SpinCO S-1 review Part1 - I went through the S1 today,
which is posted at Edgar and can be linked to via QCOM's
home page. Here are some excerpts(Very long post warning!).
I haven't seen a review yet, so apologies if already posted.
* I tried a couple different formats and chose the best
one. It still wasn't as clean as I would like. Sorry! *
Cooters
We derive a significant portion of our revenue from a limited number of
customers. Sales to Samsung Electronics Ltd. comprised 33%, 31% and 23% of our
combined revenues in fiscal 1997, 1998 and 1999, respectively. Sales to QUALCOMM
Personal Electronics, a 51% owned subsidiary of QUALCOMM, comprised 31%, 28% and
18% of our combined revenues in fiscal 1997, 1998 and 1999, respectively. We
expect revenue from sales to QUALCOMM to continue to decline because of
QUALCOMM's sale of its terrestrial wireless consumer products business to
Kyocera Wireless in February 2000. Sales to LG Information and
Communications, Ltd. comprised 19%, 14% and 15% of our combined revenues in
fiscal 1997, 1998 and 1999, respectively. Sales to Hyundai Electronics
Industries Co., Ltd. comprised 10% of our combined revenues in fiscal 1999.
Accordingly, unless and until we diversify and expand our customer base, our
future success will significantly depend upon the timing and size of future
purchase orders, if any, from these customers and, in particular:
- the product requirements of these customers;
- the financial and operational success of these customers; and
- the success of these customers' products that incorporate our products.
The loss of any one of these customers or the delay, even if only temporary,
or cancellation of significant orders from any of these customers would harm our
results of operations.
For example, during fiscal 1999,
IBM was the primary manufacturer of our MSM family of integrated circuits.
In addition, one or more of our manufacturers may obtain licenses from
QUALCOMM to manufacture CDMA integrated circuits that compete with our products.
In this event, the manufacturer could elect to allocate scarce components and
manufacturing capacity to its own products and reduce deliveries to us. In the
event of a loss of or our decision to change a key third party manufacturer,
qualifying a new manufacturer and commencing volume production or testing could involve delay and expense, resulting in lost revenues, reduced operating margins
and possible loss of customers.
WE DEPEND ON PASS-THROUGH LICENSES FROM THIRD PARTY MANUFACTURERS TO PROVIDE US
WITH PROTECTION AGAINST CLAIMS THAT WE VIOLATE THIRD PARTY MANUFACTURING PATENTS
AND OTHER INTELLECTUAL PROPERTY RIGHTS. THE LOSS OF ONE OR MORE OF OUR
MANUFACTURERS COULD EXPOSE US TO THIS LIABILITY.
Many of our third party manufacturers have cross-licenses with owners of
patents and other intellectual property rights that may be necessary for the
manufacture of our products. By using third party manufacturers to manufacture,
assemble and test our integrated circuits, we may receive the benefit of
cross-licenses extended to products manufactured, assembled or tested by the
manufacturers. If we are forced to or later decide to use different third party
manufacturers, we may lose the benefit of any cross-licenses extended to our
products and therefore may be exposed to additional liability from the assertion
of patents or other intellectual property rights against us.
OUR INTELLECTUAL PROPERTY ARRANGEMENT WITH QUALCOMM MAY HARM OUR COMPETITIVE
POSITION.
Under the terms of our agreements with QUALCOMM, QUALCOMM may require us to
assign to it selected patents, patent applications and invention disclosures
that we develop or acquire and will receive a license to our other patents,
patent applications and invention disclosures. QUALCOMM will have the right to
license to third parties the patents, patent applications and invention
disclosures we assign to it and the right to sublicense to third parties its
license rights relating to those of our patents that are essential to wireless
standards. QUALCOMM's access to our intellectual property may limit the
competitive advantage we can derive from our development programs, and may
interfere with our ability to enter into strategic transactions with third
parties. If we are unable to enter into these types of transactions, our access
to new technologies, products or markets may be limited.
CLAIMS BY THIRD PARTIES THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY OR THAT
PATENTS ON WHICH WE RELY ARE INVALID COULD ADVERSELY AFFECT OUR BUSINESS.
From time to time, companies may assert patent, copyright and other
intellectual proprietary rights to technologies used in our products or in the
industry generally. These claims may result in our involvement in litigation. We
may not prevail in such litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If any of our
products were found to infringe on protected technology, we could be required to
redesign such products, license such technology, and/or pay damages or other
compensation to the infringed party. If we are unable to license protected
technology used in our products, we could be prohibited from making and selling
such products.
QUALCOMM has various cross-licenses from parties claiming rights to wireless
technologies. QUALCOMM also may have the benefit of covenants from third parties
not to assert their patents against QUALCOMM. Following the distribution of
Spinco's common stock by QUALCOMM, we will no longer have the benefit of those
cross-license and covenant not to assert arrangements. Accordingly, we may be
subject to claims that we would not have been subject to as part of QUALCOMM. In
addition, as the number of competitors in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims, with
or without merit, could be time consuming, result in costly litigation, divert
the efforts of our technical and management personnel or cause product shipment
delays, any of which could have a material adverse effect upon our operating
results.
A number of third parties have claimed to own patents essential to various
proposed 3G CDMA standards. If we and other product manufacturers are required
to obtain additional licenses and/or pay royalties to one or more patent
holders, this could have a material adverse effect on the commercial
implementation of our CDMA products and our product margins and profitability.
Prior to QUALCOMM's distribution of our common stock to its stockholders, we
may be subject to litigation that we would not face as a stand-alone company
unrelated to QUALCOMM.
AFTER OUR SEPARATION FROM QUALCOMM, WE MAY EXPERIENCE INCREASED COSTS RESULTING
FROM DECREASED PURCHASING POWER OR LESS FAVORABLE LICENSE TERMS, EITHER OF WHICH
COULD HARM OUR BUSINESS.
Prior to our separation from QUALCOMM, we were able to take advantage of
QUALCOMM's size and purchasing power in procuring goods, services and
technology. As a separate, stand-alone entity, we may be unable to obtain goods,
services and technology at prices and on terms as favorable as those we obtained
prior to the separation. In addition, our patent cross-license agreement with
QUALCOMM does not permit us to sublicense to third parties that portion of
QUALCOMM's intellectual property portfolio licensed to us. In addition, QUALCOMM
will have the right to acquire a portion of our patents, patent applications and
invention disclosures and restrict our ability to sublicense that intellectual
property to others. As a result, in negotiating patent cross-license agreements
with third parties, we may be unable to obtain agreements on terms as favorable
as we may have been able to obtain if we retained all rights to all of our
inventions, could sublicense all of the intellectual property we develop or
acquire and the QUALCOMM intellectual property that is licensed to us, or had
access to QUALCOMM's entire intellectual property portfolio.
AFTER OUR SEPARATION FROM QUALCOMM, WE WILL NO LONGER BE ABLE TO PASS THROUGH OR
SUBLICENSE SELECTED INTELLECTUAL PROPERTY RIGHTS OF QUALCOMM'S LICENSEES, WHICH
MAY HARM OUR ABILITY TO MARKET OUR PRODUCTS AND SUBJECT US TO LIABILITY.
Prior to our separation from QUALCOMM, we were generally able to pass
through to our customers selected intellectual property rights of some of
QUALCOMM's licensees. Following our separation from QUALCOMM, we will no longer
be able to pass on those benefits to our customers, which may harm our ability
to market our products and may subject us to claims for indemnification by our
customers if they are sued by the holders of the intellectual property licensed
to QUALCOMM.
In addition, although QUALCOMM will agree not to compete with us in the CDMA
semiconductor industry for a period of three years, QUALCOMM may decide to
compete with us in the future, creating an additional conflict of interest.
QUALCOMM is not prohibited from selling a controlling interest in us to a third
party. However, QUALCOMM has agreed not to offer, sell or otherwise transfer any
shares of our common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the underwriters.
- MORE EFFECTIVE ACCESS TO THIRD PARTY TECHNOLOGY. In order to expand our
business, we will need to continue to implement and integrate additional
features and functionality in our components. To do so, we must be able to
license or otherwise gain access to third party technology and
intellectual property on reasonable terms and conditions not materially
less favorable than those obtained by our competitors. QUALCOMM will
assign to us a portion of its patents and patent applications that are
essential and/or useful to implement existing and proposed CDMA standards.
A significant number of these patents have either not been licensed to
third parties or have been licensed only for specific CDMA standards such
as cdmaOne. By separating our business from QUALCOMM's other operations,
we intend to use our CDMA patent rights to gain reasonable access to GSM
and other third party technology without compromising QUALCOMM's CDMA
licensing business. We will also be better positioned to extend into new
areas of communications technology through acquisition of complementary
businesses and internal development.
SEPARATION FROM QUALCOMM
We are currently a wholly-owned subsidiary of QUALCOMM. Prior to the
completion of this offering, QUALCOMM will transfer to us its integrated
circuits and system software solutions business, currently known as QUALCOMM's
CDMA Technologies segment; its High Data Rate, or 1xEV, product and technology
group; its QUALCOMM Israel subsidiary; a portion of its position location
business acquired with the SnapTrack acquisition; and its European radio
frequency design business for handsets, purchased in February 2000 from Tellit
Communications Limited. After the completion of this offering, QUALCOMM will own
approximately % of our outstanding common stock. QUALCOMM currently
anticipates that it will complete its divestiture of us by August 2001 by
distributing all of the shares of our common stock it owns to the holders of
QUALCOMM common stock. However, QUALCOMM is not required to complete the
distribution, and the distribution may not occur by the contemplated time, or at
all. Because QUALCOMM will own 90% or more of our outstanding capital stock, it
may merge us into QUALCOMM at any time. Following the distribution, QUALCOMM and
we will be operated as independent companies. However, QUALCOMM and we will
continue to have a relationship as a result of the various agreements being
entered into in connection with the distribution. |
