Monday October 2, 6:00 pm Eastern Time
Region of the Day: Qualcomm Quals Back Onto Track
Alysha Webb, Correspondent
After a rebuff in favor of domestically grown technology, it's running again in the China CDMA race.
It looks like all is not lost for Qualcomm's (Nasdaq:QCOM - news) China dreams.
Wu Jichuan, head of China's Ministry of Information Industry, announced last Monday that China would allow telecom companies to chose which code division multiple access (CDMA) standard they wanted to use, reviving hopes that Qualcomm will take a big chunk of the huge Chinese market for wireless technology.
``From Qualcomm's perspective, it had been shut out of China -- [the announcement] can only be good news,'' says Hong Kong-based Niq Lai, regional telecom analyst for Credit Suisse First Boston.
Rocky Road
The pathway into the Chinese market for wireless technology developer Qualcomm has been rocky.
In February of this year, when it signed an agreement with Unicom (NYSE:CHU - news), China's second-largest telecom company, to build out a nationwide CDMA network, it appeared Qualcomm had won the plum prize of providing the standard for China's CDMA systems.
But China's government suddenly announced the buildout was on hold indefinitely. Rumors swirled that the delay was so that China could finish developing its own third-generation (3G) TD-SCDMA technology.
Qualcomm's stock began a steady decline, and for the past few months has languished in the 60s, far below the beginning of this year when it was trading close to 200. Recently it has climbed slightly, and on Thursday, Qualcomm closed at 74.8125, up 2.66%.
The recent announcement may be the catalyst the stock needs to begin to approach January's heights again, analysts say.
``You could see it back up to $150 a share,'' predicts Derek Chan, Hong Kong-based telecom analyst for Bear Sterns Asia. ``One issue seems to be clear -- that China will adopt CDMA. Qualcomm would always be attractive, they would get royalties'' no matter which standard was chosen, he adds.
CDMA Cash Cow
But Qualcomm earns the most royalties from the CDMA2000 standard, which carries the most components for which Qualcomm holds patents. Other contenders are WCDMA and TD-SCDMA, which also have the International Telecommuication Union (ITU) stamp of approval.
All have their backers. Qualcomm is naturally pushing CDMA2000. WCDMA is popular in Europe and a Japanese consortium including wireless titan DoCoMo (OTC:NTDMY - news) will use WCDMA.
TD-SCDMA was recently adopted by the ITU as one of five international standards. German telecom giant Siemens (OTC:SMAWY - news) invested more than $1 billion in helping China to develop TD-SCDMA. Nortel Networks (NYSE:NT - news) and Motorola (NYSE:MOT - news) are also hedging their bets by working with China on the development.
The stakes are big in the race to convince companies to adopt CDMA2000, or another standard. China currently has 65 million mobile-phone subscribers, according to the MII's Wu. That means growth has already topped estimates by International Data Corporation (IDC), which forecast China could have 63 million registered mobile-phone users by end-2000. By 2004, China could have 150 million mobile subscribers, by some estimates.
Saying One Thing, Doing Another
During US Secretary of Commerce William Daley's March visit to China last year, premier Zhu Rongji announced that China would go ahead with a nationwide rollout of CDMA, contrary to earlier comments by other officials hinting that China would wait for third-generation mobile phones before building CDMA.
But many still speculated that China was holding out for its domestically developed TD-SCDMA to be ready to launch before adopting a standard. The recent comments by the MII's Wu suggest China has opted in favor of competition, analysts say.
``MII wants to see different technologies flourish because they want to seem competitive,'' says CSFB's Chan. The statement could have also been prompted by the fact that the TD-SCDMA technology won't be ready for large-scale use for three to four years, says Duncan Clark, partner and founder of Beijing-based telecom consultancy BDA China.
``Clearly (China's) intention is to develop national champions for 3G, (but) you can't wait four years just for china to get a standard moving,'' he adds.
Clark sees WCDMA as the likely favorite because of its European and Japanese backing.
Bullying Others
But, given its market size, even if China ostensibly allows the telecom companies to chose their standard, the country could bring pressure to bear on smaller countries, like Korea, to adopt the TD-SCDMA standard in return for access to China's market, points out a western diplomat in Beijing who declined to be named.
In any case, there are still plenty of potholes on the road to the CDMA future.
Unicom plans to build out CDMA were stymied when the State Development Planning Commission (SPDC) claimed the telecom firm had not followed proper procedures, says the diplomat. ``The SPDC still hasn't dropped its objection,'' he adds.
``I'll believe it when I see it. I won't believe anything until the contracts are actually worded,'' the diplomat adds skeptically.
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