Old news but worth reading.....Qualcomm is the developer Code Division Multiple Access, or CDMA. CDMA technology allows wireless communication
systems to handle more capacity with higher sound quality compared to GSM, a competing technology that is well established
in Europe and Asia. GSM, on the other hand, offers better roaming capabilities and the technology is less complicated and
cheaper to build. Qualcomm licenses CDMA technology to other wireless equipment makers, so even when it doesn't sell the
end product it still receives royalties if the product uses CDMA.
It will be a long tough fight over industry standards, and the issue gets complicated by Qualcomm's direct competition with the
companies who license its technology. Nonetheless, CDMA's momentum appears to be carrying the day in the US, with
services that use CDMA like Sprint PCS rolling out in a big way this year. CDMA is also making inroads in other key markets
of the future like Latin America and China.
Qualcomm does more than just kick back and collect royalty checks from its CDMA technology, though. The company makes
everything from the handsets to the chips and infrastructure equipment. The Q phone, recognizable by its clam shell design and
internal antenna, received an MVP award from PC Computing magazine this year. Qualcomm is selling handsets faster than it
can make them, though it recently had to pull one of its new models to fix a technical glitch. That hurt handset sales, and
Qualcomm was depicted in a recent Dataquest market study as one of the big losers of market share so far this year. The study last year
showed Qualcomm sales slipping to 8.2% of the market from 17.4%, but the company disputed those results, saying actual
sales were more than twice the figure used in the Dataquest study.
Qualcomm is also positioned nicely in the up-and-coming smartphone market. It recently introduced the pdQ smartphone
which adds Palm Pilot functionality to a CDMA handset. Last month Qualcomm also launched a joint venture with Microsoft
aimed at expanding the availability of information over wireless devices. The jointly-funded company will offer back end
network operations to wireless service providers. The service, which may be available as soon as April, is aimed at giving
mobile business users easier access to e-mail and other information off their corporate networks.
Despite the reported decline in its handset market share, Qualcomm continues to deliver impressive results. In its Fiscal Year
1998 which ended September 30, the company posted 60% growth in revenues and a 53% increase in Earnings Per Share
(EPS). The consensus from 16 analysts is for earnings growth to hit 53% again in FY99, with a projected 5-year growth rate of
34%. That's much faster than its larger industry peers, which are seen growing in 15%-25% range long-term.
The near-term outlook for this stock will probably be dictated by CDMA handset sales during the holiday season, when 40%
of all wireless phones are sold according to a recent Business Week article. But Qualcomm's ultimate fate will depend more
heavily upon the proliferation of its CDMA technology standard, and not just in the US where it is establishing a stronghold, but
also overseas. Qualcomm has done a good job penetrating Latin America with several significant CDMA infrastructure deals,
including a $650 million 3-year contract in Mexico. In Asia, though, Korea is the only big user of CDMA systems and GSM is
well-entrenched everywhere else in the region. The Chinese market is expected to explode from 13 million cellular subscribers
last year to over 100 million in the next several years. That's the big fish everyone in wireless equipment wants to land.
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