>> Market Report -- Story Stocks (QCOM)
February 23, 2001 10:06:00 AM ET
Greg Jones
Briefing.com
Qualcomm (QCOM) 56 1/16 -10 7/8: Back on Tuesday, we discussed a research piece from Merrill Lynch strategist Steve Milunovich which questioned whether there were any applications that would drive demand for 3G.
If today's Qualcomm news in the Financial Times is any indication, Milunvich's thesis might be receiving some early support. The FT article does not specifically address the demand for 3G; instead, it discusses the fact that 3G handsets won't be available on the timetable that had previously been expected.
There were hints of this earlier this week at the Cannes 3G conference, as we noted on In Play earlier this week that some handset makers didn't unveil any 3G prototypes yet.
The FT article claimed that QCOM CEO Irwin Jacobs doesn't see 3G services being commercially viable until late 2004 or early 2005.
Higher bandwidth 3G services were supposed to drive the next wave of consumer spending on wireless, so the timetable is critical. This plays into the Milunovich thesis in two ways.
* First, the lack of an obvious application for 3G services may be partly responsible for the delay. In the current capital constrained environment, service providers are only going to invest in services that have some clear path to profitability. It may be that service providers don't see such a path for 3G, and that this reluctance is being conveyed to the 3G equipment vendors who are in turn slowing their pace of investment.
* Second, the longer it takes for 3G to find its killer app, the less likely it is that 3G will ever take hold. As Milunovich noted, wireless LAN services will address many of the needs of portable users of wireless services. If wireless LAN services are 2-3 years into development before 3G even sees a significant roll-out, it may be difficult for 3G to ever make significant inroads. It is even possible that 3G as a step in the evolution of wireless technology can be skipped. We could go from wireless LAN directly to 2-way broadband satellite. In short, the further the 3G revolution is pushed out, the less likely it is to be a revolution at all.
None of this is a certainty, and it could even be argued the Qualcomm's Jacobs was simply engaged in a marketing ploy to promote his favored CDMA-2000 at the expense of W-CDMA. But when you're dealing with a highly valued stock such as QCOM (45 P/E on FY01 earnings), delivering on future promise is critical, and 3G is the future promise for QCOM right now. <<
- Eric - |
