Two articles from the SD Union Trib. In the second Thornley says he expects a quick turnaround in Asia... I don't think so Tony.
Caxton
S.D. firm to build handsets in Brazil | Qualcomm eyes its
first plant outside the U.S.
Deborah Solomon
STAFF WRITER
09-Jun-1998 Tuesday
Qualcomm Inc. is diving into the lucrative Brazilian phone market and plans
to begin producing wireless handsets in that country.
The San Diego company, which said several months ago that it would build a
factory in Brazil, confirmed yesterday that it has selected a site and
would begin production within the next few months.
Jim Edson, Qualcomm's vice president for Latin America, said the company
also plans to build infrastructure in Brazil to handle wireless traffic.
This would be Qualcomm's first manufacturing facility outside the United
States. Edson would not disclose its location or how many people the
company plans to hire.
Qualcomm also may bid for a piece of Brazil's government-owned telephone
company, Telecommunicacoes Brasileiras SA, or Telebras. The monopoly is
being broken into 12 separate companies, including eight cellular
companies, which will be auctioned July 29. The sale is expected to
generate $15 billion.
Edson said Qualcomm will decide by Friday whether it will bid for a piece
of Telebras. Winners are expected to pump about $60 billion into Brazil's
phone system over the next 10 years to upgrade the country's phone network.
"The potential for wireless communications in Brazil is great," Edson said.
"We have not completely closed the door to the possibility of participating
in the auction, but do not today have any plans to participate."
Analysts said buying into Telebras is a way for Qualcomm to get its Code
Divisional Multiple Access technology accepted in Brazil. Most of the
country's wireless phone carriers offer Time Divisional Multiple Access, a
rival technology.
Because Brazil is Latin America's biggest market, it's important for
Qualcomm to introduce its technology there.
"Qualcomm will probably need to buy a part of Telebras to get CDMA into
that country," said Brian Modoff, an analyst with BT Alex Brown in San
Francisco. "So far, TDMA has been dominant in that country. CDMA companies
will have to get more aggressive if they want to get a foothold in Brazil."
Brazil has been flagged as one of the top 10 wireless markets worldwide --
both because of its need for phones and its relationship with other Latin
American countries.
The technology that's favored in Brazil -- whether it's CDMA, TDMA or GSM
(Global System for Mobile communications) -- is likely to become the
standard for all of Latin America.
The region's market is estimated at more than $60 billion.
"As Brazil deploys, it will have a heavy influence on the rest of Latin
America," Modoff said. "It's a very competitive market. Obviously, TDMA
carriers have had a lot of success there, but it's not a closed market and
that's probably why Qualcomm is getting active there."
Alex Cena, an analyst with Bear Stearns in New York, said it's likely that
both TDMA and CDMA will have a presence in Brazil. The market is large
enough to handle both technologies, he said.
"I think Brazil is going to be one of those markets that has both
technologies, and Qualcomm will be a big player," Cena said.
Demand for phones in Brazil is great -- more than 8 million people are on a
waiting list for a phone and many have plunked down $1,500 for satellite
phones that won't be usable for more than a year.
"Nobody can produce as many phones as Brazil would like," Cena said.
Picking up the pieces | Going global seemed like a good
idea - but that was before the havoc in Asia
Dean Calbreath
STAFF WRITER
14-Jun-1998 Sunday
...
For Qualcomm, the Asian crisis struck just as the company was preparing to
roll out a brand new product: a cellular telephone specifically made for
the Korean market.
"Unfortunately, there was a high degree of optimism built into that
thinking," says Anthony Thornley, Qualcomm's chief financial officer.
Asia always has been an important market for Qualcomm, representing 25
percent of its sales. And Korea has been particularly lucrative.
The Korean government adopted Qualcomm's digital and wireless standards in
the early 1990s, and since then, the government has worked closely with the
company to help develop its CDMA technology.
As a result, Korea was the first country in the world to adopt and deploy
CDMA communications systems.
As recently as last October, Qualcomm's sales in Korea were going extremely
well. Cellular telephones were selling rapidly, and Korean manufacturers
were doubling their orders for integrated circuits. At the same time,
Qualcomm was launching a palm-sized phone tailored for the Korean market.
But that was all before the economic crisis in Asia washed up on Korea's
shores. A wave of monetary devaluations -- starting in Thailand last July
and continuing through the Philippines, Malaysia and Indonesia -- began
chipping away at Korea's own currency, the won.
By December, the won had lost half its value and the country was in an
economic tailspin.
For Qualcomm, the currency devaluation immediately chopped revenues in half
and shredded profits. Orders for Qualcomm's cellular telephones and
integrated circuits slipped away, as they had become too expensive for
customers using the devalued won.
Sales of Qualcomm's new Korean phones dried up as Seoul's Hansol
conglomerate, which had ordered $60 million of the phones, fell into
default.
The crisis could have been devastating for Qualcomm, if it hadn't already
built close relationships with its Korean customers and U.S. suppliers.
"Good relationships are the key," Thornley says. "You can plan all you
like, but you'll always be hit harder by crises than you plan for. You can
survive if you have strong relationships."
Because of its solid business relationships, Qualcomm was able to slow down
orders from its U.S. suppliers, including Intel and IBM, without suffering
much financial harm. And it extended financing terms for its Korean
customers, allowing them to pay for products over 90 days instead of 30
days.
At the Dialogue seminar, Thornley joked that Qualcomm's integrated-circuit
business in Korea has since become "almost a banking business," because the
company has embarked on so many vendor-financing deals.
Korea isn't the only Asian market where Qualcomm is experiencing
difficulties. Indonesia and Thailand have put a hold on their telecom
projects.
And although Qualcomm has done well in China and India, recent political
tensions and the possibility of a wider crisis could cause a wrinkle in
future expansion plans.
Despite such problems, Thornley stresses that Qualcomm believes the Asian
crisis is temporary. "We believe we need to maintain a presence in the
market to be ready for a turnaround, which we believe will come in the near
future," he says.
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