Subject: THE BULL MARKET WIRELESS INVESTOR, Wednesday, September 20,
2000
3. THE CHINA SYNDROME -- QUALCOMM
by Don Sherwood
The Financial Times quoted Wu Jichuan, minister of information industry,
as saying last week that China "must introduce and adopt narrowband CDMA
IS 95. This is a necessity. There have been many views expressed in the
media, but the more that is said, the more confused people become."
In addition, the article mentioned that Zhu Rongji, the Premier, had
personally ordered the rapid development of CDMA equipment by domestic
companies. As a result of the good news, Qualcomm (QCOM, $78) rose more
than 5% to $61, and has been on a tear ever since. Qualcomm has traded up
and down on news from China since June 5 when China Unicom said it would
not adopt CDMA. Since then , however, conflicting reports of CDMA
adoption have dazed and confused investors and politicians alike. But a
lot of this confusion appears to be fading away, and the stock is
benefiting from that fact.
COMMENT: It may be in China's best interest to express enthusiasm over
CDMA, especially with Congress talking about permanent trade relations
status. But the minister's announcement signals the end of the
positioning and negotiations phase, and moves the country into the
adoption and implementation stage.
CDMA offers many advantages over TDMA primarily because it is intended for
data and it allows more bandwidth (in a limited spectrum). The buying
opportunity is ending for Qualcomm. With an expected 36% long-term growth
rate (look for upward revisions here) and a PE of about 60, the
PE-to-Growth ratio (PEG) of 1.67 is pretty cheap when compared to most
high tech stocks.
If the China confusion gets resolved by the end of year, expect analysts
to upgrade and revise growth estimates. We see Qualcomm trading at a 2.5
to 3.0 PEG in 2001, which translates into a $125 to $150 share price. |
