For all you Synder fans he isn't letting you down...here's some choice tidbits:
"The economics of building a CDMA network in China don't make any sense," said Chase H&Q analyst Edward Snyder. "It would be expensive to build out, people wouldn't be able to roam onto the greater Chinese network because it's all GSM, and the CDMA handsets cost significantly more."
"Even if China did start a full-scale deployment today, handsets -- which is where Qualcomm makes its money -- are one of the last things that would be added to the network," Snyder said. "Qualcomm wouldn't see any benefit from this until 2002, and probably at a lower royalty rate than the company gets in the U.S."
"Whenever the WTO issue came up, China picked something quintessentially American and held it up as a carrot," said Chase H&Q's Snyder. "They say positive things about CDMA, but it never happens."
Qualcomm up on pact
Source: CNNfn
Publication date: 2000-12-04
NEW YORK (CNNfn) - The stock of mobile phone technology company Qualcomm Inc. rose Monday on renewed hopes that its technology will be deployed on a larger scale in China.
Qualcomm has been trying for several years to convert China's 70 million mobile phone users to its Code Division Multiple Access (CDMA) digital wireless technology. To date, however, only about 200,000 people in that country have phones based on CDMA. The remainder use mobile phones based on a competing standard called Global System for Mobile Communications, or GSM.
San Diego, Calif.-based Qualcomm (QCOM: Research, Estimates) said Monday that it has signed a Memorandum of Understanding with China's Ministry of Information Industry (MII), which is responsible for formulating China's information industry policies and strategic development. The memorandum confirms MII's support of a previous agreement Qualcomm reached with China Unicom, that country's second-largest mobile phone company.
The agreement that Qualcomm reached with China Unicom last January calls for China Unicom to build a CDMA-based phone network in China. China Unicom will select the manufacturers of cell phone handsets and infrastructure equipment, and Qualcomm will license its CDMA technology to them.
However, Qualcomm's efforts to expand into China have been stop-and-go for years. Last June, for example, China Unicom postponed a decision to use CDMA, because it uses narrow-band transmission rates. Instead, the company decided to wait until a later version of CDMA that uses wide-band transmission rates, called WCDMA, becomes available. At the time, some analysts said China Unicom's plans to use Qualcomm technology in its infrastructure could be pushed back by as much as three years.
Qualcomm's stock gained $6.50, or 7.8 percent, to $89.50 in midafternoon trading in response to the memorandum with the Chinese government.
Some analysts skeptical
However, some securities analysts doubt that Qualcomm's CDMA technology will ever be deployed in China on a large scale. The biggest obstacle to using CDMA, they say, is the fact that China already has more than 70 million GSM users. Building a new CDMA system would be expensive and early adopters of CDMA in China wouldn't be able to roam onto that country's much larger GSM network.
"The economics of building a CDMA network in China don't make any sense," said Chase H&Q analyst Edward Snyder. "It would be expensive to build out, people wouldn't be able to roam onto the greater Chinese network because it's all GSM, and the CDMA handsets cost significantly more."
"Even if China did start a full-scale deployment today, handsets -- which is where Qualcomm makes its money -- are one of the last things that would be added to the network," Snyder said. "Qualcomm wouldn't see any benefit from this until 2002, and probably at a lower royalty rate than the company gets in the U.S."
China has used CDMA in its political battle to be admitted into the World Trade Organization. In the past, the U.S. has blocked China's effort to gain entry into the WTO. By endorsing CDMA, an American technology, China has tried to gain favor with U.S. trade negotiators.
The European Union said on Oct. 28 that it had overcome the last hurdles to an agreement with Beijing on terms for China's entry into the WTO. The U.S. Congress granted China permanent normal trade status with the U.S. last September, clearing a major obstacle to China's WTO entry. China is hoping to secure WTO membership by the end of the year.
"Whenever the WTO issue came up, China picked something quintessentially American and held it up as a carrot," said Chase H&Q's Snyder. "They say positive things about CDMA, but it never happens."
Qualcomm signs pact with TI
Separately, Qualcomm said it reached a cross-license agreement with semiconductor maker Texas Instruments Inc. (TXN: Research, Estimates). This agreement will give TI access to Qualcomm's CDMA patents, while Qualcomm will get access to TI's digital signal processor (DSP) and analog chip technology.
DSPs are chips that take large amounts of "real world" data, such as images or sounds, and process them real-time. Ordinary microprocessors would choke from a steady flow of analog images and sounds. DSPs use mathematical algorithms to translate these signals quickly. For instance, DSPs allow cell phone conversations to take place real-time without being interrupted with gaps of silence. Sales of DSP and analog processors comprise about 65 percent of TI's revenue, driven by the growth of cell phones and digital cameras.
Chase H&Q's Snyder said that the cross-license agreement was a smart move for both companies. It will enable the construction of mobile phones that can work on both the CDMA and GSM standards, he said.
"Qualcomm has been a CDMA-only shop. It's becoming clear that they are going to have to something in GSM," Snyder said. "Soon, no one will buy a CDMA-only phone. People will want CDMA-GSM dual standard phone."
Qualcomm said last July that it would spin-off its CDMA chip manufacturing operations, becoming purely an intellectual property licensing company. Qualcomm previously exited the wireless phone and infrastructure businesses. After the spin-off, Qualcomm will retain more than 1,000 patents and patent applications relating to CDMA and will have 800 engineers.
If TI starts to manufacture CDMA chips, that would create a new competitor for Qualcomm's spinoff.
"We are confident that our CDMA chips will compete very well against any other company's in terms of functionality, quality and on time delivery," said Qualcomm spokesperson Christine Trimble. "Qualcomm would get royalties from the end user on CDMA chips sold by TI. We think the cross-licensing agreement will be very beneficial for the adoption of CDMA."
In late afternoon trading, TI's stock was up $2.06 at $39.88
Publication date: 2000-12-04
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