More From Bruce
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"My feeling is that [Qualcomm's technology] won't be
widely adopted," says Bruce Lusignan
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Qualcomm's Digital Technology Wins Praise But Marketing
Delays are Raising Questions
Heard On the Street Oct 1994
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
Remember the 1980s battle of the videotapes? Betamax
was thought to have awesome technology , but VHS scrambled to
market first-and won.
Now some investors envision a similar plight for
Qualcomm, a San Diego developer of a better way to cram a
lot of mobile-phone calls onto a small slice of the airwaves.
It's a good idea. But in technology, ideas alone won't cut it.
Speed in rolling out a product is vital. Qualcomm's whiz-bang
digital technology is losing ground, some experts believe, to
older digital methods already adopted by the likes of giant
McCaw Cellular Communications.
"It's too late for Qualcomm, at least in this round of
technological change," asserts Marc Cabi, a Cowen & Co. analyst
who rates the stock "neutral." "The momentum has moved away
from them."
Qualcomm disagrees. "[Our] technology is superior to [competing]
technologies in every respect," says Richard Grannis, Qualcomm's
treasurer. "The main challenge we have is making the equipment
available as quickly as possible. We are addressing that, and
will have the equipment ready next year." Qualcomm closed at 28
yesterday on Nasdaq, off 1/4.
Bears are circling. Qualcomm has been "promising for four
years," says Fred Wadler of Gilford Securities in Chicago.
Gilford has sold Qualcomm short, betting on a price drop;
he values it at $10, including $5 for the wireless business.
Some big investors bailed out earlier this year when
Bell Atlantic said it would use existing technology (rather
than Qualcomm's) in four big markets. That was a blow, although
Qualcomm still has some big players in its camp, including
AirTouch, Sprint, U S West, Ameritech, GTE and Nynex. There's
speculation Nynex may also back away; Nynex says only that
"it will be a market-driven decision." Bell Atlantic says it
won't take sides but "we'll provide the best available digital
technology to our customers."
"My feeling is that [Qualcomm's technology] won't be
widely adopted," says Bruce Lusignan, a professor at Stanford
University. "Its advantages as a big technological breakthrough
have been greatly overblown." Qualcomm counters: "It appears
Mr. Lusignan does not believe what's already been proven by us and
others."
Skeptics envision Qualcomm winning perhaps one-third
of the total cellular market. But bears say the stock reflects
higher hopes. (Mr. Grannis says only that Qualcomm expects a
"major" market share.)
A year ago Qualcomm's digital technology , called
Code Division Multiple Access, was widely deemed a big gain
over existing digital technology , called Time Division Multiple
Access. And many carriers were expected to adopt CDMA as the new
way to carry wireless phone calls. Cellular calls today rely on
analog technology , in which electrical pulses represent the
caller's voice. The problem is that cellular carriers are running
out of capacity and analog technology is susceptible to static.
Enter digital technology .It changes the pulses into ones and
zeros, or digits, allowing room for more calls.
McCaw has supported the older digital TDMA, though
Qualcomm's fans say CDMA is better because it allows even
more signals to travel at once. While there were lags in
developing TDMA, last spring it became clear the CDMA effort was
suffering from delays. Qualcomm too hit delays. Qualcomm
blames the industry standard-setting process and "the time
required for manufacturers to have equipment ready;" it says
its technology should be commercially available by mid-1995.
Others are dubious. .'If CDMA has half the delays that
TDMA had, the first commercial application is still at least
one year away," says Mr. Cabi.
Moreover, delays in CDMA may hurt Qualcomm's ability to
allure cellular carriers that will bid for radio spectrum for
Personal Communications Services in a December government auction.
Bidders "won't want to wait for a technology that's not ready,"
says Mr. Cabi. "They'll go with a technology from Europe that's
already proven in the marketplace." Qualcomm says a group
including US West,Time Warner, Sprint and Bell Atlantic
supports CDMA for the so-called PCS market but adds:
"There is no guarantee [they] will adopt it." He says The Street
often overlooks the company's potential abroad, such as in
Hong Kong, the Philippines, South Korea and Argentina.
Mr. Cabi's fiscal 1995 earnings estimate is way below
the 61-cent-a-share Street consensus. He looks for 50 cents to 55
cents; Qualcomm won't comment. "There has been a lot of positive
press generated by the company," he says. And Qualcomm still
has plenty of believers.
"Even if they don't get much of the U.S. market, there will
still be enough volume to make sense," says Joan Lappin, portfolio
manager and president of Gramercy Capital Management.
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