Gilder on Q
Ok, I've just begun my subscription to the Gilder Technology Report. Not much of interest to strict GGers over the last few months (altho that wouldn't be true for broader tech investors like BB or Teflon), but the following is a nice little "backtest." It's Gilder's take on the Ericsson deal from the April 99 issue; his writing's annoyingly fey and florid, but the substance seems on target...
tekboy@boo!.com
QUALCOMM OVER THE RAINBOW
What is on the other side of the paradigm? Beyond the up-spectrum rainbows, what do we do when the pots of gold overflow? Where do fiber surfers go when their wave comes in? ....
A fairy tale fulfillment of the Telecosm seems ever closer as Qualcomm's (QCOM) CDMA (Code Division Multiple Access)technology--the prime call of this letter from the outset and my leading technology enthusiasm since 1991--gained a near total worldwide triumph. By spreading the signal across a wide spectrum band and differentiating calls by codes rather than time slots as in TDMA, CDMA enables mobile phones and other communicators with unsurpassed acoustics in spectrally noisy environments. It also can handle bursty Internet data as efficiently as voice, for it already treats voice as statistical data. CDMA also uses far lower power than other mobile technologies, allowing longer battery life, and is automatically encrypted by its code. The Europeans declared that it violated the laws of physics.
For eight long years Qualcomm's most avid enemy and ardent detractor was Ericsson (ERICY), first as a leading producer of GSM systems (a TDMA variant predominant everywhere but North America) and then as champion of a CDMA version sans Qualcomm's cooperation or key Qualcomm patents. Last month the Swedish giant came to the table and ate a huge helping of crow, while swallowing as well the infrastructure division of Qualcomm. Ericsson agreed to create with Qualcomm a common, world-wide, third-generation wireless standard and technology mostly based on Qualcomm patents and compatible with existing Qualcomm equipment--a truly awesome capitulation.
Meanwhile Qualcomm loses nothing by selling its infrastructure division to Ericsson, since the division loses money, held only seven percent market share, and was launched in the first place chiefly to demonstrate CDMA?s feasibility.
Similarly manifesting the new power of CDMA was the announcement on March 21 of an international roaming agreement in Asia. The agreement joined Hong Kong's Hutchison, South Korea's Shinsegi, and Japan's DDI and Nippon (NTT) IDO Tsushin, all major players in their home markets. An historic advance, this deal allowed the first ever international roaming for Japanese customers, previously trapped in proprietary cellular standards, and made CDMA the lingua franca of Asian cellphones. Also portentous were China's announced acceptance of CDMA and the inauguration of CDMA systems in Australia.
As Europe completes its already ordained move out of GSM and into wideband CDMA, and the rest of the world follows, Qualcomm technology and its portfolio of some 400 CDMA patents will dominate a market already six and a half times the size of the CDMA market today with much more to come. (See Chart 1)
Qualcomm's share price has surged from the low forties in September and October to more than $140 as we go to press, as investors race to catch up with the prospects of a $4 billion company that had increased its revenues threefold and its earnings fivefold over the last three years while barely budging its stock.
Nevertheless, Qualcomm remains undervalued, laboring within an acrid fog of "fear, uncertainty and doubt" spread by the same European and American FUDcasters that now find themselves compelled to adopt its technology. As wireline voice moves to the Internet at nominal prices, CDMA mobile phones will capture the bulk of profitable new voice minutes over the next five years, and encroach heavily on the revenues of existing wireline carriers. At the same time, Qualcomm will become the Intel (INTC) of the personal communicators that will emerge as the most common PCs of the new era. (GTR Feb. '99, Oct. '98) Qualcomm's pdQ, with a Palm [Pilot] on board and a potential 2 megabit modem, will spearhead the move toward wireless Internet access. Qualcomm's deal with Microsoft (MSFT) to develop a new single chip modem using the CE operating system could enable a wide range of other portable products.
Meanwhile, Globalstar (GSTRF) is Qualcomm's CDMA satellite entry, beset by inefficient TDMA rivals such as Iridium (IRID). Long on our Telecosm list and finally ready to loft its entire network by July, GlobalStar will penetrate markets around the world otherwise unserved by wireless systems. GlobalStar is worthy of interest for investors looking for CDMA bargains in the face of Qualcomm's surging share price.
Companies using CDMA in a different context will also attract attention in coming months as the impact of Qualcomm's victory becomes apparent. With CDMA as an antidote to noise in any communications channel, Terayon (TERN) applies CDMA to the noisiest realm of all, the bottom 40 megahertz of a cable TV line. It worked for air communications, it will work for equally noisy cables. Terayon began with a system that was incompatible with the DOCSIS (data over cable service interface specs) and thus could make gains only overseas, in Israel, Europe, and Canada. But now that it is DOCSIS compliant, Terayon will gain share of cable modem business around the world. |
