90 percent, the Jefferies analysts argue.

Unexpected Competition?

Will Wi-Fi turn into unexpected competition for 4G? It’s a difficult question to answer.

“Wi-Fi is only as good as the landline behind it,” observed Donald Kimball, chief technical officer of downtown La Jolla-based MaXentric Technologies LLC.

Kimball spends a lot of time at UC San Diego. “When I’m on campus, my 3G just never turns on,” he said. “The Wi-Fi is blisteringly fast.”

A home Wi-Fi network might have the capacity of 108 megabits per second, he said, but the signal may hit a bottleneck of 3 megabits per second somewhere along the path to the telephone company office. Wi-Fi, he said, is “only as fast as its weakest link.”

San Diegans interviewed for this story said Wi-Fi might serve some uses best, while 4G might serve other uses best.

“Speaking personally, I see the beauty of both, but it’s tough to imagine a truly mobile device that operates solely on Wi-Fi,” said John Chier of Kyocera Communications Inc. in San Diego.

“You’d be hard pressed to use Wi-Fi as your sole connection as you ride in a car, as you’d be jumping from hot spot to hot spot every few hundred feet,” Chier said. Wi-Fi is a short-range technology.

If a person is transmitting company secrets, a 4G modem might be the more secure way to go, Moore said. Wi-Fi might be better for downloading a large file, said Moore and Chier.

If people are playing a massively multiplayer video game on a tablet computer, they may be better served with Wi-Fi, Kimball said.

As for streaming video, it may be neither of the above. Coaxial cable is probably the best technology, Moore said.

While Wi-Fi is often free, Moore said networks can easily “step on each other” when there are several of them in an office building.

Even if the public takes more of a liking to Wi-Fi, however, AT&T would be a winner. That’s according to the Jefferies analysts, who observe that the carrier offers a number of Wi-Fi hot spots to complement its cell towers.

WIRELESS: Qualcomm Likely To Win; Chip Sales Rising

By MIKE ALLEN

Qualcomm Inc., San Diego’s largest wireless technology purveyor, stands to gain regardless of whether data downloaders do their thing via Wi-Fi hotspots or on their carriers’ networks, according to a local technology executive.

Rory Moore, chief executive of CommNexus, a nonprofit trade group for the local high-tech industry, said that as the manufacturers of advanced devices create faster and more powerful devices, many of them will incorporate Qualcomm’s chipsets into both the devices and the carrier networks that transmit signals.

“Qualcomm will be a huge beneficiary,” Moore said. “It’s a leader in making chipsets for WAN (wide area networks), but it’s also a maker of chips used in Wi-Fi through its acquisition of Atheros.”

In May, Qualcomm shelled out about $3.1 billion in cash (at the time it was sitting on $10 billion, as of the end of 2011 that grew to $22 billion) for Santa Clara-based Atheros Communications, the largest purchase ever for 27-year-old Qualcomm. Atheros makes chips for Wi-Fi networks as well as components used in Bluetooth, Ethernet and GSM (global system for mobile communications).

Cellphones’ Expanding Role

At the time Qualcomm acquired Atheros, Paul Jacobs, the company’s chairman and CEO, stated that in the future, cellphones will be increasingly used to control and communicate with many other electronic devices, including televisions, and a home’s energy usage system.

Jacobs has continued to reiterate that theme as Qualcomm focuses on its primary business line of making Snapdragon processors that are integrated with other components for a variety of wireless phones and devices. The other components include antennas and modems that enable the devices to operate on a variety of frequency bands, including the latest, fourth-generation ones rolled out last year by the likes of AT&T and Verizon Wireless, the company said.

Analyst Brian Modoff of Deutsche Bank Securities Inc. said in his Feb. 3 report on Qualcomm that while much of the cellphone industry has been experiencing price compression, many manufacturers are working on creating higher end phones that run on 4G networks.

Yet instead of Qualcomm’s chips seeing price cuts, Modoff said because the company continues adding features to its chips, the prices should hold up. He noted that the company said about a third of the chips it delivers this year will support LTE, or long term evolution, a type of 4G technology.

Record Revenue, Profit

In its last fiscal year ended Sept. 30, Qualcomm said it shipped 483 million chips. For the full year, Qualcomm reported record revenue of $14.96 billion, and record net profit of $4.26 billion. That compared with revenue of $10.9 billion and net profit of $3.24 billion in the prior fiscal year.

The company did even better than it forecast in its first quarter, reporting revenue of $4.7 billion. It revised its 2012 forecast upward to $18.7 billion to $19.7 billion, while earnings per share were projected to finish at $3.55 to $3.75.

Chris Caso, an analyst with Susquehanna Financial Group, said in his Feb. 2 report that the biggest reason Qualcomm increased its forecast for the year was a surge in new business in China and other emerging markets.

This business is being driven mainly by the migration of second-generation phone users to 3G, Caso said.

“China, and other emerging markets, is the reason why QCOM is our top pick in the group as 4.4 billion 2G subscribers eventually migrate to 3G, a trend that is being accelerated through the emergence of low cost smartphones.”

T. Michael Walkley, an analyst with Canaccord Genuity, also noted that the company’s chip sales are benefiting from an improving mix of global smartphone sales, especially in China.

Walkley said Qualcomm is taking advantage of its 3G leadership position and aggressive pricing to drive 3G adoption in China. He noted that China Telecom increased plans for new 3G shipments from 17 million units last year to 45 million this year. “We believe the vast majority of these will feature Qualcomm’s integrated chipsets,” he said.

AT&T advertises 29,000 of them.

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