Influencers Transcript: Qualcomm CEO Steve Mollencopf, August 15, 2019

ANDY SERWER: Steve Mollenkopf's influence on technology and the way we connect with each other will forever be interlinked. For more than 24 years, Mollenkopf has helped define and implement Qualcomm's strategy and cutting-edge technologies. Now as Qualcomm's CEO, Mollenkopf is working to bring the benefits and power of mobile technology to new industries, driving the development and launch of 5G.

Mollenkopf is also the inventor on 38 patents in areas such as power estimation and measurement, multi-standard transmitters, and wireless communication transceiver technology. Through Steve Mollenkopf's work and vision, he is blazing a trail in revolutionizing and realizing a new way of connectivity through technology.

Hello, everyone. I'm Andy Serwer and welcome to Influencers. And welcome to our guest, Steve Mollenkopf, CEO of Qualcomm. Steve, great to see you.

STEVE MOLLENKOPF: Andy, thanks for having me.

ANDY SERWER: So let's start by talking about China and the trade war and your involvement-- Qualcomm's involvement. Where do things stand right now?

STEVE MOLLENKOPF: Well, I think for us, it's like everybody else. We're trying to navigate it. By and large, it has meant to us that we have to figure out what we can do with Huawei, what we can ship to them. Not a huge customer to us but an important one. So we're trying to figure out how to deal with that. There are also some dynamics related to how the band, for example, is impacting Huawei that impact our business.

But by and large, the things that are dominating our business tend to be more technology issues involving the entire world versus I guess the particulars of the trade war. But like everyone else, we're trying to see what's going to happen and when. And we probably don't have any great insight versus anyone else.

ANDY SERWER: Right. About 65% of your revenues come from China. Those have been negatively impacted or the scale of the business, right?

STEVE MOLLENKOPF: Well, I think not so much, actually. If you look, we have about 65% of our revenue, but that's really because the handset industry itself is the ecosystem, and the supply chain tends to be based in China and will be, I think, for some time.

We have had some issues related to, I would say, anticipation of 5G coming and people, I would say, working through inventory but then also accelerating their 5G plans. I'm not sure if that's trade war related or more related to the technology migration and the anticipation of 5G.

ANDY SERWER: We want to talk about 5G a lot. But before we do that, I want to stick with China and ask you another question about Huawei, because you have a royalty dispute with them. Where does that stand?

STEVE MOLLENKOPF: We're in the middle of discussion with us. It's been going on for about two years, a little bit more than two years.

ANDY SERWER: Separate from the whole trade problems

STEVE MOLLENKOPF: Correct. Yeah. It's completely independent of that. We've had an interim agreement. We're no longer working on interim agreements. We're talking toward a final agreement. Nothing new really to update folks on other than we are talking, and we're focused on trying to get to a final agreement, which I think is a good trend.

ANDY SERWER: And so is Huawei a threat to US security?

STEVE MOLLENKOPF: I think it's really not something that I can answer. I think they're a very strong technical contributor, as we are, as a number of other companies are. But I think there's maybe a lot of discussion about that but certainly not at the commercial level. I think it's more at the government level.

ANDY SERWER: OK. And 5G. Let's switch over to that and talk about that, because that's the promise and the future of your company, our parent company as well, Verizon, here. Our CEO Hans Vestberg talks a lot about 5G. And I think I've seen you say that in 12 months or so, handsets will be out there. Really the case?

STEVE MOLLENKOPF: I think handsets are already out there, if you look at Verizon's already shipping.

ANDY SERWER: But actually really usable and sort of in the sense that people are able to access 5G networks.

STEVE MOLLENKOPF: Yeah, you're seeing tremendous velocity on the movement toward 5G and not just at the high tier but at the mid tier and at price points that are really very accessible to people, not just in the United States, but also worldwide.

A couple of things I think I would highlight. One, in China for example, China Mobile has come out and said that by the end of 2020, they would like all handsets above 2,000 RMV, or roughly $300, will be 5G enabled. We think that will be at the 3,000 level at the beginning of 2020.

So in six months-- less than six months-- you will start to see the entire portfolio of everything above about $430 will be 5G enabled. That's tremendous actually. That's about 40%. I guess by the end of the year, it would be about 40% of their handset volume will be accessible to 5G. Tremendous actually. That speed relative to 4G is amazing.

You even see in the United States with the Samsung device, the S10 5G, which Verizon and also is shipping, that device already looks like a 4G device. People are using it today. They don't even know it's 5G enabled. It is 5G enabled, and as the networks roll out, it'll move over there pretty quickly.

So what's happening is handset manufacturers are anticipating that they know the technology is at the maturity that they can go quickly, and so they're going very quickly toward 5G. And of course, we're enabling that. So it's a lot of activity really related to how quickly can I get 5G in the hands of the handset manufacturers and across portfolios.

ANDY SERWER: Steve, how is 5G going to change the life of the average consumer, first from a handset standpoint and then just generally in their homes?

STEVE MOLLENKOPF: I think you're going to have more speed. Obviously, people like more speed, but really what you're going to see is the ability to get access to this will grow dramatically, meaning coverage, availability of just unlimited data plans.

If you look, and this is just sort of our view-- obviously, the carriers have different economics on this-- you have tremendous improvement in the cost per bit. So one estimate is it goes down by a factor of 30. Just tremendous business models that are up for grabs as you get that much capacity comes online.

Part of that is due to the technology. Part of it is due to the spectrum allocation. So it's a real big change in terms of the economics of providing this technology to the consumer. And I think there'll be a lot of experimentation with the business model.

You're seeing, particularly in the United States, you're seeing companies try to figure out, can I have a business that competes with wireline operators and all that? But it's due to the raw capacity and the tremendous economics that come with this transition that, apart from what the consumer will see, which will be significant, you'll also see a lot of business model evolutions, which we're excited about.

ANDY SERWER: Yeah. I'm trying to think of some examples. People are always asking me on the consumer side, so that will mean that I will be able to, what, access a driverless car network or health care over the internet or things like that?

STEVE MOLLENKOPF: I would say it comes in two different phases-- the more G, OK, so that's just the cellular industry will get more capacity and more capability to the handset. And if you look-- when you use a handset that has a gigabit per second plus, it's really impressive actually.

And just the number of people that will have access to that technology as Verizon and others roll out their network, just tremendous. That's sort of phase one, the more G, which is cellular is going to get more capability, and it's going to be great for the consumer as well as the business model.

Secondarily, and a couple of years after the first launches, which we are in now, you'll start to see this sort of massive IoT. You'll have the security, the low latency. All of the second wave of features that come in with the standard will open up new industries to 5G. And this is the first time I think that you see the cellular roadmap. So the roadmap of cellular, how it's progressing, really impacting big established industries.

So if you go talk to a car company, they're trying to figure out, what's my 5G strategy? What's my connected car issue? And not just because that's how the consumer sees the car experience, a tremendous amount of work to make sure they can take advantage of a car being connected.

The same thing is going to happen in health care, education, anything that's being digitized, by and large, the most important part of the digitization occurs over wireless. And increasingly it'll be happening over 5G. That's why there's just so much economic impact due to 5G and why so many people want to be a part of it and why the governments are taking so much interest in making sure that their companies and their countries are leaders.

ANDY SERWER: Your latest quarter was a little weak. And I think you cited that part of the reason why is because of this big transition. In other words, 2020 you'll be ramping up to 5G. Can you explain that a little bit?

STEVE MOLLENKOPF: Sure. So two things, I think. One is the anticipation of 5G and particularly in China, because it's moving so rapidly. They are essentially saying, I'm going to draw down my 4G inventory, and I'm going to transition my new designs to 5G.

So essentially, what's happened over the last two months is that a lot of OEMs are saying, hey, let's accelerate our 5G plans. Let's cancel some 4G devices, and let's go at the 5G things and make them happen faster. And we're really anticipating that happening in the first part of the calendar year of 2020. If you just look at how those things work through the system. That's point number one.

Point number two is that due to the ban with Huawei, particularly in Europe, there was a retrenchment. So Huawei basically came back and said, hey, I'm going to really focus on China. And it had, I always think kind of one-time share shifts due to that that I think impacted our business and other people's businesses.

But the real, I think, fear or the real kind of takeaway is that, boy, people are really excited about this 5G and 5G across price points, and they're accelerating their plans. So what we did was talked about that, but also there's a lot of anticipation and I think a lot of excitement for that trend.

ANDY SERWER: You mentioned China ramping up, and some people have said we're in this race-- a war with China over 5G. Is it really the fact that China is getting ahead, and is that something we should be worried about?

STEVE MOLLENKOPF: I think it's interesting. Of course, we have a global business. And I would say we have a seat at the table in all markets, and that applies to the United States. It also applies to China. And I think China is accelerating their deployment.

I talked about on our earnings call, I estimated that they're going to have about 100,000 deployed 5G base stations by the end of this calendar year. Tremendous footprint, actually. So you're seeing that.

But I don't know if I would see that as a war or just how much excitement there is about the technology and how people want to make sure that they are first to it. It's really much more global than US versus China. It's really about how do these companies take advantage of this big shift in technology that I think creates opportunity.

ANDY SERWER: We have to be on the same playing field, the same level playing field as China, though, when it comes to 5G, right? We don't want to be behind, do we?

STEVE MOLLENKOPF: I don't think you want to be behind. No company, no country wants to be behind anybody else. And I think this is the first time that you've had, I would say, Western countries like the United States and I would say Korea and Japan-- obviously not Western, but sort of tends to be in the first wave of launches of technology.

Typically, China might launch five years later, and in some cases it was almost 10 years later when they did it with CDMA. But now they're launching in the first year. And so it's just tremendous, tremendous intensity worldwide to ramp 5G. I think it's actually quite healthy for the industry. It really is a statement more about the significance of the technology versus anything else.

Now, the reason that it draws, I would say, governmental interest is because if you're going to have things connected to the network, they want to make sure, one, that they have an understanding of how secure the network is, but also they want to make sure that it's deployed first so that the use cases can be done in, I would say, in a controlled fashion.

So if you're going to have automated cars or you're going to have connected health care, those are things by necessity. Those industries develop only in partnership with technology providers like us, Verizon, and AT&T, and China Mobile working with the governments to make sure that they're done correctly. And there's a lot of demand and excitement to start that process.

ANDY SERWER: So you're CEO of a large company that makes chips, and the chip business is hugely interesting to our audience-- investors. People love to invest in these companies. It's such a wild and crazy industry. I look at all the deal-making and what's going on in terms of changes with things like 5G. How do you keep up with all the things happening your business?

STEVE MOLLENKOPF: Yeah, it's funny. It's really two-- I'd say there are two elements to it. One is it's a technology business first and foremost. So it's all about technology leadership. In the cellular industry, the area that we play in, it's about technology leadership at scale and across many different technologies. And we're good at doing that.

The other one is-- I'll use a sports analogy, but it is a rough gym, like if you want to play in this gym, you have to know how to take elbows and throw elbows. And it's because of the significance of the technology.

So it's really a very competitive, very, very competitive market at scale, meaning that you have to have global reach. You have to have technology. And it's funny. I think it's a fun thing to work on, because people are interested in it. You're not just selling a widget that nobody cares about, and it attracts people to it. And I think it's one of the reasons why I enjoy working there.

ANDY SERWER: There's a lot of different dynamics. I want to talk about some of the things with the government, competitors, acquisitions, you being taken over. But let me ask you a little bit about your background. Where did you grow up? You were a double EE at Virginia Tech and then in graduate school. Talk about that a little bit.

STEVE MOLLENKOPF: I grew up in Baltimore.

ANDY SERWER: Oh, I'm from Maryland too. Nice to hear that.

STEVE MOLLENKOPF: We always have to burn our accent off a little bit.

ANDY SERWER: A little bit.

STEVE MOLLENKOPF: But I grew up in Baltimore and then ended up going to Virginia Tech and then Michigan and then directly to Qualcomm about almost exactly 25 years ago, right while we were launching CDMA back before people had cell phones.

So I've had the benefit of watching a lot of G transitions-- CDMA, LTE, and now 5G. And probably one of the few people still in the industry that's had that sort of tenure to be able to see all of those things.

ANDY SERWER: You're the first non-family member to run that company, correct?

STEVE MOLLENKOPF: Yes.

ANDY SERWER: What was that transition like?

STEVE MOLLENKOPF: You know, it's always an unusual thing when something like that happens. But remember, I've been at the company for, what, 20 years before that happened or 18 years, 19 years before that happened.

So I think I used to get asked more about that. But it's something we probably don't even think about that much anymore. We're really more focused on, hey wow. Look at all the opportunity with 5G, and isn't that interesting for us?

ANDY SERWER: And just one more question on the wayback machine. When you were a kid at Virginia Tech, what made you get interested in electrical engineering? Why did you want to do that as opposed to being an English major?

STEVE MOLLENKOPF: Well, like a lot of people, I liked technology. But I thought I'd be a mechanical engineer. And it ended up that I was-- there's a point in your career when you're a freshman in engineering school where they ask you what major you want to be in. And I ended up having a GPA that allowed me to have some options.

And I essentially asked them what's the hardest one to get into? And at that time, it was electrical. I said, OK. Well, I'll try that one. That seems like that's the one that would have the most opportunity. So it was that much thought, you know, not a lot of--

ANDY SERWER: Well, that's how it goes, right? But you were up to the challenge. That's what you wanted.

STEVE MOLLENKOPF: Yeah. But it was-- you know, you should do a lot more research than just make an arbitrary decision like that. But it worked out, and I enjoy it. I ended up studying electromagnetics in graduate school and going away from that eventually toward more systems concepts when I got to Qualcomm. But it was fun. I enjoyed being an engineer.

ANDY SERWER: And what about the young engineers in your company? How do you like to manage them and lead them? What advice do you give them?

STEVE MOLLENKOPF: Well, I don't give them much advice anymore. You have to be careful when you're a technically trained CEO. People will let you make decisions that you probably shouldn't be making, but look, it's people that come out now, students that come out now, are unbelievable.

They have a lot of-- I would say they're more fearless, meaning that they'll go into any area. They're incredibly well-trained in terms of breadth of technology. So for us, a lot of it is make sure they have what they need to be successful.

And you set goals that are audacious enough that you're doing something that only your company could do. But I'm just humbled by these kids that come out now. They're just incredible.

ANDY SERWER: Great. Let's talk a little bit about some of the issues that you face on the legal front, for instance. Now, you have a situation where the FTC has come down on your head. The DOJ seems to be on your side, though. What's the latest there? Can you explain how you're kind of in the middle between these two government entities?

STEVE MOLLENKOPF: Yeah. I think there is-- we obviously had a trial with the FTC, and it was well-discussed, but it effectively didn't go our way. We're in the process of applying for a stay and actually an appeal on the merits-- two separate things. The Ninth Circuit is looking at the-- the Court of Appeals is looking at the stay.

We were fortunate enough to have the DOJ weigh in on our case. There were a number of other amicus briefs that came in our side, but very significant, I think, for the Department of Justice to make a rule or file a case that basically says, not only do we think that you should get a stay, but we think that you will ultimately prevail on the merits. Very strong.

ANDY SERWER: That's unusual that one part of the government does that against the other part, isn't it?

STEVE MOLLENKOPF: Yeah. But it's funny, because I think it's less about a turf war. It's more about the facts of the case. If you read their filing, it's quite compelling. But we'll see. We'll see how the court decides. We feel very strong-- very strongly that we will prevail. But you have to go through the court system to do that.

ANDY SERWER: Switching over to Apple a little bit, you recently resolved a dispute there. But it seemed like there was a lot of bad blood between those two companies. Were you guys like bitter enemies and now you like toss that aside?

STEVE MOLLENKOPF: Effectively, yes. And I would say not the bitter enemies part. Look, there's a lot of money that goes back and forth. And I think we both were able to resolve that. And now the focus is really on products. If you look, Qualcomm and Apple have had this pretty long history. It actually started in the late 2000, 2009 timeframe we started working together on products.

And I think it's been very good. If you look at the products we've been able to do together, we've been able to support them. I'm very happy that that's now 100% of the discussion between the companies, which is how do we get these two great engineering teams together and create products?

Of course, we do that with a lot of different companies as well. That's a much more natural discussion between the two companies and something I enjoy much more than the other part. But we got through it. It's just business. And now we're into the product part.

ANDY SERWER: So you guys are all good? You and Tim Cook, you and Apple, you're all good?

STEVE MOLLENKOPF: Yeah, and I think you don't get deals like this done without the principals coming together and spending a lot of time together.

ANDY SERWER: So you and Tim talked this out a bit?

STEVE MOLLENKOPF: Of course. And you can't do a deal of this magnitude without doing that. And clearly, the companies have turned the page, and I applaud that. I think it's great.

ANDY SERWER: Moving over to Europe, where you just recently were fined by regulators there. What's up with that?

STEVE MOLLENKOPF: I think you have a lot of-- we're not alone, I think, in terms of the attention of regulators in Europe and other places. But that was really not something associated with our licensing business.

It was really related to a small number of cases of our chip business. We'll work through it. I'm sure we will have a lot of activity related to an appeal or the equivalent of an appeal. And we'll move on.

ANDY SERWER: Do the Europeans like to pick on big tech companies? That's a softball down the the middle of the plate. Come on.

STEVE MOLLENKOPF: I think that clearly there's a lot of activity in that direction. But I think a lot of that is behind us, which is great.

ANDY SERWER: OK. And then let's talk about the situation where you guys were looking to buy NXP, and then that didn't happen. And on the other hand, Broadcom was going to buy you guys, and then that didn't happen. I mean, first of all, this is a lot of stuff going on. And then second of all, can you talk about what went down in both of those instances?

STEVE MOLLENKOPF: Sure. I think the takeaway is we're in an interesting spot in the industry. People care about us.

ANDY SERWER: Right. OK. You're kind of the Nexus or something.

STEVE MOLLENKOPF: Well, if you look at connectivity, and you look at the future of things that are connected, Qualcomm's name comes up and comes up for a reason. So therefore, I think we tend to grab a little extra attention, either inbound or outbound. And so that's really what you see. So if you look at our acquisition of NXP, I think that kind of got caught up in the early part of the trade war.

We moved on. I think we moved on in a way that provided stability to our investors but also moved on in a way that I think is very friendly with the Chinese government, which it's not really about Qualcomm and China, it's more about being in the wrong place at the wrong time. We also had a hostile takeover from Broadcom, which ended up becoming blocked by the CFIUS process.

Again, the companies moved on. And certainly, I think a lot of that was about who was going to capture the value of the Apple business. And it's clear that we're in a strong position now, and I think that's well behind us as well.

So a lot of those issues are I would say ancient history from the perspective of Qualcomm. Ancient timeline can be a year in our industry. But now it's really about, hey wow, we have quite an opportunity ahead to take advantage of with 5G.

ANDY SERWER: Given what's going on with all the trade tensions, does that mean the flurry of M&A in your business is probably on hiatus for a while?

STEVE MOLLENKOPF: I don't think necessarily. I think you're seeing some people who have more of an investment or their company is more about M&A. They might be moving away from the traditional targets or targets that require approval in China.

But I don't think the industry and the trend for there to be continued M&A, consolidation in the semiconductor space, and people that have exposure to China saying, hey, I can't get approval from SAM or MOFCOM or whomever. I think you're just sort of people trying to figure out when's the right time to do M&A, for example. And I think you'll continue to see that trend of more consolidation continue.

ANDY SERWER: Yeah, why is that? So people can start new chip companies and grow them pretty fast, scale them, and then become important players. And then companies like yours want to snap them up.

STEVE MOLLENKOPF: Well, it's interesting. I would say there are less and less chip companies starting. It's very expensive. It's difficult to get exits. And so it doesn't draw as much capital as it did like 20 years ago, in terms of startup capital. You are seeing people do, I would say, specialized AI chips, maybe with the intention of being acquired by a bigger company or a cloud company or a company like ours, for example.

But you tend to see less and less startups happening. A lot of the startups are happening in different areas. But what you are seeing is you're seeing companies that are reasonably high-scale, single-digit, mid single-digit to high, maybe $10 billion level, trying to figure out, hey, who do I work with long term? And the reason is, scale is very important. R&D scale and the access to the leading node is very important in certain aspects of the semiconductor industry, certainly in the one that we play in.

And so you tend to see people saying, well, how do I get the ability to get the technology and the R&D scale that's required to go into these high R&D intensity markets and continue to grow? So I think you tend to see more M&A at the medium and medium-large level than versus the very small.

ANDY SERWER: Getting back to the trade war a little bit, how do you communicate with the government, and are you satisfied with the level of communication that comes from the government when it comes to things that are changing? How do they tell you?

STEVE MOLLENKOPF: I think for certain companies, and we're certainly in this category, very high bandwidth communication actually. And in terms of how it works, I go there a lot.

ANDY SERWER: Washington.

STEVE MOLLENKOPF: Yeah, a lot.

ANDY SERWER: The White House?

STEVE MOLLENKOPF: The White House-- you know, it's been documented we've been there, along with others. And I think the way to think about that is there's a lot of interest on the part of the administration to get input from the people who are impacted. And I think that surprises people to some degree, but it is absolutely true. I think we get a lot of, I think, interest in getting our perspective.

And then separate from, I would say, the Executive Branch on The Hill, tremendous interest to understand the ramifications of 5G and how laws and policy should evolve in order to make sure that we're successful. And as a result, a lot of them come and ask us what to do. So I would say, for me, I spend a lot of time trying to make sure that people are educated.

And part of the responsibility of a company that has a strong position in the technology is you can't complain about the laws and policy that people are making unless you're there helping to educate the people that make it. And there's a lot of desire for that to occur, and we're happy to do it.

ANDY SERWER: What about the Chinese government, Steve? You have a team there. Do they try to provide input to the Chinese government? Are they able to communicate with you? I'm just curious about that.

STEVE MOLLENKOPF: Yeah. We spend a lot of time there. I've spent a lot of time there as well. And at the senior levels, we actually have a reasonable amount of access. And it makes sense, if you think about it.

We are a strong partner to a lot of Chinese handset companies, we're a strong partner to Huawei, across a lot of different areas. But most importantly, you're not going to see a strong 5G ecosystem without Huawei and Qualcomm agreeing through the standards bodies as to how things are going to work.

So we're a player in China the same way that we're a player in the United States. And we get access, and people are interested in our perspectives, which is I think quite helpful. And we go there, and that's part of the responsibility of having the CEO title or senior titles is you have to spend your time doing that and I do it.

ANDY SERWER: Are you able to manufacture or fabricate here in the United States, and what would it take to do more of that here?

STEVE MOLLENKOPF: Well, we do a lot of it, actually. If you look at our footprint in terms of where we manufacture, we tend to have the majority of our manufacturing either in Taiwan, South Korea, or in the United States. We're probably one of the larger semiconductor companies that manufacture in the United States.

Now, remember, we don't own our own factories. We have what's called a fabless semiconductor model, which is that we outsource the manufacturing either to TSMC or to Samsung or to SMIC or to Global Foundries. And SMIC being one in China.

But by and large, through our collaboration and our work on manufacturing in Samsung, we do a lot in Austin, Texas. We do some manufacturing in Upstate New York through Global Foundries, and we have for a long time. And so, for us, it's something we've been doing for quite a long time actually.

ANDY SERWER: Does the White House want you to do more?

STEVE MOLLENKOPF: I would say, for us, it's less because we don't make things so much, and it tends to be constrained by, whereas we tend to be less-- the discussion tends to be less about that and more about how can we have proper policy that helps 5G, helps a company like Qualcomm, or an ecosystem in the United States based on 5G be successful?

ANDY SERWER: And last question, Steve. This program's called Influencers, and I'm curious as to how you see yourself using your influence on the world.

STEVE MOLLENKOPF: I think, for us and for me personally, we have a lot of influence on a key technology roadmap that is important to not only many industries but for almost every person. So if you look, it's hard to find a technology or anything that people make that is more prevalent, more ubiquitous than cellular and having bigger impact.

I used to joke around to my kid-- I have two daughters-- and one time they wanted to know what I worked on. This is when they were younger. We were in the Dallas Airport. And I said, OK, let's go stand in the Dallas Airport. And I said close your eyes, spin around twice, and then open them up. I bet you you will see something that your father worked on.

And so I view it as there's really no other technology that has so much impact on the world, and we get to work on it. We get to lead in it. And it's a great sort of motivating thing to have that much impact on other people's lives in a good way.

ANDY SERWER: Great. Steve Mollenkopf, CEO of Qualcomm. Thanks so much for joining us.

STEVE MOLLENKOPF: Thank you.

ANDY SERWER: I'm Andy Serwer. You've been watching Influencers. We'll see you next time.