Welcome!
2018-02-11 15:15:03
With Qualcomm in Play, San Diego Fears Losing ‘Our Flag’

SAN DIEGO — For corporate success, no story in San Diego is as good as the story of Qualcomm. The company was founded in a living room and became the world’s largest maker of smartphone chips, one of the area’s largest employers and its chief corporate benefactor.

Qualcomm sponsors robotics classes for schoolchildren, subsidizes museum memberships for young adults and raises money for the local police. Irwin Jacobs, a co-founder of the company and its original chief executive, is a prolific philanthropist whose name is on the engineering school and the medical center of the University of California, San Diego, along with a food bank, a music center, a contemporary art museum and a playhouse.

People here are so accustomed to everything that comes with being Qualcomm’s home that they’re having a hard time imagining the city without that distinction. But suddenly that’s the prospect they are confronting.

With its profits sagging and a growing thicket of legal and regulatory disputes, Qualcomm has gone from a lion of the cellphone industry to a plum takeover target. Last fall, Broadcom, a rival chip maker, offered to buy the company in a $105 billion deal that would be the largest technology buyout in history. After Qualcomm’s board rejected the bid, Broadcom raised the price to a “last and best offer” of $121 billion, which the board also rejected.

“As a businessperson in San Diego, if you’re not following this you’re living in a cave,” said Jason Hughes, chief executive of Hughes Marino, a commercial real estate brokerage.

Mr. Hughes is something of a microstudy in how deeply Qualcomm has embedded itself into the region. In a recent interview at his downtown office, he ticked off various leases his brokers had secured for Qualcomm, as well as the dozens of start-ups that have grown up around it — along with law firms, banks, furniture dealers and architects that all get an outsize portion of their business from the local giant. His company once handled a lease for a health equipment manufacturer that outfitted the employee gyms that dot Qualcomm’s sprawling campus.

“It’s almost like they’re our flag,” Mr. Hughes said.

And in raw economic terms, they are. With 13,000 local employees whose salaries average about $105,000, Qualcomm generates about $7.4 billion, or 3.6 percent, of the region’s annual economic output, according to Kelly Cunningham, a principal with the San Diego Institute for Economic Research. For each job the company generates, the city gets almost two and a half more out of the indirect economic effects, according to a 2013 report from the San Diego Workforce Partnership.

Qualcomm and the Jacobs family also form the bedrock of giving to local charities and arts and educational institutions. A little over a decade ago, Mr. Hughes was brought in to rescue a children’s museum and had to line up donors to help pay off its debt. “The first people I went to were Joan and Irwin Jacobs,” he said, referring to Mr. Jacobs and his wife.

Economic research shows that corporate charitable contributions tend to fall off after a headquarters leaves town. And while there is no reason to think a new owner would pull out of the area altogether, Qualcomm would almost certainly see big cuts — prospectively $3 billion a year, or more than 10 percent — across the company, said Stacy Rasgon, a longtime analyst of the semiconductor industry at Sanford C. Bernstein.

Broadcom has its own California roots, but wound up based in Singapore after a takeover. (It has announced plans to become a Delaware corporation.) The company’s chief executive, Hock Tan, has been a driving force behind the consolidation of the chip industry and has expanded his company through a strategy of buying rival semiconductor companies and cutting costs unrelated to their core business.

Qualcomm, by contrast, prides itself on an inventive corporate culture in which employees who’ve been granted patents are given special business cards with the word “inventor” in the lower right corner.

“Broadcom is not rewarding people for going out and making speculative bets,” Mr. Rasgon said. “They’d rather wait and buy the winner, so these are fundamentally different cultures.”

On a recent morning, as short-sleeved employees had periodic meetings in an outdoor courtyard, the security desk at Qualcomm headquarters was playing a reel of commercials promoting the company’s hidden role behind the smartphone revolution. (“Invention comes first.” “We make the technology that makes every smartphone awesome.”)

That message is reinforced at a winding company museum that starts with exhibits on early technologies like briefcase phones and progresses to flip phones, smartphones, tablets and GoPro cameras. The displays chart how Qualcomm chips have enabled companies from Silicon Valley and elsewhere to cram ever more pictures, videos, songs and tweets into our pockets.

Qualcomm’s takeover battle is coming at a sensitive time for the San Diego ego. While the city is one of America’s innovation powerhouses and a hive of start-up activity and venture capital investment, it has had less success in attracting big companies — or, for that matter, keeping the growing companies it creates.

Years of corporate acquisitions have left the impression that San Diego’s biotech industry is a sort of farm team for East Coast and European pharmaceutical giants. Amazon is expanding its local office but left San Diego off its list of finalists for its second headquarters. Even the city’s sports teams seem to be up for grabs: Last year, the Chargers football team (whose home field was Qualcomm Stadium) moved north to Los Angeles. It was tracing the steps of the Clippers basketball team, which left San Diego for Los Angeles in 1984.

“We think of ourselves as a very innovative community that does a lot of start-ups and creates the companies of tomorrow,” said Jerry Sanders, mayor of San Diego from 2005 to 2012 and now chief executive of the San Diego Regional Chamber of Commerce. “We have a pretty good idea that once they get a certain size, they may be gone.”

Qualcomm was the exception. Mr. Jacobs, the original chief executive, moved to San Diego in 1966 to join the faculty of the University of California, San Diego. Two years later, he founded his first company, Linkabit, a consulting firm that did contract research to help clients like NASA solve deep-space telecommunications problems and later started designing and building circuit boards, chips and other components.

As Linkabit grew, it attracted engineers from powerhouse institutions like M.I.T. and Stanford to the San Diego area. And as the university grew, Linkabit started finding more of its engineers locally. One built off the other, and suddenly there were the embers of a telecommunications cluster that today drives a little under a quarter of San Diego’s economic output, said Mr. Cunningham of the research institute.

And just as Silicon Valley’s ecosystem can be traced to a chain of events that saw employees leave one company to form another, so can Qualcomm’s. Linkabit engineers moved on to seed new companies in the area. Mr. Jacobs departed in 1985 and soon got together with a group of former colleagues to create a company centered on quality communications, or Qualcomm for short.

Today, dozens of large and small telecommunications companies across San Diego have Linkabit in their genealogy, and Qualcomm is by far the largest.

Despite the anxiety here, it helps to remember that industrial development is more alchemy than science. Aside from a few basic ingredients — an educated populace, a good university and a reputation as a nice place to live — economists have almost no idea why industries coalesce around some cities instead of others, at least until they have done so.

But more than any one big company, economists say, a location’s greatest asset is its ability to maintain whatever dynamics keep new companies forming. And Qualcomm has helped to create a critical mass of engineers and investment that is now baked into the region.

“Cities are incubators for new ideas, but when the idea gets sufficiently mature, it moves on,” said Edward Glaeser, a Harvard economist who studies cities. “The important thing is that San Diego keeps on churning out new success stories and never becomes too dependent on any one company.”