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tv   Bloombergs Studio 1.0  Bloomberg  October 7, 2018 1:30pm-2:00pm EDT

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♪ emily: qualcomm's products touch the lives of billions around the world. it's the biggest maker of chips and smart phones, expanding to cars and at the forefront of 5g networks of the future. but ask an everyday person what qualcomm does, and you will likely get a blank look. and yet, qualcomm has been in business headlines almost constantly over the last couple of years because of a bitter dispute with apple, qualcomm's biggest customer. then, the white house killed a hostile takeover of qualcomm by broadcom, which would've been the largest tech deal in history. in the midst of a trade war, china effectively killed the
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takeover of another chipmaker, all setting up challenges or perhaps new opportunities for qualcomm leadership. joining me today on "bloomberg studio 1.0," is qualcomm ceo, steve mollenkopf. steve, thanks for being here. steve: happy to be here. emily: you made it. steve: i did. emily: i know you have a few things going on. you are in bitter lawsuits with apple around the world. you fended off a hostile takeover of your company, you had a failed deal this past year. what'd i miss? steve: well, you haven't missed anything. it has been interesting. i would say we are at the center of a lot of key technology, which tends to make us interesting from a partner point of view. we don't tend to do anything small. but also, when i look at it, if anything proved the importance of the technologies that we work on. emily: so, would you have taken the job if you had known of all the complex situations you would be dealing with? steve: i have been with the company for 24 years.
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when i became ceo, it was clear we knew what we wanted to do next and so a lot of these things were issues that we know about and we had to deal with. we're knocking them off the list. emily: you had an inkling it would be a hard few years. steve: yeah. i think anytime you are in a technology company, you have to be prepared for ups and downs. and what you tend to do as the ceo, i think live your life further out from where you are living. you're betting on technology moves. you are always going to be an optimist. otherwise you wouldn't remain in the industry. emily: or couldn't. steve: correct. you have to work through near-term issues to get to the long-term changes. emily: how have you evolved as a leader the last two years? -- last few years? you told "the new york times" you are very tolerant of uncertainty. steve: i'm very tolerant of it. i think i have to be. i think it's been interesting to have the ability to lead the company through these periods of time.
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if you look at the public, what people think about what goes on in the company, the majority of the company is focused on driving 5g and that tends to be the job of the senior group, and certainly the job of the ceo, is to remove the other things so that the majority of the company can work on things that really drive the long-term values. emily: you certainly know what that's like. you've been working at qualcomm for 24 years. started off as an engineer. bring me back to the early days and just how different the world was, technology wise then. steve: when i started, this was before cellular. if you call somebody, you are calling a place, you are calling a home. we had this belief that not only would you eventually call people, through the concept of having your own personal number, but we said we are going to put a computer in your pocket and that will have tremendous ramifications.
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it would be a big step not only for cellular but also for the technologies small enough and have low enough power so you can put a computer in your pocket. and on top of it, the great thing is the ability for these same technologies, the low-power processing, the ai at the edge of the internet, the connectivity. that's now going to disrupt almost every other industry, so for us it's probably the widest funnel that we have had in opportunity in the history of the company. emily: you think people don't appreciate the technology that goes into their phone? steve: i think the average consumer doesn't realize how much technology investment is required in order to make these ecosystems. when i say ecosystem, i'm saying what qualcomm tends to do is we want to make sure that we are creating the technologies for business, let's say eight years from now. we are trying to create the
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technology for a company that hasn't even been born yet. i think people don't realize how early you have to work on it. for example, the big investments that we did in 5g were about two or three years ago. because we said this is going to be pretty significant. we want to be the leader. and we invested in that. emily: when will i be able to make a 5g phone call? when will my phone be 100 times faster? steve: you'll get that next year. the first half of next year you will start to see that rollout worldwide. the second half, it will be very prevalent building into 2020. emily: how big of qualcomm's business will that be? steve: i think it's a tremendous part of it. if you look in the future, what we are really about is how do we take the roadmap of cellular and deliver it at scale on a global basis? and then, how do we scale that into new industries?
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things like self driving cars. the ability for a car to be connected and to be connected to every other car allows it to see around corners. and that's a big, big change in the way logistics flow and work, and how cities work. same thing with health care. emily: how will my life be different? how will the world be different? steve: near-term, you will have much more access to more bandwidth at a cheaper cost. and the number of companies that can provide you service at a very high rate, meaning the equivalent to what you get on your wired internet at home will be available in your home and also outside of your home. they'll go up by a lot. you will see some competition probably between the cable companies who provide you wired internet service, and the wireless companies. and they will really change the landscape. emily: we've reported that china is considering merging the second and third largest telecom companies. there's great concern this will give china an advantage with 5g.
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are you concerned? steve: not much. i'm not sure i see an east-west competition where i don't think there will be a lot of winners. emily: what if it's south korea or japan? you do not see a risk to u.s. competitiveness? steve: no. we are partners of choice for all of those launches. don't forget europe. europe is also quite aggressive as well. if you're the technology leader, your problem is not are my markets big enough? your problem is, and this is what qualcomm is dealing with, is how do i scale this because there is so much demand for it. that's the issue now. that the good problem to have if you are a company. ♪ steve: there's probably no better opportunity and partner for qualcomm than to work with apple. ♪
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emily: qualcomm is a company that touches the lives of
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billions of people. you've been in most iphones up to this point. and yet, a lot of people don't know what qualcomm is. does that bother you? steve: no. i think it's part of our success. our job is to make the technology available to people. we purposely stay behind their brand. what we want to do is be a great partner to enable them to be successful. and we don't pick favorites. emily: let's talk about apple. for long time, this is your biggest customer, and now they are your biggest nemesis. how would you describe your relationship with apple today? steve: we have a dispute over the price of ip. we think that's moving now to a period of time where our strategy is unfolding, and the environment is such i think you're in a position where it'll get done. at the same time, i think there is probably no better opportunity and partner for qualcomm than to work with apple. it makes sense that the technology leader in mobile would be partnered with the products leader in mobile.
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and those things tend to work out. but the way we think about the business is eventually you get the disputes figured out. and you move on to a different period. emily: so, you believe apple will remain a customer? steve: i think so. look, if you have leadership technology, your roadmap will eventually dominate. i think there's no reason why that shouldn't be the case. emily: that said, you're taking on the world's most valuable company. they've stopped putting your chips in their phone and they say the patents they are paying you for are invalid. how does something so bitter get resolved favorably for qualcomm? steve: well, i think bitter may be the wrong term. we've had disputes with licensees in the past as well over the price of ip. really no different than that here. it's just bigger companies. remember, we are both big companies. they're obviously a very large company, but we're not a small company in terms of being able
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to execute the strategy we have. those things will get resolved. i think they get resolved on the courtroom steps, sometimes they don't. we don't know which way it's going to go here, but the strategy is playing the way we thought. emily: that said, there are critics that say qualcomm is not articulating its side of the ip story well enough, and that your licensing business could be dead in the water. what is your response to that? steve: i think the data is pretty different. we have hundreds of agreements, many of them signed in the last three or four years when we've had a number of new agreements signed in china. the outlier are actually the people who are not paying as opposed to those who are. we think the licensing is moving toward a period of stability. our job is to prove that and i think we are confident in our ability to do that. emily: have there been any talks? steve: there are always talks between the companies, but really nothing to report on. emily: so when could we expect some progress? steve: we've always laid out the
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schedule that the end of the second half of this year, a number of legal milestones hit traditionally. legal milestones hit for parties -- milestones create for parties to change their perspective. we don't know that will be the case here. if it is, i'm sure there will be lots of news for you. emily: how about this? what does a win look like for qualcomm? steve: the normal scenario is that you resolve the ip side and then you go back to working on the technology side. don't know whether that's going to be the case here, but that's sort of a typical resolution. now as you know, we have planned our business assuming that is not the case. for us, it looks like upside and i think we are confident in our ability to execute either way. emily: you've certainly shied away from letting this get too ugly in public. is that just part of who you are as ceo? part of your strategy? not wanting to be in the spotlight? steve: first of all, it is very much what is going on. big companies have disputes all
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the time. they don't make it personal. they have very complicated relationships. we are in that category with a number of companies. what you see is what you get in terms of how we think about it. emily: that said, you were recently involved in a very public situation with a ceo who does not enjoy being in the spotlight and that is the ceo of broadcom, who tried to take over qualcomm in a hostile bid. the white house blocked it. how did you navigate that? steve: we spent a lot of time listening to shareholders, and worked through how we could resolve what they wanted us to resolve. one of the big issues is deal certainty. i think in this case, it was proven that our board were pretty smart and i think circumspect to take a cautious view on that, and ultimately ended up in preparation for 5g. the u.s. government did what it did.
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but i think today it would be very difficult to be in any type of big merger that requires approval in the united states, or in china. just the political environment is quite difficult. one of the things we were able to do is navigate that environment as a company and remove that uncertainty away from our shareholder base. and we are pleased with how the stock has been performing. we've done all the things we have said we are going to do and we're going to continue to do those things. emily: for you as ceo, what was the sort of range of emotions you went through when you found out that wasn't going to happen? victory? relief? steve: i don't think you know how to react. it's unprecedented. and there's no playbook when something like that happens, but luckily the law tells you what you need to do here. so we did that, and we moved forward. i think that mentality is behind us. the real focus is the 5g and how
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we resolve the apple dispute. emily: part of the reason it was blocked was because the administration and the president saw a national security threat. do you think that threat is real? steve: if you look worldwide, qualcomm is a leader in 5g and i think they wanted to make sure that maintained. but quite frankly, i'm not sure anybody really understands everything that happened there. emily: then there was the flip side. xp and youied to buy waited two years for approval. this, as trade tensions continued to escalate. the chinese government never said no. they let the deadline lapse, and the deal was effectively dead. how big a blow was that? steve: we moved beyond it. i think we were very clear, in fact i was very clear in terms of what we were to do and it played out not the way we wanted to. but we moved beyond it and did the right thing as a company. there's really no dramatic change, at least in our
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evaluation of the m&a actionability in china between now and probably until the end of the midterm elections in the united states. so, the november timeframe. what we decided to do was remove the uncertainty for shareholders, remove the uncertainty for both companies and move on. and it's proved to be the right decision for us. emily: the chinese government has left the door open and doesn't seem to want to take responsibility for ending the possibility of this deal happening. do you think it still could happen? steve: the merger agreement has been terminated by both sides and so it's not happening. but i'll just remind you, i think it was actually handled pretty skillfully by all parties. we feel like our relationship is as strong as it ever was. it never became about qualcomm versus china. or the other way around. what it really was is we had bad timing in terms of showing up in the middle of large geopolitical issues. sometimes they show up and you
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have to decide to move on. and that is what we did. emily: given the business that qualcomm does, do you think at trade war is good or bad for the united states, and is it good or bad for qualcomm? steve: i think anytime there is an issue like this, i think any industry would tell you they prefer to have it resolved. we're somewhat insulated or we don't have as much impact. on tariffs like other people had. but that being said, we like to have a stable environment between china and the united states, and we think we'll get to that point. our business will be strong either way. emily: could the move the president is making lead to chinese manufacturers making their own chips? steve: that's not what we're seeing. what we're seeing is that the big trend in china is that the chinese manufacturers want to be global players. anytime there's a technology transition, people try to exploit that and go internationally. that brings them closer to qualcomm versus farther away. emily: there has been some turnover on the board since the broadcom saga. what is the mandate?
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steve: drive 5g and resolve the few remaining license disputes. and to really take advantage of this opportunity that's come along with everything being connected. and we have had a lot of turnover in the board, and i think moving in a direction that is quite healthy, and looking forward to driving that mandate. ♪ steve: you're going to see a tremendous amount of excitement in the mobile space just from the launch of 5g. ♪
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emily: the takeover drama is still not over because you've got paul jacobs, former ceo, and some of the founders trying to take the company private. what's the status of that? this is somebody that you worked with for years and that you know very well. steve: we haven't heard anything actually. it has been pretty quiet. if anyone came up with an offer, paul or someone else, we would listen to it and give it care, but we haven't heard anything
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about it. emily: do you talk with him on a regular basis or are you still engaged with him? steve: no, he's left the company so we really don't have those types of conversations. but if there was a need for one, of course we would. we know each other well. emily: part of the argument behind going private is the licensing is complex. perhaps it would be better outside of public scrutiny. you're making these long-term investments that will take time to pay off and investors need to be patient. what do you think about that argument? steve: i think it's an interesting argument. by and large, if you look in practice how have we run the company? even with a lot of scrutiny, we've done those things. it's not clear to me there is an advantage one way or another. you're comparing against something we haven't seen, so it's hard for me to say. emily: do you think being private could be advantageous to being public? steve: it always depends on what the details are. if you look, we're a pretty large company. in order to do that type of
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deal, you would take on a lot of leverage. that doesn't open up strategic flexibility. it probably constrains it. emily: so, when will we see qualcomm returning to the double-digit quarterly growth that made this company so popular with investors? steve: well, i think near-term we are really focused on two trends. one is stabilization of the apple relationship, one way or another, and the other is the growth of 5g. both of them we think provide great output. emily: what if apple doesn't go your way? i mean, is that something that keeps you up at night? steve: of course that's something we worry about, but we tend to manage that. worldwide, we have hundreds of agreements that establish the value. we feel once we have an opportunity to get in the right forum to do that, if it goes that far, we'll be able to prevail. emily: let's talk about new markets and where you see qualcomm progressing. famously, intel struggled for
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years to get into mobile. you can work for a long time on some of these technologies and then realize it's not going to be something that you dominate in. qualcomm already gave up on servers, for example. what about your efforts in pcs, cars, drones? steve: i look at all of them and think they're all pretty interesting. when i think of the business, i think of two things. i think of, are we developing technology that has international demand, and can we scale them into the markets that want them? today, our real focus is on the scaling. the demand is there. we are seeing early examples of new customers taking new products. give you a sense, i think we have 9,000 new customers today that we did not have before and i think that is up 20x in the last four years. emily: so what does qualcomm look like in 2020? steve: i think you are going to see a lot of 5g. you are going to see a lot of focus on areas outside of mobile. i'll be honest with you, i think you'll see a tremendous amount
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of excitement in the mobile space in the launch of 5g. it is very disruptive in terms of the business models of carriers, how much bandwidth they get, and the ability to move forward. it's going to be an exciting time, we think. emily: will qualcomm still be an independent company? steve: i think it's too far in the future. what is very clear is that any way we can drive value, we will look at it, but we have a great position to be in from a technology perspective, for sure. emily: when do you think business will return to normal? steve: i don't think it ever returns to normal. if i look back at the last 24 years in the company, we've never had a really stable spot. there were always at times when people said qualcomm was going to disappear tomorrow. you'll never be good at this technology or that technology. i had the fortunate opportunity to work on a lot of projects. it actually proved those things wrong, meaning we were able to do all the things people said. so, i don't know if we are ever going to be in a super stable
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position, but we'll certainly be in a more stable position from the last several years. emily: what's something you know now today as a ceo in 2018 that you didn't know when you took this job four years ago? what is something you learned? steve: you have to figure out what you want to do. make sure you spend the time on it because if you don't spend time on it, it's not going to get done. which is a very basic thing, but it's hard to do in practice. emily: don't you have your people to do those things? steve: what happens is, particularly if you grew up in the organization, it is very easy to do things -- the organization will let you do whatever you want to work on. you have to make sure you are working on the things only you can work on. i have learned that over the last four years. it is certainly true when you go through a period of tremendous scrutiny or big changes. there are certain things just by the nature where the ceo has to make that call. or have conviction on this particular topic. i have learned that you've got to set time aside to make sure
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you know where you are on it. emily: what is your game plan as a ceo and manager knowing you have more uncertainty coming your way? and that you have to be nimble as a ceo? steve: i think the first thing we just acknowledge there's always going to be uncertainty in the business. for us, the way we mitigate that is to have technology that people want. and if you have that, you can solve everything else. first and foremost, that's what we do. by the way, we've had to make those calls. for example, the big call for 5g we made years ago in the middle of all this uncertainty. this will not be the last call that we have to make. the technology roadmap will continue. we've got to make sure that were the leaders moving forward and we'll continue to do that. that's actually the fun part of the business, and we are looking forward to it. emily: steve, thank you so much for joining us. it's been really great to have
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you here on the show in the middle of all you have going on. steve: thank you. ♪
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andlet: i'm scarlet fu, this is "bloomberg etf iq," where we focus on the assets, risk and rewards offered by exchange traded funds. ♪ scarlet: tesla tailwind. ark investments bets big on elon musk and his ability to lead. tesla making up the number one holding of three of the firm's etf's. : roche, an advisor who charges global advisor like fees for index based investments, says it is.


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