· toi de moi,
AWSJ: Qualcomm Plans To Try Different China Strategy
By staff reporters Matt Forney in Beijing and Pui-Wing Tam in San Francisco.
After losing a lucrative deal to supply off-the-shelf cellular-phone
technology to China, Qualcomm Corp. is mapping out a new strategy to sell
next-generation products in the world's fastest-growing mobile-phone market.
That strategy involves greater emphasis on technology transfer and local
production. Observers cite lack of progress in those areas as a factor behind
Qualcomm's most recent problems in the country.
China announced Sunday that it won't buy "narrow-band" code division multiple
access, or CDMA, technology from Qualcomm. The decision means China's current
mobile-phone network, which had 30 million subscribers at the end of last year
and is growing by a million or more subscribers a month, will use only GSM
technology popular in Europe. That is a setback for U.S. trade policy, which had
made a priority of pushing CDMA in China, and for the San Diego-based company in
its battle with European firms for telecommunications supremacy.
"This takes Qualcomm out of the game for the next few years, and that's a long
time to be out of the game," says Mark Cabi, a telecommunications analyst at
Credit Suisse First Boston. "The perception for the company's growth is now
gone," he says.
As news of China's plans leaked out over the past few months, the company's
stock has tumbled, falling by two-thirds since January. Tuesday morning, shares
rose 2%, or $1.3125, to $68.5625. Says Christopher McHugh, a senior portfolio
manager at Turner Investment Partners, which has sold its stake in Qualcomm, the
China announcement "is a big psychological negative."
Now, the company is hoping to stanch these losses by pushing local production
of CDMA equipment - a key demand of Chinese bureaucrats eager to develop their
country's mobile-phone industry. "We're working closely with Chinese
manufacturers to transfer CDMA technology to them," says Steve Altman, a company
vice president, adding that "we have approximately 70 to 75 licensees."
Qualcomm's failure to convince China that it would build enough products
locally helped doom its plans to build narrow-band CDMA, the kind of technology
currently in use in the U.S. and a handful of other countries. As of now, no
Chinese companies can build reliable handsets, base stations and other equipment
using CDMA.
If Qualcomm had started earlier building closer ties to Chinese companies able
to make CDMA equipment, the government might not have nixed its February
agreement, say people familiar with Qualcomm's negotiations. "Unicom (China
United Telecommunications Corp.) did not have in place a localization plan so
that in two or three years time it would no longer have to import billions of
dollars of CDMA equipment," says a Western diplomat.
Unicom, China's state-owned second phone company, said Sunday it won't build a
current-generation mobile-phone network using CDMA, but will use Qualcomm's
technology in the future. If Unicom follows through, Qualcomm still stands to
make money - the company hopes to have its next-generation product ready by the
end of the year, but it is unlikely that Unicom will begin using it so quickly.
Qualcomm was anxious for Unicom to deploy its current narrow-band product
because countries are likely to upgrade to new technologies more slowly than
expected. "Qualcomm thinks narrow-band will have a longer life span in many
parts of the world, and it can't be pleased that narrow-band has been frozen out
of China," says Peter Cowhey, a professor at the University of California at San
Diego and a former adviser to Qualcomm's chairman, Irwin Jacobs.
Eventually, though, China will almost certainly use some form of CDMA
technology. If China uses cdma2000, Qualcomm's next-generation standard, the
company stands to gain the most. If China uses another version of the
technology, called WCDMA, Qualcomm might receive less in royalties because
European companies also claim to hold patents, although the legal battles
haven't yet begun.
In a sign that the government is considering using Qualcomm's products in the
future, it has asked Chinese telecommunications equipment makers to provide an
update on their progress in building advanced mobile-phone networks, including
Qualcomm's cdma2000.
(END) DOW JONES NEWS 06-06-00
04:37 PM- - 04 37 PM EDT 06-06-00
Jun-06-2000 20:37 GMT
Symbols:
US;QCOM
Source WSJ Wall Street Journal
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