Qualcomm Calls on Flarion
The deal sees CDMA (Code Division Multiple Access) technology stalwart Qualcomm swallow the developer of a rival proprietary technology, Flash-OFDM (Orthogonal Frequency Division Multiplexing). OFDM is a modulation scheme that can support an average data rate of around 1.5 Mbit/s for users in a standard, PCS-sized cell site, while using only 1.25 MHz of spectrum. This is more bandwidth-efficient than standard cellular networks.
Earlier this year, Bedminster, N.J.-based Flarion developed a "Flexband" upgrade for its 1.25 MHz and Flash-OFDM equipment, claiming that it can now support hundreds of users consuming 1 gigabyte of data a month (see Flarion Goes Faster ).
To date, Flarion has scored a number of high-profile carrier trials for its technology, including the likes of Nextel Communications Inc. (Nasdaq: NXTL), Telstra Corp., T-Mobile International AG, and Vodafone K.K. (See Nextel Flashes With Flarion, Flarion Confirms Telstra Trial, T-Mobile Flashes Flarion Trial, and Flarion Wins Voodoo Trial.) The vendor has also started to notch up a collection of commercial deals, announcing European wins in Finland and Croatia, a number of small U.S. contracts, and success in Malaysia. (See Flarion Wins in Finland , Flarion Touts Double Deal, Flarion Unwires Amarillo, Flarion Greets Aloha, and Yes, Virginia, There Is a Flarion.)
Qualcomm, meanwhile, is the owner of essential CDMA patents deployed in every 3G network around the world, which it licenses to great effect (see Qualcomm Ups Q3 Profit 15%). It also produces a wide range of CDMA chipsets.
"With this acquisition, Qualcomm will be in a stronger position to support advanced development in both CDMA and OFDMA technologies," said Dr. Paul E. Jacobs, CEO of Qualcomm, in a statement. "The combination of Flarion and Qualcomm’s engineering resources greatly strengthens our position as a continued technology innovator and leader in the wireless industry.
"We believe CDMA will provide the most advanced, spectrally efficient wide area wireless networks for the foreseeable future, but with Flarion we can now more effectively support operators who prefer an OFDMA or hybrid OFDM/CDMA track for differentiating their services."
According to a press statement, Qualcomm may also cough up an additional $205 million in the form of cash and stock, dependent upon “the satisfaction of certain milestones over the next few years.”
The deal appears to represent an impressive return on investment for Flarion's VC backers. Although the vendor has always kept tight-lipped over its financials, it is believed to have scored around $175 million in several rounds of funding (see Flarion Hushes on Slush Fund). Long-running investors include Bessemer Venture Partners and Charles River Ventures. Flarion has also received backing from Cisco Systems Inc. (Nasdaq: CSCO), Equitek Capital, New Venture Partners LLC, Nassau Capital LLC, Pequot Capital Management Inc., SK Telecom (Nasdaq: SKM), and the T-Mobile Venture Fund.
Flarion has approximately 110 engineers on its payroll, giving each a theoretical value of nearly $6 million. The deal is expected to close in October. Flarion's VP of global communications and marketing, Ronny Haraldsvik, is naturally cock-a-hoop at the news: "We see great opportunities for Flarion's technology and employees to flourish within Qualcomm." Haraldsvik adds that the company will continue to honor its commitments to its existing carrier customers.
Flarion's OEM partnership with Siemens AG (NYSE: SI; Frankfurt: SIE) will also be unaffected by the acquisition (see Flarion Flashes With Siemens). "The fact that Qualcomm acquired Flarion has no impact on the existent business and customer contracts of Siemens and Flarion," notes a statement from the German vendor. "Siemens will continue to sell Flash-OFDM end-to-end solutions for 450MHz. Regarding customer contracts for Flash-OFDM for 450MHz, Siemens has the ‘right of first refusal'."
Qualcomm's share price had risen 1.10 percent at press time, to $40.31 per share.
— Justin Springham, Senior Editor, Europe, Unstrung