Intel and Qualcomm battle over wireless

Qualcomm (NASDAQ:QCOM) announced that it has acquired two chip companies, one in the WiFi space and one in Bluetooth. The move would appear to put QCOM in competition with Intel for a piece of the wireless chip business. But why buy the two firms, RF Micro Devices and Airgo, when Intel owns almost the entire market?

Oddly enough, the news comes at the same time that Ericsson signaled that it might have a deal with Qualcomm on Wideband CDMA for third generation cell phones. The two companies have been fighting over the royalties due to Qualcomm for the technology. The battle has gotten so bitter that Ericsson and other cell companies have complained to the European Commission to try to move the issue into the arena of government regulation.

Qualcomm's stock has been battered by concerns over antitrust actions due to the royalties it charges cellular phone makers. The stock is down from $53 in May to about $36 today. There has also been significant concern that new wireless technologies like the WiMax standard supported by Intel, Samung, Motorola, and Sprint could damage Qualcomm's current lock on the broadband cell industry.

It would appear that someone woke up at Qualcomm. The only way to effectively fight WiMax is to make peace with large customers like Ericsson and acquire technology that will allow it to combat Intel on other wireless fronts. Qualcomm may have to give in on the amount it charges firms like Ericsson, but that is better than protracted litigation and losing a large customer completely.

With Intel's huge lead in WiFi and Sprint building a WiMax network in the US, it may be a bit late in the day for Qualcomm to come to its senses. If so, $36 may be a high water market for Qualcomm for some time to come.

Douglas McIntyre is a partner at 24/7 Wall St.