OPINION
Late last night we received February's subscriber numbers from South Korea.
The two most important items to come out of this report were that gross
additions, the best indicator of overall mobile phone sales, increased 51%
month-over-month and SK Telecom's market share decreased.
Although net subscribers declined for the third straight month (65K in
February vs net declines of 71K in January and 79K in December), we believe
the strong increase in gross subscriber additions (734K in February vs 485K
in January) indicates solid mobile phone sales in South Korea over the past
month.
We believe the net subscriber contractions South Korea has witnessed over the
past few months is a result of SK Telecom's efforts to reduce its market
share to the government mandated 50% level by the end of June 2001 and KT
Freetel's efforts to clear its sub base of non-paying customers. During
February SK Telecom was able to reduce its market share to 53.7% from 54.1%
at the end of January. SK Telecom is required by the Korean government to
reduce its market share to 50% by June of 2001 as part of the government's
agreement to its merger. As a result, SK Telecom, which is the largest CDMA
operator in Korea and runs the only live 1XRTT network, cannot aggressively
market its CDMA or 1XRTT services for fear of not reducing its market share
in time. Once SK Telecom's market share reaches 50% it satisfies its merger
conditions and is no longer required to maintain a specific market share
level. Therefore, the sooner SK reaches the 50% market share threshold, the
sooner it can aggressively market its CDMA and 1XRTT services and the sooner
we expect to see a benefit to Qualcomm in terms of ASIC sales and royalty
revenues from handset sales.
We expect to see a strong ramp in 1XRTT ASIC sales and mobile phone
royalties in the second half of 2001 as SK Telecom should be able to
effectively and aggressively market these services as well as the scheduled
network launches from KT Freetel, LG Communications, KDDI, Sprint PCS and
Verizon.
Although we remain cautious with respect to the wireless equipment industry
due to the impact of an UMTS delay and overly aggressive handset forecasts by
the larger suppliers, we believe Qualcomm is best positioned to outperform
given: it has already started to benefit from 3G (1xRTT and initial royalties
from WCDMA in Japan); the strong outlook for CDMA in 2001; and the
majority of the handset risk currently in the marketplace is from GSM and
Europe, where QCOM has limited, if any, exposure. We reiterate our Buy (1-H)
rating.
ssb, this morning
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"..Although net subscribers declined for the third straight month..."
I wonder if this is what the market, and less gifted analysts, are keying off of as catalyst for this morning's weakness?? This prospect makes sense to me.... An earnings miss or lowering of guidance is being priced in.
As the story: "Forced cancellations of mobile telecom services rising rapidly" Message 15460539 suggests, there are curious games being played between Korean carriers at present. I wonder if these games may extend to comments concerning their respective 1x networks and technology, as perhaps evidenced by recent stories (such as a carrier declining to publically preview VOD capabilities because a competing carrier announces it will as well). Anyone familiar with liar's poker?
ben |
