Licensing deals lift Qualcomm stock
after China snub sent shares reeling
By Bruce Gain
Electronic Buyers' News
(06/09/00, 01:48:18 PM EST)
Qualcomm Inc.'s long-term outlook is solid despite the yo-yo effect
that recent developments in China have had on its share prices,
according to analysts and company executives.
China Unicom has decided for now not to adopt Qualcomm's
third-generation 1x CDMA wireless standard, which sent the
company's stock prices plunging early last week.
But Qualcomm's share price rebounded later in the week following
the company's announcement of R&D and licensing agreements
with eight Chinese companies.
The most significant agreement was with Eastcom, China's largest
state-owned mobile-telecom manufacturer. The company plans to
develop wireless devices based on Qualcomm's CDMA and
headset technologies.
?Clearly, there's uncertainty with China, which needs to get cleared
up one way or the other, and there are definitely a few clouds there
that have hit the stock,? said Don Schrock, president of
Qualcomm's CDMA technology division in San Diego. ?But in
terms of our basic, fundamental businesses and execution-wise,
we're right on tar-get, although China is clearly important.?
Qualcomm's value lies in its intellectual-property treasure chest,
said Walter Piecyk, an analyst at PaineWebber Inc., New York.
?Royalties are Qualcomm's best business, and account for 80% of
the company's value,? Piecyk said. ?While Qualcomm has a good
market share in chips, the real promise of the company lies in its
royalty business.?
Piecyk emphasized the long-term prospects of Qualcomm's IP
offerings.
?In the short term, chips, as well as its agreements in China, are
important, but its chip business represents only 20% of the
company's value,? Piecyk said. ?The royalties will not really kick in
until 2003, after operators begin to adopt the third-generation
wireless CDMA technology.?
Qualcomm's position in China in the short term largely hinges on
whether telecom companies there adopt its third-generation 1x
CDMA technology for handsets, or initially adopt the competing
European standard. The latter seemed probable last week after
China Unicom announced it would not adopt the CDMA standard
for now, then signed a deal with Ericsson for another wireless
technology.
But that was before Qualcomm announced the R&D and licensing
agreements with an option to secure a commercial license to
develop handset and base-station prototypes based on
Qualcomm's 1x standard.
The pact with Eastcom brings it closer to establishing a national
handset network based on a CDMA standard.
Qualcomm also signed agreements with Datang Telecom, Capital
Group, Huawei Technology Co., Shanghai Lawton Technology
Group, Zhongxing Telecom Co., HiSense Group, and Langchao
Group.
?China's definitely not dead,? Schrock said. ?It's still highly
probable that China will go with the third-generation 1x standard in
the near term. It's up in the air, but definitely not dead.?
But the overall soundness of Qualcomm's business, consisting
primarily of its CDMA chip and software products and growing
royalty revenue derived from its IP, is largely based on the
company's push to focus on its CDMA-based chip and software
portfolio, Schrock said.
This effort was underscored last year when the company exited
the cellular-phone-equipment market by selling its loss-ridden
infrastructure-equipment operations to Swedish handset giant
Ericsson Inc.
Late last year, Qualcomm exited the CDMA-based handset
business by selling those operations to Japan's Kyocera Corp.
?Our strategy has been to provide more software and hardware
content for handsets, and we're seeing our content increasing,?
Schrock said.
Qualcomm recently entered the power-amplifier market as part of a
major deal with RF Micro Devices Inc. (RFMD) and separately
rolled out a CDMA chipset. Under the terms of the agreement,
Qualcomm and RFMD will co-develop power amps for CDMA
handsets, which will be marketed exclusively by Qualcomm.
Last year, the company penetrated the RF-chip market, and in
January expanded its global-positioning-system efforts by
acquiring GPS-software maker SnapTrack Inc. for $1 billion. More
recently, Qualcomm jumped into the Bluetooth arena in a
co-development deal with Ericsson.
Qualcomm further boosted its RF expertise last March by paying
$20 million for the Technology Development Group of handset
manufacturer Tellit Communications Ltd., Farnborough, England.
In September, the company plans to introduce a chipset that is
designed to integrate position and location func-tions and
Bluetooth capabilities on a single baseband chip, according to
Schrock.
Worldwide ship- ments of IS-95 CDMA handsets are expected to
jump from 48 million units in 1999 to more than 265 million in
2003, according to Morgan Stanley Dean Witter & Co. Inc., New
York.
Qualcomm supplies more than 85% of the CDMA chips shipped to
the market.
LSI Logic Corp., PrairieComm Inc., and DSP Communications Inc.
(which was recently acquired by Intel) currently license CDMA
technology from Qualcomm, which is fabless.
Both Samsung Electronics Co. Ltd. and Hitachi Semiconductor
(America) Inc. recently announced their intentions to develop
CDMA chips. |
