> NEW YORK (Dow Jones)--When the wireless wreck is over, one supplier will
>
> surely be still standing: Qualcomm.
>
> The San Diego, Calif. company licenses its code division multiple access
>
> (CDMA) wireless technology, known for its exceptional call quality and
long
>
> battery life, to some 115 million CDMA subscribers, according to the CDMA
>
> Development Group. (Rival technologies TDMA - time division multiple
access
> -
> and GSM - Global System for Mobile communications - totaled 400 million
>
> subscribers, or about 70% of worldwide subscribers, according to the
> Universal
> Wireless Communications Consortium.)
>
> Right now, wireless looks like a vast wasteland: Providers have huge
debt
>
> burdens, and subscriber growth is stalling, with no clear path to profits
> (see
> Barron's "Lords of the Ring," February 18, 2002).
>
> And Qualcomm has suffered, too: Its share price has been more than
halved
>
> from its 52-week high at 81.88 last February, and just 4% percent off its
>
> 52-week low of 34.59 reached earlier this month.
>
> Recently Qualcomm reshuffled its management team amid concerns about its
>
> accounting. The Center for Financial Research and Analysis questioned how
>
> Qualcomm had recorded revenue, such as accepting equity in exchange for
>
> receivables. Qualcomm said that it was following accounting rules and the
>
> revenue issues only amounted to about $20 million of the $2.7 billion in
>
> fiscal 2001 sales.
>
> William Keitel, Qualcomm's newly appointed chief financial officer,
tells
>
> Barron's Online that Qualcomm changed its guidance because it had taken
> about
> 16 cents out of earnings to account for its investment income separately.
>
> "It's just logical [to disclose investments!," says Keitel.
>
> The bulls are shrugging off these concerns, says Ken Smith, portfolio
> manager
> at the Munder Future Technology Fund, which has a 3% position in Qualcomm
in
>
> the $500 million fund.
>
> "Over time [Qualcomm! is going to end up with increasing market share,"
he
>
> says.
>
> CDMA technology is in about 19% of cell phones worldwide, and that
> percentage
> is seen tripling in coming years, expects Tom Carpenter, analyst at
Hilliard
>
> Lyons, who rates the stock a Long-Term Buy. GSM is popular in Europe, and
> TDMA
> is used by AT&T Wireless, among others.
>
> Qualcomm is likely to get a bigger piece of the pie because no
technology
>
> besides CDMA provides faster data rates. So, if providers want the
capacity
> to
> offer new services that CDMA can provide then, eventually, royalties will
> flow
> to Qualcomm, which owns most CDMA patents.
>
> CDMA technology allows wireless providers to offer new services that
> others
> can't, such as the camera phones used in Japan, and downloading music to
> play
> MP3 files with the handset.
>
> In China, the world's most populous nation, China Unicom launched a CDMA
>
> network that has the capacity for 20 million subscribers. It added
439,000
>
> subscribers in January, with 1.3 million expected in the first quarter.
>
> India, whose population of more than a billion includes just four
million
>
> wireless subscribers, is another big opportunity for Qualcomm. Reliance
>
> Communications, of which Qualcomm owns a stake, is rolling out a CDMA
> network
> in the subcontinent, where a wireless network, which is cheaper to
install,
>
> may supplant wireline.
>
> Stateside, Verizon Wireless and Sprint PCS are rolling out the
>
> much-ballyhooed 3G networks, which offer faster wireless connections and
>
> multimedia features.
>
> In the future, Wideband-CDMA (W-CDMA), also called Universal Mobile
>
> Telecommunications System (UMTS), should garner more than 100 million
users
>
> worldwide and $24 billion in sales by the year 2005, from 13.2 million
>
> subscribers and $4 billion in sales in 2003, according to the UMTS Forum.
>
> "The number-one opportunity for Qualcomm is in Europe, as providers
> migrate
> from GSM to WCDMA," says Greg Teets, analyst at A.G. Edwards, who rates
the
>
> stock Strong Buy.
>
> "The ultimate road map is to WCDMA," adds Greg Mobley, analyst at Banc
of
>
> America Capital Management. Mobley adds.
>
> New services, like color screens and fast download speeds, should drive
a
> new
> consumer upgrade cycle, says James Reynolds, analyst at Ragen MacKenzie,
who
>
> rates the stock a Strong Buy.
>
> That should give Qualcomm increased royalties from more handsets sold
> with
> its technology, and higher prices from new chipsets it makes. (Qualcomm
gets
>
> every penny of the royalties whenever CDMA is used on a phone.)
>
> Worldwide sales of wireless phones are set grow to 638 million by 2005
> from
> 381 million in 2001, according to market research firm IDC. Qualcomm
> forecasts
> 80 to 90 million CMDA handsets will be sold this year.
>
> At a recent 35.91, its shares trade at 39 times the Thomson
> Financial/First
> Call consensus of 93 cents a share for its fiscal 2002, ending September
30,
>
> and at 30 times the $1.18 estimate for 2003. That's a modest premium with
> its
> projected 2003 growth rate of 25% and below its five-year historic median
of
>
> 44x forward earnings, according to Thomson Financial/Baseline.
>
> The stock is also 323% higher than when Barron's Online "discovered"
>
> Qualcomm in early1999. (See Weekday Trader, "Bulls Say Qualcomm Is Poised
> for
> More Gains," February 9, 1999.)
>
> Also, Qualcomm, with a market capitalization of $27.6 billion, has $2.14
>
> billion in cash, or $3.14 a share, and no debt. That cash hoard should
more
>
> than covers loans to struggling carriers like Pegaso in Mexico or other
>
> potential bumps in the road.
>
> One concern: Wireless providers will migrate to other technologies, such
> as
> GSM. Another worry: Providers' cash flow will ebb further, causing them to
>
> concentrate on shoring up their balance sheets rather than adding
> subscribers,
> and possibly leading to consolidation.
>
> Also, Qualcomm owns stakes in a number of shaky communications
companies,
>
> such as Globalstar, which filed for Chapter 11, and the value of equity
the
>
> loans it gave to them are in question. And it's still up in the air who'll
>
> eventually replace chief executive Irwin Jacobs, 68.
>
> But wireless use will continue to grow, and CDMA has the most advanced
>
> technology of all the competing formats.
>
> That's why Qualcomm is likely to remain a standout while others stumble.
>
>
>
> (END) DOW JONES NEWS 02-21-02
>
> 08:00 AM
>
>
> |
