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Qualcomm Hopes To Sell Mobile Phone Business
By Scott Hillis
LOS ANGELES (Reuters) - Qualcomm Inc. (Nasdaq:QCOM - news) said Tuesday it hoped to sell its
mobile telephone business by the end of the year as it focuses on developing its more lucrative wireless
technology business.
The San Diego, Calif.-based company also forecast it would meet or beat Wall Street expectations of fourth-quarter profits
of 87 cents a share and said it was slashing expenses and reshuffling some operations.
The announcement, which came after two weeks of investor jitters over Qualcomm's earnings, pushed its shares up more than
10 percent to nearly $169 by mid-afternoon. The stock shed about 7 percent Monday after the company pulled out of an
investor conference.
Qualcomm has built itself into one of the hottest telecom companies through its code division multiple access technology,
called CDMA, which is being rapidly adopted in new mobile phone networks.
But Qualcomm said fierce competition, parts shortages and industry consolidation were squeezing margins of its consumer
products division, and it was mulling several ``strategic options' for its ground-based phone business, which makes its mobile
telephones.
Concerns over its phone business were highlighted earlier this month, when Everen Securities said tightness in that market
meant Qualcomm would beat profit forecasts -- but not dramatically as it had done in previous quarters.
Foremost among those options appeared to be a sale, and Qualcomm said it was in talks with several companies that had
expressed interest in acquiring the business. It aims to clinch a deal by the end of the year, it said.
``Qualcomm desires to transition the business to a manufacturer that will support its customer base and employees while
providing economies of scale, a strong purchasing base and other operating efficiencies,' it said.
It did not identify prospective buyers, but analysts said Sweden's Telefon AB L.M. Ericsson is an obvious candidate because
it is a late comer to the CDMA market, with its first CDMA phone not due out until the second quarter of next year.
Any deal could echo a similar transaction Qualcomm struck with Ericsson in March, in which it sold its ground-based wireless
infrastructure business to the Swedish telecommunications giant for an estimated $1 billion.
Qualcomm sold 1.7 million phone handsets in its third quarter, and the business rings up about $1.6 billion in sales a year.
That would make a sale of the operations worth around $1 billion, financial analysts estimated.
Smaller telecommunications players could also see a purchase as a way to boost their profile in the booming wireless industry,
said Mark Cavallone, an analyst with the S&P Equity Group.
``It would be an easy way for a manufacturer to break into CDMA or expand a CDMA product line,' Cavallone said.
Analysts have anticipated such a move, saying Qualcomm's future lies in making the chipsets that power CDMA phones and
in raking in royalties from other telecommunications players who license its numerous CDMA patents.
Meanwhile, Qualcomm said it was cutting expenses and trying to boost margins and it would shift workers in its consumer
products unit to its CDMA technologies unit.
``Now is the time for Qualcomm ... to again respond to industry needs with new innovations such as wireless data products
and applications,' Paul Jacobs, president of Qualcomm's consumer products division, said in a statement. |
