re: Qualcomm and Spinco:
thanks for the good post. My comments:
1. I haven't heard what QCOM intends to do with the money from the IPO. Using it to buy back QCOM shares would be best. Any other use would dilute the shares I hold today.
2. This spinoff is like the Lucent spinoff, and makes sense for the same reasons. Gorillas pick the sweet spot in the value chain. They don't try to control the entire value chain, they are not vertically integrated conglomerates. The "little boxmaker" position in the value chain (Nokia, etc.) is not the sweet spot. I see Nokia evolving into a Compaq, or Dell at best. The chipset producer might be. I can't think of another industry where a pure R&D company (by itself) is a dominant position in the value chain. This (QCOM=R&D arm for wireless industry) is something new.
3. The most important relationship between Qualcomm and Spinco is that they will still have the same guy at the top. Jacobs may have to distance himself further. Like maybe just being on the board of Spinco.
4. you said, "Qualcomm right now anticipates having to enter into cross-licensing agreements with the likes of Nokia. The holders of important GSM-based patents would trade some of them in return for CDMA-based patents from Qualcomm. That lowers the net revenue Qualcomm can get for its CDMA-based patents needed for W-CDMA, and you might realize that fact has been a sore spot for many investors. This spin-off eliminates that problem." I've heard management say the same thing. I think there may be an element of wishful thinking in that. The patents and IP, and the ability to make more in the future, are going to be split between the two companies. QCOM will end up with less than what they have now. If the amount of IP QCOM has today is X, then the amount they have after the spinoff is X-Y, Y being whatever they give to Spinco. X-Y has to be less than X. If they give anything substantial to Spinco, they have to be in a weaker position to negotiate royalties. This may be a face-saving maneuver, but it may be QCOM's face that needs saving.
5. as you say, if CDMA2000 becomes the global standard, then Spinco is a gorilla. Those boardroom discussions in Europe (and East Asia) are going to conclude with, "So we have to make sure that doesn't happen, or else Spinco becomes another Intel, and we become an Apple or a Compaq."
6. Selling 10% of Spinco to Intel or TI would be an excellent strategic move. One thing that is not fully appreciated, is that marketing muscle is as important as having the best technology. QCOM is losing the political/marketing turf war of WCDMA vs. CDMA2000. That war will continue, on this and other fronts. When Spinco sits down to negotiate with Nokia, having an Intel on your side levels the playing field. Also, since Spinco is fabless, joining a world-class manufacturer would be a good fit.
7. The market basically yawned, in response to the news. QCOM bumped up against the top end of its short-term trading range (60-70), and couldn't break out. I sold (at 68 1/2) the shares I had earlier bought at 70. Still holding what I bought at 59 and 65 (10% of my money each lot), and have limit orders (10% more each buy) at 60 and 55. Not planning on selling any more, for now. |
