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Technology Stocks : Qualcomm(QCOM) -> SpinCo

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To: cfoe who wrote (18)	7/27/2000 2:34:27 PM
From: Webster	of 172

cfoe, It appears that qcom is in a very strong negotiating position. It also appears that for those who do not have a 3g license (as well as those wanting to negotiate w-cdma ipr) the cost of business may have just gone up. Dr. J stated again in his radio interview, the royalty rate will be the same for all brands of cdma (lets use 5%). So even if qcom provides spinco with limited essential IPR for horse trading in w-cdma negotiations, the royalty rate qcom will charge is 5% - thus using a single essential patent from qcom costs 5%. There is no reduction of royalties. For those claiming w-cdma patents they have to pay 5% to qcom and may have to negotiate with spinco who will also have essential patents - However qcom will still get its 5% from all licensees and spinco will still be a 35% to 40% pre-tax margin operating company with major market share in all flavors of cdma. Some thoughts regarding Dr. J's radio interview 1. qcom continues to create new businesses - I would anticipate that throughout the years, qcom will continue to spin out to its shareholders those companies who are ready to produce significant shareholder value as a stand alone entity (similar to lwin, spinco). The future could include OmniTRACS, Multimedia and others. 2. operators are asking phone manufacturers to have 1x chips in their handsets before the infrastructure (CSM chips) is complete because 1xmc is backward compatible. So it is in the operators best interests to mandate 1xmc chips immediately, as the handsets will work prior to and after 1xmc CSM chips are installed. 3. The installation of HDR - (around the 14 min point in the radio interview). trials continue to go "very well." shortly after the operators install 1xmc they will have an easy upgrade path as hdr uses the same rf equipment as 1xmc. Also interesting - the upgrade path uses routers (hmmm - cisco) to access the internet. - Dr. J. notes HDR is the "most powerful technology of 3G and beyond." - "HDR by far the best for dater" 4. Regarding w-cdma. Dr J. politely takes issue with the interviews claims of "inevitbility" regarding w-cdma and says promoters stretch the language regarding w-cdma being an evolution path for GSM operators. My take to the GSM operators regarding w-cdma - hey it won't work as well and it will take a little longer for you to get, but at least you'll pay more. 5. Dr. J's claims that a w-cdma is too limited to use and that other modes such as gsm needs to be included in asic development. Dr. J. also noted in a previous radio conversation that future roaming would be done via the internet. 6. Re China, CDMA License is not With the operating company of China Unicom but with its parent. China has the ability to manufacture cdma handsets (ixmc) and could start immediately. These can be used for domestic or export. (another asian manufactuer(s) for NOK to compete with. 7. Japan is rapidly building cdma. Currently implementing is95-b - 64 kbs and will move to 1xmc in existing and new bands. 8. regarding cdma volume - Dr. J confirms that penetration of cdma will be greater than 100%. cdma will be for machines and handsets, thus an individual will have appliances in addition to handsets. the next billion in handset - cdma will be at the center. 9. After the spin off proforma rev and pretax income for 9 months is QCOM - $1.16 Billion $ 663 pretax earnings - Spinco - $965 million - $361 pretax earnings. An interesting take from Prudential's Peterson (7/26), excerpts as to the value of spinco and qcom. Which one will ultimately (within 2-3 years)have the higher valuation? FWIW. Thanks Web.

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