From AOL Thread:
From the NJ Starledger. Don't be fooled by the word "expensive". The writer means the company is probably too expensive for Lucent to buy.
Qualcomm looking good -- and expensive
Lucent may have missed a steal on its buying spree
10/10/99
By Joseph R. Perone
STAFF WRITER
Qualcomm has something Lucent Technologies would kill for: a license to print money, or so it seems on Wall Street.
Qualcomm owns the rights to a wireless technology that can send loads of data and phone calls through the air faster than ever before. It's the kind of treasure that some have compared to holding the patent on the internal combustion engine back in the 1920s.
Last October, Qualcomm's stock looked dirt cheap when it was trading at just $18 a share. No longer. It now sells for more than $200 a share, a gain that rivals the once-mighty Internet stocks.
Some investors believe Qualcomm -- with a market value of $33 billion -- would be a prime target for Lucent, which has been on an acquisition tear, snapping up more than two dozen companies in just three years.
Would Lucent, after missing the blue-light special last fall, buy Qualcomm now?
"It is unlikely," says Raj Srikanth, a stock analyst at First Albany in New York.
So far this year, Qualcomm's stock has soared more than 700 percent. It's an example of the secondary players now cashing in on the telecom boom that was once dominated by Lucent and other first-tier companies.
Lucent stock, though, is up only 20 percent this year. No more is its stock rising so quickly that stock splits are invoked to cool it down and funnel more shares into the hands of grateful investors.
Now, it's Qualcomm's turn.
"As third-generation wireless technology gets adopted, Qualcomm is one of the biggest beneficiaries of that trend," says Merrill Lynch analyst Michael Ching. "It's got a lot of positive things going for it."
Momentum for one thing. The San Diego company's stock jumped more than $11 last Wednesday alone. Wall Street followers believe it still has legs and should have no problem hitting $225. The stock soared 133/8 Friday to finish at 213-15/16 in Nasdaq trading.
What makes Qualcomm so attractive to Murray Hill-based Lucent is a technology that can be used to upgrade wireless phone networks for big spenders like Sprint PCS and Bell Atlantic Mobile -- two key Lucent customers.
Lucent and Qualcomm do work together, via a partnership announced last month. Through it, Lucent can do a trial run next year and update the wireless gear it already has in the field.
Lucent stands to make money by upgrading its so-called base stations -- the computers used by Bell Atlantic Mobile and Sprint to receive phone calls in a wireless network. Better technology will enable Lucent to stay ahead of competitors such as Motorola and Nokia.
"Lucent gets to be a bigger player (in wireless equipment) by working with Qualcomm," says Argus Research analyst David Toung. "It's a very good partnership for both of them."
Qualcomm's cash machine is the royalties it gets from wireless equipment makers that are licensed to use its second-generation CDMA (Code Division Multiple Access) technology. Invented by Qualcomm, CDMA allows mobile phone companies to handle more calls than competing systems without adding a lot of extra equipment. It allows for fewer dropped calls and phones that don't require a lot of battery power.
Qualcomm also owns the rights to a third-generation CDMA transmission technology known as 3G. It will ship data at faster speeds and allow customers to receive large amounts of information from the Internet whether they are using a cell phone or some other kind of handheld data appliance.
How big is this technology's promise? It's huge, says stock analyst David Heger of A.G. Edwards in St. Louis.
"Owning the rights to CDMA would have been like holding the patents on the internal combustion engine in the 1920s," he said in a recent report. "Everyone who bought a car would have paid a royalty on the engine in that car."
Three wireless standards are used around the world. They are CDMA, used by service providers such as Bell Atlantic Mobile; GSM, used by Omnipoint; and TDMA, a variation of GSM that is used by AT&T Wireless Services.
Yet it is Qualcomm's CDMA standard that is the most popular, simply because it can carry more calls than the other two standards. "CDMA is the key to next-generation wireless technology," says David Heger of A.G. Edwards.
Qualcomm picks up a fee each time a company uses its technology, something that has pushed its sales from $813 million three years ago to $3.3 billion last year.
On deck is the 3G standard that will allow customers to receive high-speed data on their phones compared to the hit-or-miss data transmission of today's networks. Qualcomm, which introduced 3G this year, will derive significant revenues from renting out its 3G technology.
The company that derives its name from "quality communications" wasn't always on top.
College professors Irwin Jacobs and Andrew Viterbi founded Qualcomm in 1985 to commercialize a secure wireless transmission system first developed during World War II. They had to be patient because CDMA was scorned at first, until they were able to persuade two big players, Ameritech and Nynex (now part of Bell Atlantic), to give it a try.
Qualcomm won't say what it's charging Lucent for the right to use 3G. "We do not provide details on license agreements," said Qualcomm spokeswoman Anita Hix.
Still, Lucent's use of Qualcomm technology puts its offerings in warp speed, since it enables wireless operators to double their voice call capacity and ship data 10 times faster than the current generation, said Sam Gronner, a Lucent spokesman.
The royalties flowing in to Qualcomm are expected to help the upstart earn $2.36 a share this year and $3.68 a share next year, according to a Zack's survey of investment analysts.
Qualcomm also sells wireless phones, but like Lucent, it is leaving that business by putting the operation up for sale. "Qualcomm's planned disposal of its handset business results in Qualcomm becoming a pure technology and chip company," said Everen Securities analyst Mark Roberts in a report last month.
Stock analyst Srikanth only recently became a fan of Qualcomm.
He disliked the stock for more than two years until the company dumped its wireless network business on Ericsson, the Swedish phone equipment maker, this year.
"Once they did that, the company was liberated," Srikanth said. "Management has learned that when you get rid of non-cash flow-producing units, the market will reward you." |
