Qualcomm's Chip Business Could Be Worth $40 Bln, Analysts Say
--From AOl.-- Cooters
San Diego, July 29 (Bloomberg) -- Qualcomm Inc.'s division that makes chips for mobile phones and cellular networks could have a market value of as much as $40 billion after the company spins it off, analysts said.
The makes it unlikely Qualcomm also will spin off its slower- growing truck tracking-systems business soon, several analysts said. It also could increase the chance that holdouts Nokia Oyj and Motorola Inc. will license Qualcomm's patents for newer phones and equipment.
Qualcomm executives said the chip unit's initial stock sale could raise as much as $1 billion. Separating the business will free it to make chips using standards that compete with the code division multiple access technology developed by Qualcomm and used by 65 million people. The parent company would continue to get royalties from CDMA patents and retain other businesses.
``It looks like they thought through this rather well,'' said Brian Modoff, an analyst at Deutsche Banc Alex. Brown, who rates Qualcomm a ``strong buy.''
The new company, temporarily named Spinco, could be an acquisition candidate and could purchase other companies itself, said Chase H&Q analyst Ed Snyder, who raised his rating on Qualcomm to a ``buy'' after the spinoff was disclosed.
Only a few companies could afford Spinco, such as Siemens AG, Infineon Technologies AG, Texas Instruments Inc. or Intel Corp., Snyder said. Siemens owns 71 percent of Infineon.
Shares of San Diego-based Qualcomm fell 3 1/8 to 62 7/16 yesterday. They climbed 7.5 percent on Tuesday following the spinoff announcement. The stock has dropped 65 percent this year, the seventh-worst performance in the Standard & Poor's 500 Index, after surging 27-fold to lead the index in 1999.
Market Values
Given market values and price-to-earnings ratios of communications-chip makers such as Texas Instruments and Broadcom Corp., Qualcomm's semiconductor business could have a value of $25 billion to $40 billion, some analysts said. Others compared the division to wireless-chip designers like RF Micro Devices Inc. and predicted a value of $10 billion to $20 billion.
In the latest quarter, Qualcomm got 47 percent of its $713.5 million in sales from the chip business. The unit's revenue rose to $965 million for the nine months that ended in June from $788 million in the year-earlier period. Net income for the nine months fell to $82.6 million this year from $195 million in 1999.
The Qualcomm that remains after the spinoff would have a market value of $40 billion to $60 billion, given its higher profit margins and lower costs, analysts said. That means the sum would be greater than the parts. Qualcomm now has a market value of $46.5 billion.
Analysts compared the parent company to others such as Rambus Inc. and MIPS Technologies Inc., which license their chip designs and collect royalties.
Nokia, Motorola
Nokia and Motorola, the world's top two makers of mobile phones, license CDMA patents for current equipment but haven't yet reached agreements to license the technology for new phones and gear that offer faster Internet access. Those devices will run on a standard called wideband CDMA, while Qualcomm has been pushing a rival new technology called cdma2000.
Qualcomm said in a regulatory filing it's already reached licensing agreements covering patents for W-CDMA with customers such as Samsung Electronics Co. Qualcomm executives have said that any maker of W-CDMA phones or equipment will have to license its patents and pay the same royalty rate as for CDMA phones.
``They just lost their bargaining power,'' Modoff said of Nokia and Motorola. ``I think it will speed up the process.''
On July 17, Qualcomm said authorities in Japan and Europe upheld three key CDMA patents.
Nokia spokeswoman Megan Matthews said the company isn't ready to say whether it will reach such an agreement with Qualcomm and that ``no one knows what intellectual property applies at this point.''
A Motorola spokeswoman declined to comment on Qualcomm's spinoff.
Omnitracs
Qualcomm's Omnitracs business, which makes equipment used by trucking companies to track their vehicles, has been the subject of spinoff speculation for several years, analysts said. It's the main part of Qualcomm's wireless-systems division, which had about the same revenue last quarter as the royalties business. The unit also makes Globalstar satellite phones.
Omnitracs' revenue in its third quarter ended June 25 was $167.2 million, down 12 percent from the year-earlier period.
Prudential Volpe Technology Group analyst Pete Peterson, who rates Qualcomm a ``strong buy,'' said Omnitracs ``was the cash cow that paid for the development of CDMA.'' The division is slower- growing and less profitable than the chip and royalty units, but a spinoff would distract executives now, analysts said.
``It would complicate things to try to spin out (Omnitracs) simultaneously or even within a close proximity,'' said First Union Securities analyst Mark Roberts, who rates Qualcomm a ``buy.'' ``It doesn't require a lot of the resources of the management to manage it, and it's fairly cash-flow positive.''
Jul/29/2000 12:05 ET |
