QCOM, in the vanguard of the digital and wireless revolution. This article appeared in the May 1997 magazine INDIVIDUAL INVESTOR, a favorite of mine.
There is more to the telecommunications revolution than AT&T, MCI, and the other dial-tone providers. In fact, equipment makers Promise more-spectacular earnings fireworks than the household names do. But besides Motorola, few telecomequipment makers get much notice. Investors would do well to consider the following five equipment manufacturers; they are in Of the digital and wireless revolution.
With a market cap of $3.7 billion, Qualcomm is no tiny upstart. But its market cap belies its obscurity beyond Wall Street. Qualcomm pioneered a digital wireless telephone-operating system, called code division multiple access, or CDMA, that will transform the cellular phone into a five-ounce computer like communications devicei Voices will come through with perfect clarity, and subscribers will be able to receive calls anywhere in the world, get stock quotes, and surf the Nat, to name but a few features.
. After several false starts, Qualcomm's CDMA technology is finally hitting the market, and it appears to have beaten out a rival technology developed by L. M. Ericsson, the Swedish telecopy munications giant. Nine of the 12 largest cellular carriers, serving
,, 72% of the American market, have selected CDMA to replace old
~fashioned analog cellular service. Besides getting royalty checks
Wfrom licensing agreements, Qualcomm is involved in all aspects of CDMA development, so it can collect revenue at each stage of the deployment of personal communications services. It also designs and makes the patented chips that run the phones. And 15 months ago Qualcomm and Sony teamed up to produce PCS phones. Qualcomm also manufactures the PCS infrastructure equipment itself (such as base stations that direct CDMA signals over the airwaves), and it has licensed 40 other companies to make it, too. Still, there's plenty of competition, including Motorola and Lucent. But Qualcomm's alliance with Sony has helped Qualcomm establish a pivotal position in the nascent segment, says Merrill Lynch analyst Michael Ching.
Qualcomm's ambitions to develop CDMAtechnology and equip: ment have attracted a legion of doubters. Bearish investors (or those looking to hedge their bets) have sold short 2.1 million shares of the company's stock. Some question Qualcomm's royalty projections, wondering whether the company will collect all the money it expects as the PCS roliout hits full steam. Others point to recent lawsuits by L. M. Ericsson and Motorola claiming patent infringement. But Qualcomm keeps chugging along, with Gregory Gelling of J. P. Morgan forecasting a tripling of revenue in 1997, to $2.3 billion.
(ending September 30} and $1.90 in fiscal 1998. On the basis of nearterm earnings, the shares are high-in nosebleed territory.(not any more it isn't....aside from jenna) But as the company's various businesses rapidly expand, earnings could soar, taking the stock along for the ride. |
