"Qualcomm Chairman and Chief Executive Irwin Jacobs said Korea hasn't yet decided which CDMA standard will be used, though the company will benefit regardless because it earns royalties on all CDMA-related standards. Qualcomm could manufacture chips for both standards, though Jacobs said Qualcomm's chipset market share could be eroded as competitors enter the business.
``The flavor (of CDMA) is not that critical,'' Jacobs said. ``Qualcomm will do well either way, though I think it's fair to say our market share of chips, which is exceedingly high now, may decrease a bit because of competitors.''
Qualcomm Falls After Korean Companies Choose Rivals
San Diego, July 7 (Bloomberg) -- Qualcomm Inc. shares fell as much as 9.1 percent after South Korea's three biggest mobile-phone service providers chose a rival system for high-speed Internet access, fueling concern that the U.S. company will get less revenue from its biggest market.
The stock fell 4 15/16 to 56 3/4 in late trading after earlier touching 56 1/16. It has plunged 68 percent this year, mainly because of reduced demand for Qualcomm's products in Korea, where the company sells a quarter of its cellular-phone chips.
``This is bad news for Qualcomm, as Korea has been one of the primary users of its technology,'' said Jeremy Brest, head of technology for North Asia at Nomura International Hong Kong Ltd.
The San Diego company makes computer chips and equipment to its own standard for code division multiple access, or CDMA -- a way of arranging packets of data to speed their transmission. About 60 million cell phones, or 20 percent of the world's total, use CDMA. Qualcomm shares rocketed 27-fold last year amid a boom in cell-phone use, making the company the best performer in the Standard & Poor's 500 Index. So far in 2000, it's the fourth-worst performer.
Tough Year
This year's woes for Qualcomm started in China, where a licensing agreement with China United Telecommunications Corp., or Unicom, unraveled. On May 23, South Korea's government banned four wireless service providers from discounting phones to attract subscribers, reducing demand.
Now SK Telecom Co., Korea Telecom and LG Telecom Co. say they will use wideband code division multiple access, known as W-CDMA, developed by Nokia Oyj, Ericsson AB and NTT DoCoMo Inc. Analysts said they expect the three Korean companies to be given government licenses to offer high-speed Web services next year.
``Korea Telecom will use W-CDMA,'' said Nam Jung Soo, head of the company's IMT2000 promotion department, at a public hearing in Seoul on a government plan to select licensees. ``We believe that the government should allow service providers to choose which technology they will use, and fortunately that is their plan.''
Ericsson's American depositary receipts climbed 13/16 to 21 13/16 at midafternoon, while Nokia ADRs rose 2 to 54.
Royalties
The decision by the Korean companies will reduce Qualcomm's revenue from sales of chips used in cell phones, though the company will continue to earn royalties from use of the CDMA standard, analysts and investors said.
``I wouldn't call it a black eye for Qualcomm, but it certainly is a sprained ankle,'' said Tim Ghriskey, a senior portfolio manager for Dreyfus Corp., which held about 6.77 million Qualcomm shares as of March.
Qualcomm Chairman and Chief Executive Irwin Jacobs said Korea hasn't yet decided which CDMA standard will be used, though the company will benefit regardless because it earns royalties on all CDMA-related standards. Qualcomm could manufacture chips for both standards, though Jacobs said Qualcomm's chipset market share could be eroded as competitors enter the business.
``The flavor (of CDMA) is not that critical,'' Jacobs said. ``Qualcomm will do well either way, though I think it's fair to say our market share of chips, which is exceedingly high now, may decrease a bit because of competitors.''
The company may still get increased revenue from South Korea, some analysts said.
``We think that in the near term, Korea will still deploy Qualcomm's flavor of CDMA,'' said Pete Peterson, an analyst at Prudential Volpe Technology Group, who has a ``strong buy'' rating on Qualcomm shares. ``There is some long-term risk for control over the technology and for their chipset sales, but the other side of that is, if you're looking for a company to develop chipsets for W- CDMA phones, who are you going to turn to? Qualcomm makes nine times more CDMA chipsets than anyone else combined.''
Rival Systems
Executives at the Korean companies said they chose the rival system because it's derived from one used in more than 60 percent of the world's mobile-phone market. China and Japan are likely to adopt the standard proposed by Nokia of Finland, Stockholm-based Ericsson and NTT DoCoMo, too, making it more attractive to companies in Asia, officials at the three Korean companies said. Japan's NTT DoCoMo is now testing the system.
``We looked at all of the trends and judged that both China and major Japanese mobile companies will choose W-CDMA,'' said Lee Hang Soo, a spokesman for SK Telecom, Korea's largest cellular- phone service. ``When you look at the Korean market you cannot avoid considering what's going on in China and Japan.''
LG, Korea's third-largest business group, said it partly decided to choose W-CDMA because its equipment maker, LG Information and Communication Ltd., has been preparing to build network equipment based on that technology.
The Korean companies plan to take advantage of what's called roaming, the ability to use the same handset on other networks in other countries. The Korean service providers for the first time will be able to collect charges for this kind of service.
Jacobs said that future phones will be able to roam between CDMA standards and that the Internet eventually will make such distinctions less important.
``The main network in the future will be the Internet, and that doesn't favor any network,'' Jacobs said. ``The roaming issue will largely be in the past even before widespread use'' of the next generation of mobile phones begins.
Fast Transmission
The European system and Qualcomm's CDMA 2000 standard both promise to transmit data, surf Web sites, send photographs and hold video-conference calls at speeds much faster than now possible.
All 26 million of Korea's mobile-phone customers use Qualcomm's technology. About 30 percent of its revenue and 50 percent of its earnings come from licensing the CDMA standard, according to Wojtek Uzdelewicz, an analyst at Bear Stearns & Co. who has an ``attractive'' rating on Qualcomm shares.
In Korea, the end of so-called handset subsidies doubled the price of a mobile phone for users and caused some analysts to halve their forecasts for this year's mobile-phone sales in the country. In June, 389,000 mobile phones were sold, down 77 percent from May's total and down from an average of 1.7 million units per month over the first five months of this year, according to the Digital Times newspaper.
The Korean government will announce next week how it will choose the companies that will provide the new services. It will take applications for licenses in September and will make a decision by the end of the year.
Jul/07/2000 15:28 ET
For more stories from Bloomberg News, click here.
(C) Copyright 2000 Bloomberg L.P.
Any redistribution of Bloomberg content, including by framing or similar means, is expressly prohibited without the prior written consent of Bloomberg L.P. Any reference to the material must be properly attributed to Bloomberg News.
The information herein was obtained from sources which Bloomberg L.P. and its suppliers believe reliable, but they do not guarantee its accuracy. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any securities or commodities.(C) Copyright 2000 Bloomberg L.P. BLOOMBERG, Bloomberg News, Bloomberg Financial Markets, Bloomberg Television, Bloomberg News Radio are trademarks, tradenames and service marks of Bloomberg L.P. |
