I wonder what the FCC will do if E-OTD fails completely. Can you imagine Cingular and AWE having to come to Qualcomm for the Snaptrack solution?
### ### WACHOVIA SECURITIES ### ###
May 30, 2002
QCOM: Competing E911 Technology Fails FCC Test: Incrementally Positive
Company Note
QUALCOMM Incorporated (QCOM- Stock Rating: 1
Price: $31.18 Mark A. Roberts,
52-Wk. Rng.: $69-24 Michael Whitfield,
Shares Out.:(MM) 809.6 Jason Kutsurelis
Market Cap.:(MM) 25,243.3
EPS 2001A 2002E 2003E REV.2002 2003
FY(Sep.) Current Prior Current Prior Current Prior
Q1(Dec.) $0.27 NC $0.24A NC $0.25 NC $692.7MM $770.0MM
Q2(Mar.) 0.27 NC 0.20A NC 0.22 NC 659.2 709.3
Q3(June) 0.23 NC 0.23 NC 0.32 NC 699.0 884.3
Q4(Sep.) 0.20 NC 0.25 NC 0.39 NC 740.0 974.5
Full FY $0.98 NC $0.92 NC $1.17 NC $2,791.0MM $3,338.1MM
FY P/E 31.8x 33.9x 26.6x
Full CY $0.94 $0.92 $0.93 $1.26 NE NC
CY P/E 33.2x 33.5x NM
Source: Company data and Wachovia Securities estimates.
NA = Not Available, NC = No Change; NE = No Estimate; NM = Not Meaningful
Target Price: $63 LT Debt:(MM) $0.0
Float:(MM) 707.2 LT Debt/Total Cap.: 0.0%
Avg. Daily Vol.: 13,201,000 ROE: 14%
S&P 500: 1,064.66 3-5 Yr. Est. Grth. Rate: 23%
Div./Yield: $0.00/0.0% CY2002Est. P/E-to-Grth.: 1.4x
Key Points
* Today it was reported that a competing technology to QUALCOMMs gpsOne wireless
E911 system has failed to meet the FCC 100 yard minimum accuracy standard.
* The technology called Enhanced Observed Time Difference Technology (EOTD) was
developed by UK based Cambridge Positioning Systems (CPS) and is the technology
of choice for AT&T Wireless, Cingular and VoiceStream.
* We believe that QUALCOMMs E911 solution is the only system that met the
standard and has been approved by the FCC.
* CPS is expected to complete its final phase of FCC testing over the next two
months. We believe a failure by EOTD would be incrementally positive for
QUALCOMM.
* We reiterate our Strong Buy rating on the shares. We continue to believe that
QUALCOMM should be able to grow earnings at over twice the expected industry
growth rate as carriers around the world continue to evolve toward 3G CDMA based
technologies. Our $63 price target is based on our long-term CAPM.
Investment Thesis
We expect the growth in wireless communications technology to be well above that
of the overall global GDP. Over the next 3-5 years, nearly all wireless mobile
communications networks are likely going to transition to some form of CDMA
technology, which should allow QUALCOMM to grow profits well above the growth
rates for the overall wireless communications industry.
Discussion
Today it was reported that a competing technology to QUALCOMM's gpsOne wireless
E911 system has failed to meet the FCC 100 yard minimum accuracy standard. The
technology called Enhanced Observed Time Difference Technology (EOTD) was
developed by UK based Cambridge Positioning Systems (CPS) and is the technology
of choice for AT&T Wireless, Cingular and VoiceStream.
QUALCOMM's gpsOne has been adopted by both Verizon and Sprint. Japan's KDDI is
currently running a successful position location program on its CDMA network
using gpsOne.
EOTD uses a triangulation timing technique to derive the location of a handset.
In an ideal scenario the time it takes for a signal from a Base Station (BTS) to
reach a handset and a fixed known network location called a Location Measurement
Unit (LMU) is recorded. The position is then triangulated by calculating the
distance from three different locations using known time and signal velocity
data. For accuracy, the handset must be within range of at least three BTSs.
This becomes a problem in rural areas. CPS is currently trying to overcome this
problem. We believe the only way to solve this issue would be to install more
BTSs in rural areas. Or, for CPS to embrace a hybrid technology like QUALCOMM's
gpsOne position location solution.
When it works, a GPS only location system is highly accurate and provides 3D
location - latitude, longitude, and altitude. It is extremely effective in
rural areas. However, in a GPS only solution, it can take up to three minutes
for a handset to calculate position. This is because the handset must first
identify three separate GPS satellite signals. Then it must find a fourth
satellite and decode timing synchronization data needed to make the
time-distance calculation. GPS is based on line-of-sight and therefor it can be
unreliable indoors or in dense urban areas.
We believe that QUALCOMM's E911 solution is the only system that has met the
standard and been approved by the FCC. QUALCOMM's gpsOne is a hybrid solution
and utilizes the location capabilities of both the CDMA network and the GPS
satellite system. The system first uses QUALCOMM's network cell-id capabilities
to identify the location of the nearest BTS and in which sector the handset
falls in. A CDMA cell is broken up into six sectors that radiate out from the
BTS likes spokes on a wheel. This data is then fed into a system from a company
called Snaptrack. The Snaptrack system tells the handset which three GPS
satellites will likely provide the best signal. Then instead of having the
handset search for and decode synchronization data from a fourth satellite this
information is fed to the handset via the network. According to QUALCOMM, this
effectively reduces the calculation time to around 20 seconds. Additionally,
because of the cell-id assistance provided by the CDMA network, accurate
position measurements in a city or indoors can be developed using one BTS and
one GPS satellite.
CPS is expected to complete its final phase of FCC testing over the next two
months. We believe a failure by EOTD would be incrementally positive for
QUALCOMM.
We reiterate our Strong Buy rating on the shares. Our $63 price target is based
on our long-term CAPM. |
