SmartMoney: Street Smart - Face-Off
Dow Jones News Service ~ February 15, 2000 ~ 8:00 am EST
This story appears in the March issue of SmartMoney magazine. By Landon Thomas Jr.
Qualcomm (Nasdaq: QCOM) -- Shares were up 2,619 percent in 1999, making Qualcomm the best-performing stock in the Standard & Poor's 500-stock index. Can the wireless-phone darling continue its gravity-defying ascent?
"The stock will hit $250 by 2001." -- Walter Piecyk, PaineWebber
"Watch out for profit taking." -- David Heger, A.G. Edwards & Sons
YES: Qualcomm is the market leader in CDMA, the cutting- edge technology that lets wireless phones transmit and receive data as well as voice traffic. By 2010, CDMA will be used on most of the 3 billion mobile phones we think will then be in use, meaning a $20 billion royalty stream.
YES: The company also supplies chips to CDMA handset makers. With a dominant market share, Qualcomm's chip revenue will double, to $2 billion, by 2001.
YES: Qualcomm just sold off its money-draining handset business. As a pure play the royalty business is worth $200 a share; the chip business adds another $50.
NO: Qualcomm's CDMA patents start expiring in 2006, and competitors file new patents every day. Plus, the projection of 3 billion handsets in use by 2010 is too high. Two billion by 2005 is more realistic, with growth leveling out after that.
NO: Ericsson, Motorola and Nokia are all developing their own CDMA chips. So far they haven't succeeded, but it's doubtful all three will keep failing for the next decade.
NO: Sure, the phone disposal is a plus, but that helps only for the next few quarters. At a current price of 120 times earnings, the upside is limited. A more reasonable share price is $125.
(END) DOW JONES NEWS 02-15-00
08:00 AM
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