Can NOVL show a performance like QCOM with their NDS technology?? One never knows, but that's been my belief. I can wait another year if thats what it takes for the new Zen technologies to move into the global network market. Getting royalties/fees would be a nice pricing strategy. Would appreciate others comments. QuadK
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A focused Qualcomm
rocks Wall Street
By Corey Grice
Staff Writer, CNET News.com
November 12, 1999, 12:40 p.m. PT
Investors fixated on the quick gains that can be
racked up on Internet stocks missed one of the
year's more spectacular runs.
Shares in San Diego, California-based cellular phone
company Qualcomm--not e-Qualcomm, i-Qualcomm or
Qualcomm.com--have surged more than 1,200 percent
in the past year and show no signs of slowing down. In
midday trading today the shares were up 35 points to
about 380, and one analyst is saying they could reach
450 in the next year.
Oddly enough, the stock surge coincides with the
company's decision to shrink by shedding units that
delivered revenues but were in markets where margins
are getting squeezed. And, yes, there is a link to the
Internet.
"The story with Qualcomm continues to get better every
day," said David Powers, an analyst with financial
services company Edward Jones. "The two fastest
growing industries are the Internet and wireless, and
Qualcomm is in the middle of this wireless Internet
tornado."
Although Qualcomm will
lose a significant portion of
its revenue by selling some
divisions, investors are
salivating at the company's
high-speed wireless
technology and how it
dovetails with the explosion
in handheld Internet-capable
devices.
"Royalties are almost pure
profit and the semiconductor
business has high profit
margins," Powers said. "When you combine the two,
which is mostly what you'll have when they sell the
handset business, you have a highly profitable
organization."
Qualcomm sold a unit that makes cellular equipment to
competitor Ericsson earlier this year and it plans to sell
its handset unit next month. Qualcomm cited shrinking
profits in both divisions as reasons for the sales.
"Getting out of the old line manufacturing business is
the way to go," said Mark Cavallone, an analyst with
Standard and Poor's. "Certainly the stock movement
this year shows the strong market acceptance of that
move."
The company now says it can focus on making chips for
cellular phones, as well as continue to develop new
cellular technologies, such as High Data Rate (HDR).
HDR technology can transmit data at rates of 2.4
megabits per second, which is several times faster than
current wireless technology and on par with high-speed
connections such as digital subscriber line (DSL) and
cable modems. Qualcomm expects the technology to to
be used in devices such as cellular phones, handheld
computers, and wireless modems for laptops.
"What they are doing is getting to a purely
intellectual-property based company," said Philip
Redman, program manager of the Yankee Group's
wireless practice. "That means high margins and low
costs."
In the fourth quarter, Qualcomm posted net income of
$136 million, or 73 cents a share, on sales of $1.1
billion. A year ago the company reported fourth quarter
profits of $40 million, or 27 cents per share, on revenue
of $926 million.
During the 1999 fiscal year the company collected about
29 percent of its revenue from its chipset and software
business and about 11 percent from fees and royalties
generated by its 75 licensees. The company sold most
of its infrastructure business in May, which accounted
for about 24 percent of revenue, and plans to sell its
handset manufacturing business in December, which
accounted for about 37 percent of annual sales.
"I've got to believe
handsets are
going to become
a commodity
item, if they aren't
already," said
Alan Mosher, a
wireless industry
analyst at Probe
Research.
"[Qualcomm has]
really become
focused on
providing the path
for carriers to
start doing data at higher rates."
Qualcomm developed its wireless technology,
called code division multiple access (CDMA) ,
ten years ago. Back then, the company focused
on all aspects of the cellular business--from
chips to handsets--to boost acceptance of the
technology. Now that the protocol has caught on
worldwide, Qualcomm can shed its hardware
concerns to focus on the wireless technology.
"We originally entered those businesses to
ensure the adoption of CDMA worldwide, to make
sure there were the devices to support it," said
Qualcomm spokeswoman Christine Trimble. "But
if you look at the companies that are successful
in the infrastructure [and handset] business, they
are very large. It was difficult to compete at that
level."
The company announced in September that
demand for CDMA-based phones grew 171
percent during a 12-month span, in large part
based on its ability to deliver wireless data
services. Almost 35 million subscribers use
CDMA phones worldwide.
Clearly, buying Qualcomm a year ago when the
stock was in the 20s was like having a license to
print money. Now that it is near 400, investors
may be wondering if there is much upside left.
"Long term, the future is very bright for
Qualcomm but the recent run-up is not
sustainable. They're getting very close to the
point where the stock price is ahead of the
underlying fundamentals," said Powers of Edward
Jones, who has a "buy" rating on the stock.
"I would expect some near term pullback, given
how well it has done in the last few weeks,"
echoed Cavallone of Standard and Poor's.
"If investors expect [the same performance] next
year, I think they are sadly mistaken," Cavallone
added. "But I think the company does have the
potential to move up more. There are things it
could do that would excite investors even more, if
that's possible."
News.com's Scott Ard and John Borland
contributed to this report.
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