Qualcomm's Prospects Suddenly Become Very Good
Group of Baby Bells' Plan to Use Company's Technology is
Key Endorsement 7 June 1995
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but Qualcomm has got themselves in a bind by making a lot of promises," says Bill Frezza, president of Wireless Computing Associates.
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By JULIE CHAO
Staff Reporter of THE WALL STREET JOURNAL
SAN DIEGO -Last week, wireless industry pundits like Ira
Brodsky were wondering openly if Qualcomm Inc. had blown its
chance to strike it rich with its promising but unproven
digital wireless technology.
This week, the only question Mr. Brodsky has is how rich
Qualcomm has struck it. "One way or another, they could
make a ton of money. .," says 'Mr. Brodsky, president of
Datacomm Research Co., Wilmette, Ill. "They could well be-
come a multibillion dollar company."
Things change with headspinning speed in the volatile and
still embryonic wireless business, but rarely are a company's
prospects given such a sudden boost as Qualcomm's have just
received. Yesterday, PCS PrimeCo announced that it
will use Qualcomm's so-called code division multiple access,
or CDMA, technology for digital wireless systems.
PrimeCo, comprised of communications heavyweights Nynex Corp.,
Bell Atlantic Corp., U S West Inc. and AirTouch
Communications, plans to build a nationwide personal
communications services, or PCS, network. In March, PrimeCo
won auctions for frequencies in 11 metropolitan areas that
require it to pay the federal government $1.1 billion.
Benefit of Endorsement
The endorsement from PrimeCo could give Qualcomm a leg up
over promoters of a rival technology , time division multiple
access, or TDMA, in what is likely to eventually become a
huge market, valued at tens of billions of dollars for providers
of services and technologies. For Qualcomm, the pact comes as
analysts and investors had become increasingly worried that, six
years after Qualcomm introduced CDMA, not a single commercial
network using the technology had been tested or deployed.
Meanwhile, networks using TDMA competing technologies are already
in commercial use in the U.S. and Europe.
Qualcomm jumped nearly 18% to $34.75, up $5.25 on the Nasdaq
stock market. The stock has zoomed 37.3% since last Thursday,
powered by the PrimeCo pact.
Major questions remain for Qualcomm, and it will be years
before it becomes clear whether CDMA wins out in the wireless
derby. Beyond that, there is much doubt about two of the
company's other ambitious strategies: a plan to manufacture
wireless equipment, and a plan to launch a global satellite
system, called GlobalStar.
Qualcomm, with 1994 revenue of $271.6 million, mainly from a
satellite tracking system for truck fleets, may not have the size
and resources to become a major wireless equipment manufacturer.
It can overcome that to some degree with ventures with larger
companies, such as and agreement with Japan's NEC Corp. earlier
this week.
GlobalStar Project.
The GlobalStar project presents trickier problems -the main
one being how Qualcomm and partner Loral Corp. can come up
with the $1.3 billion of capital still required for the
$2 billion project. Qualcomm says it will seek loans to
finance the remainder of the project, which it hopes to
launch in 1998. Moreover, giant Motorola Corp. has a
competing satellite system project in the works, known
as Iridium, and has lined up partners from all over the
world, including several foreign governments.
Qualcomm Chairman and Chief Executive Officer Irwin Jacobs
isn't particularly worried about GlobalStar. He says it
will be cheaper and will be built faster than competing
systems. And he's beaming about PrimeCo's boost to CDMA.
"This will set a leadership role for CDMA," says Dr. Jacobs,
an electrical engineer by training.
In the meantime, Qualcomm has one solid moneymaker already
-its OmniTRACs satellite communications system for monitoring
long-haul truck fleets. Qualcomm doesn't break out revenue
for OmniTRACs, but Eric Zimits, an analyst with Volpe,
Welty & Co. estimates it generated about 69% of the company's
$272 million of revenue last fiscal year. Mr. Zimits expects
Qualcomm's 1995 earnings to total $26.3 million, or 48 cents,
on revenue of $350.7 million. Last fiscal year, Qualcomm
earned $15.1 million, or 28 cents a share.
In CDMA's Hands
It is CDMA, however, that will determine whether Qualcomm
will become a wireless giant or not. CDMA essentially assigns
a digital signature to a telephone call, allowing system
operators to send many calls down a single channel, and to
reuse their assigned frequencies in every cell area. Analog
operators currently have to divide frequencies into several
channels, assign one call to each channel and avoid using the
same frequencies in adjoining cell areas because of interference
problems. Rival TDMA technology assigns time slots to
callers so several can use a single channel at one time, but
it doesn't allow as much frequency reuse as CDMA.
Qualcomm says -and PrimeCo apparently agrees -that wireless
networks built with CDMA have greater capacity, are
cheaper to implement and offer better voice quality than other
digital systems.
Think of a cocktail party metaphor: TDMA allows pairs in a room
to take turns speaking while CDMA allows all conversants to speak
at once but with each pair using a different language. A traditional
analog scheme shuts each pair into its own small room.
However, all that remains mainly theory. Trials have never been
Conducted with more than a few hundred users, usually company
employees. Nonetheless, the technology was intriguing enough early
on to attract the attention of the four partners in PrimeCo.
Indeed, AirTouch owns 2% of Qualcomm's stock.
Inflated Claims?
Although no one disputes Qualcomm's theoretical capacity advantage,
critics accuse the company of making inflated claims. When it
first introduced its CDMA system in 1989, it said it could
carry 40 times as many conversations as an analog system, a
significant edge over TDMA, which had only three times the
capacity of analog. Over the years, however, Qualcomm scaled
back its claim from 40 to 20 to 10. Even so, "I take that
figure with a grain of salt," says John Ledahl, principal
analyst for wireless programs at Dataquest.
Qualcomm also has been criticized for repeated scheduling
delays of systems using CDMA. For example, AirTouch's
commercial launch of a cellular system using CDMA in
Los Angeles was supposed to roll out earlier this year,
but AirTouch still is testing the system and now says it
won't be ready until late this summer .
"I think CDMA has a lot of promise, but Qualcomm has got
themselves in a bind by making a lot of promises," says
Bill Frezza, president of Wireless Computing Associates.
Qualcomm denies having scheduling delays. "We're not late,"
said Dr. Andrew Viterbi, chief technology officer and vice
chairman. "We are shipping to our licensees what they need.
The perception [that we're late] grows out of various analysts
making various comments." |
