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Qualcomm Finally Gives Up Its Roots And Sells Omnitracs for $800 million


X00180_9 Irwin Mark Jacobs BLOOMBERG Irwin Jacobs co-founder of Qualcomm/ Getty

/By Clive Minchom /

First What’s The Deal ?

On Friday, Qualcomm Incorporated announced the signing of a definitive agreement to sell its wholly owned subsidiary Omnitracs Inc. to Vista Equity Partners, a private equity firm based in San Francisco with about US$7 billion under management. Vista has agreed to purchase Omnitracs for US$800 million in cash. The deal is expected to be completed, subject to usual conditions, during the fourth calendar quarter of 2013.

The acquisition will include all of Omnitracs operations in the United States, Canada and Latin America, including “Sylectus” and “FleetRisk Advisors”, which were both acquired by Omnitracs in 2011.

2007_qualcomm_1_1

And What Does Omnitracs Do?

Qualcomm had originally pioneered the use of commercial vehicle telematics in the late 1980’s with the introduction of the first mobile information system for transportation and logistics. Omnitracs was therefore Qualcomm’s first significant business unit, and it has been able to maintain a leadership position within the trucking industry for 25 years.

“The opportunity for fleet management and telematics is evolving rapidly, and we believe Omnitracs is well positioned to continue its leadership position as a stand-alone entity, ” said Derek Aberle, Executive Vice President and Group President, Qualcomm Incorporated. “Vista’s long-term investment focus and experience helping software, data and technology-enabled businesses drive growth and leadership positions is a great fit for the Omnitracs business and management team. We look forward to witnessing their continued success together.”

“We are impressed with the compelling value proposition Omnitracs’ products and services offer their customers. We look forward to working with them and helping them to reach their full potential.” said Robert Smith, Chief Executive Oficer and founder of Vista.

Deals announced through press releases rarely tell the whole story, and this one is no different. With the divestiture of Omnitracs, Qualcomm separates itself, finally, from the business that was right at the heart of its original founding as a company, and which in-part helped to kick-start the whole subsequent mobile communications revolution.

Itzhak Nazarian privat

Izak Parviz Nazarian, co-founder of Qualcomm and founder of Omninet

Qualcomm Got Started With Seed Investment Including From the Nazarian Family

According to Qualcomm’s own web site the germination of their founding idea took place in July 1985, when seven industry veterans came together in the den of Dr. Irwin Jacobs’ San Diego home to discuss an “idea”. Those visionaries named as Franklin Antonio, Adelia Coffman, Andrew Cohen, Klein Gilhousen, Irwin Jacobs, Andrew Viterbi and Harvey White – decided they wanted to build “Quality Communications”.

“Qualcomm” was then formally founded a little later in 1985, by fellow engineers Irwin Jacobs and Andrew Viterbi and by two private investors Parviz Nazarian and Neil Kadisha. The new company began supplying satellite messaging services and integrated circuits for digital radio communications. Parviz Nazarian is an Iranian entrepreneur who moved to the United States after the fall of the Shah and Neil Kadisha is his son-in law.

The new company’s first project was essentially a two way paging system using satellite tracking devices to help monitor the thousands of trucks that were always moving around the country every day. To this day that is what Omnitracs still does, though with much more sophisticated versions of its products and with a roster now of over 350, 000 vehicles using its devices. As Nazarian’s own private equity company Omninet puts it even today on their own web site:

“Omninet worked with a newly formed research and development company in San Diego to develop a revolutionary satellite communications system for the trucking industry. Omninet recognized the engineers working on the project were on the cutting edge of research and development in the wireless space and the two groups merged in the quest to expand the boundaries of wireless communications. This point of convergence jump-started Qualcomm’s journey towards becoming a leader in the wireless industry.”

Nazarian

Younes Nazarian, co-founder of Qualcomm

So How Did They Morph Into The Mobile Phone Industry ?

Based on the satellite communications technology they used for trucks, Qualcomm subsequently developed and commercialized their own proprietary Code Division Multiple Access (CDMA) technology, which has become a standard for mobile communications. When it was first introduced Dr. Jacobs faced considerable doubt and skepticism that it would work, but he subsequently confounded his critics and proved them all wrong.

The development of CDMA then laid the foundation for Qualcomm to emerge as a worldwide leader in the wireless communications industry with a multi-billion dollar market capitalization, selling millions of chips for mobile phones, including iPhones and Android devices as well.

Parviz Nazarian served on Qualcomm’s Board of Directors until 1994, during its early period of emergence as a significant player in the wireless industry, and the Nazarian family reportedly still holds shares in the company today though not at a large enough level that crosses any reporting threshold.

 

So Why Did They Sell Omnitracs ?

Omnitracs now is only a very small niche part of the enormous multinational corporation that Qualcomm has become, one focussed almost entirely today on the mobile communications business. A new owner will be able to give Omnitracs the full attention that it undoubtedly still deserves.

In its core businesses Qualcomm continues now to lead the development and commercialization of CDMA technology in mobile telephony products worldwide, and owns significant intellectual property, including patents, patent applications and trade secrets, which applies to all versions of CDMA that it implements both in its own products and portions of which it licenses to other companies.

As mobile telephony is constantly changing, looking forward Qualcomm now also plays a leading role in the development and commercialization of what are known as Orthogonal Frequency Division Multiple Access (OFDMA)- based technologies for which it has substantial intellectual property as well. Sales of such multimode CDMA and LTE, where LTE stands for “Long Term Evolution”, which is an OFDMA-based standard for cellular wireless communication applications, subscriber devices it seems are now growing rapidly as carrier networks deploy the new technologies, permitting consumers to obtain ever faster wireless data transfer rates.

In somewhat simpler language, though still heavy on acronyms, today Qualcomm is one of the world leaders in 3G, 4G and next-generation wireless technologies. The company has a big licensing operation for its patents and a huge semiconductor chip business for mobile telephony and other forms of wireless communication. Pretty powerful stuff, especially from such small beginnings.

459px-Hedy_Lamarr wihipedia

Hollywood actress, Hedy Lamarr:  inventor / Wikipedia

Two Footnotes To The Qualcomm Story

There are two footnotes to the history of the Qualcomm story that deserve to be mentioned here. The first is told by Parviz Nazarian himself in conversation recently with Israeli journalist, Sima Ella, Publisher of Jewish Business News. Apparently when Dr. Irwin Jacobs first approached him looking for seed capital for his new venture, he described the intended use of the new technology as something permitting companies to be able to keep track of where their trucks were out in the field using then new satellite tracking techniques. Nazarian then apparently posed the naive question: “can this be two way?” Three months later Irwin Jacobs came back and said “yes we can do it” and so he got his funding.

The second footnote though is a little bizarre, as the origins of the new CDMA technologies that Qualcomm developed and patented come from a phenomenon long known about in wireless communications, called “frequency hopping” and “spread spectrum”. A new method for this was actually invented and patented by a very beautiful Hollywood actress, Hedy Lamarr, who was also it seems a brilliant mathematician. The original idea for it had been patented by Nikola Tesla himself in 1903, but the concept was then updated by Lamarr in 1942. The update was intended to wirelessly control a device for guiding underwater torpedoes through the water during the second world war, though it was never used in anger. Nevertheless she wrote, and was awarded, US patent number 2, 292, 387 together with her neighbour, an avant garde composer named George Antheil, which does sound very odd. Another Mata Hari in the making perhaps?

Tesla_circa_1890

Nikola Tesla / Wikipedia

About Dr. Irwin Jacobs

Irwin Jacobs, who today is 80 years old, is an electrical engineer, and co-founder of Qualcomm. Today he remains CEO Emeritus of the company, with his son Paul having succeeded him as Chairman and CEO in 2009. He is also Chairman of the Board of the Salk Institute for Biological Studies.

Jacobs was born in 1933 in New Bedford, Massachusetts. He earned his Bachelor of Science degree in electrical engineering from Cornell University in 1956, and his Master of Science and Doctor of Science degrees in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology in 1957, and 1959, respectively.

Jacobs then became an Assistant and Associate Professor of Electrical Engineering at MIT from 1959 to 1966 and was a Professor of Computer Science and Engineering at the University of California, San Diego from 1966 to 1972. He co-authored a textbook entitled Principles of Communication Engineering in 1965, which is still in use today. UCSD’s Jacobs School of Engineering is named for him and his wife Joan.

In 1968 Jacobs co-founded Linkabit Corporation with fellow engineer Andrew Viterbi to develop satellite encryption devices. That company merged with M/A-COM in 1980, becoming M/A-COM Linkabit. In 1985 Jacobs finally went on to co-found Qualcomm with the Nazarians.

Both Jacobs and his wife Joan Jacobs are frequent contributors to public arts and education in San Diego. For this, Jacobs was awarded the Woodrow Wilson Award for Corporate Citizenship in 2004.

As the co-founder and Chairman of Qualcomm, Jacobs has contributed hundreds of millions of dollars to the field of education through generous donations and grants to several schools and organizations, especially in the San Diego area and to MIT in Massachusetts and to the Technion in Israel. In August 2010, Irwin and Joan Jacobs both joined the Giving Pledge, pledging to give away most of their fortune to philanthropy. The Giving Pledge consists of around 40 American billionaires, including Bill Gates and Warren Buffet, who have agreed to pledge 50 percent or more of their wealth to philanthropic causes.

Jacobs has been married to his wife Joan (née Klein) since 1954. She is a New York City native, a dietician and a fellow Cornell graduate. They live in La Jolla, California, and have four sons. Their son Paul E. Jacobs is today himself CEO of Qualcomm. Jeff Jacobs is the Chief Marketing Officer of Qualcomm. Hal Jacobs the second oldest, played on the 1985 USA Maccabi volleyball team, and is a co-producer of the musical Jersey Boys. Their eldest son Gary Jacobs is the head of the board of the Gary and Jerri-Ann Jacobs High Tech High Charter School. Jacobs’s grandson, Adam Jacobs, is a former catcher of the Cornell University baseball team.

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