Cold BREW?
Qualcomm's (QCOM) latest bold maneuver 2002-06-20
In a bid to control next-gen wireless software, Qualcomm makes a gamble
by Dave Sterman, equity research columnist
Qualcomm (QCOM) chief executive officer Irwin Jacobs has a history of making bold bids to capture pieces of the wireless pie. Now he's battling some of the biggest companies in tech for control over software designed to handle the next generation of wireless services. But analysts are skeptical of Jacobs' latest effort.
To be sure, Qualcomm's moves always bear watching. The company commands a $25 billion market value—the bulk of it built up in the latter half of the 1990s—thanks in large part to Jacobs' aggressive style.
Some of his initiatives, like deciding to develop CDMA chipsets and the core CDMA platform, have succeeded brilliantly, generating revenue and making QCOM a player to be reckoned with. But others efforts have been counterproductive in the same proportion: witness forays into satellites (the now-defunct GlobalStar) and the manufacture of wireless handsets, both of which cost shareholders a boatload of money.
That's why analysts are looking so closely at Qualcomm's rollout of its BREW technology, which will enable programmers to develop a wide range of applications that will be optimized to run on the CDMA platform.
The company just completed its second annual BREW developers conference, and investors got a glimpse of how Qualcomm plans to tackle this potentially huge opportunity. But with reward comes risk. The company will spend heavily to support BREW, creating a separate 350-person division. And analysts are divided as to whether Qualcomm will generate any meaningful revenue from the program.
For one thing, BREW arrives a little late to the party. Sun Microsystems' (SUNW) Java already has legions of programmers supporting it, and Nokia (NOK), Palm (PALM), and Microsoft (MSFT) are pushing their own proprietary software solutions. "BREW is something of a dark-horse candidate," Wachovia Securities' Mark Roberts tells Multex Investor.
But don't count Qualcomm out. After all, the company already controls the increasingly important CDMA platform, which underpins these application-specific software programs. The company's CDMA insights could enable BREW to run more seamlessly than the alternatives. "Performance-demanding applications, such as those involving graphics or sound, could be more easily optimized for CDMA handsets if they are developed as BREW applications," notes Gerard Klauer Mattison's John Bucher. And Roberts points out that BREW-enabled phones need only one processor, which reduces cost and saves battery life.
It's easy to see why all of these firms are angling to control the niche. In an attempt to boost revenue, wireless carriers plan to push a wide range of extra services through their networks. Downloading games, real-time stock quotes, movie previews, and street maps are just a few of the services that are being cooked up by developers. Verizon's (VZ) wireless division is already testing BREW in the San Diego market, and hopes to generate $100 in monthly revenue from active users. Qualcomm gets a 10 percent cut of the sales (as does Verizon, with the other 80 percent going to the program developers).
But that leads to the question of whether consumers will pony up extra money for these additional services. Thus far, consumers have shown scant interest in using their phones for data services. And that's given carriers cold feet, according to Lehman Bros.' Tim Luke. "It seems that some lingering uncertainty around appropriate pricing models and a suitable billing platform may restrain the initial level of aggressiveness in the marketing and promotion of these new services," writes Luke in a recent report. The analyst also cautions that as more data passes over wireless networks, carriers must "also be cognizant of impediments of data on their voice offerings."
Yet Qualcomm has successfully generated a reasonable degree of buzz around BREW. Six hundred developers showed up at the annual conference, and a wide range of cell phone manufacturers will roll out BREW-enabled phones this year. (Ten such phones are already on the market). In addition to Verizon, two other carriers—one in Japan and the other in Korean—have rolled out the service in their home countries, and 12 other carriers have already inked deals with Qualcomm.
For now, analysts such as Roberts aren't even including any BREW-related revenue in their earnings models. "We wouldn't expect to see any BREW revenues until at least 2004," he says.
Even without a revenue kicker, analysts still think BREW is a good idea. "If BREW ultimately causes wireless users to view CDMA handsets as superior data-optimized devices…Qualcomm will have been successful in perpetuating its 'virtuous cycle,'" writes GKM's Bucher.
Dave Sterman is the Director of Research of Chelsea Research and a financial commentator for various news outlets. |
