Thornley At SSB - Part 1
Tony Thornley
SSB Tech 2002 Industry Conference
September 4, 2002
veracast.com
[Slides were not available in the webcast but were referenced often by Thornley. This is not a transcript but my notes on what I thought was important but in most cases Thornley’s words are used. I have not corrected his grammar, particularly his preference for plural subjects with singular verbs and for contractions. His review of the June quarter numbers has generally been skipped.]
We are putting a lot of assets into expanding the CDMA market. We are doing that in many different ways. We are helping existing CDMA operators. We are working with potential new operators. We have made a little bit of investing in companies around the technology in order to make sure that the services are available for the operators. We look at ourselves as a solutions provider to the CDMA market.
What’s becoming much more important as we look forward is the replacement market. There’s a lot of focus on subscriber growth and the fact that subscriber growth in the wireless market as a whole has been slowing, particularly in the U.S. From our point of view, that is important but really only a very small fraction of the total story. The most important part of our business, in fact, is how quickly we can drive the replacement of the devices, which drives our royalties revenues, our chip revenues and, in the future I think, our services because in the future services will abound as devices abound. The services themselves is the third leg of the stool and that will start contributing more of our revenue in the future, particularly the BREW platform which we have had considerable success. [Thornley is reading old Gregg Powers posts!]
We are looking at developing new businesses in the wireless space. We are putting a considerable amount of investment into that. That will probably pay off in the longer run. ..
In terms of the handset market for this year, our estimate has been 80 to 85 million shipments of CDMA handsets worldwide for calendar ’02. We have had that projection for quite a while. I think as a whole the analyst community has been somewhat below those estimates but we continue to see strong demand and that’s reflected in our chip business where we saw 16 million shipments of our MSMs, which is our phone chip, in the June quarter and we projected somewhere between 18 to 19 million shipments in the current September quarter. So we are seeing increasing demand, which is consistent with our view of the market.
The U.S. market, with the launch of third-generation systems by Verizon and Sprint, looks very healthy and we expect to see a lot of that replacement business driving the market into the 40 to 42 million range. These numbers are part of the 85 million figure - the high end of the projections - the 30 million is Asia, Korea and Japan mainly – the markets are very healthy. Latin America has been the slowest of all of the markets but even there we are seeing growth. ..
There has been a lot of focus in the media about delays in the third-generation networks but really that is associated with wideband CDMA into GSM networks. In terms of existing CDMA operators, the vast majority are quickly upgrading to third-generation technology. This is giving them increased capacity for voice but it is also allowing them to launch a lot of new services. If you look at the list here [slide], most of the operators’ financial performance, particularly of those who have been in operations for a while in third-generation, is improving considerably. ..
Very importantly, I think, looking forward, is the introduction of the next generation of systems – what we call 1xEV-DO networks or really high speed networks, which is the promise of third-generation – has been launched already in Korea. Those networks will be close to nationwide by the end of the year. Verizon is currently doing trials of that same technology here in the U.S. – you see trials going on in D.C. and there’s another trial about to start in San Diego. We hope to see this technology launched in the U.S. market next year – on a commercial basis. KDDI in Japan has also announced that it plans to launch this technology in 2003.
South Korea is really an indicative market of what’s going on in the leading edge of the wireless space. Here, you have a market that is well-penetrated with subscribers, over 30 million, in fact it’s about 31 million, subscribers out of a population of 47 million – pretty high penetration. Yet the phone market there is extremely healthy. This year we expect to see shipments of devices in the 13 to 14 million range. We expect to see the number of 1x subscribers at around 15 million by the end of the year – and you can see that at the end of last year that was around 4 [million]. So the conversion of existing users to new devices and new services and new capabilities is, in fact, making that market very strong and this is despite the fact that in Korea the government introduced subsidy bans in March of this year, which means that the subscriber is essentially paying the full manufactured price of the phone. This has not slowed the market – it did actually in April but since then we’ve seen the business return to prior pre-subsidy-ban levels. The demand for these new devices is very strong.
Japan is the next leading indicator where KDDI launched its third-generation service in April of this year. Since then they have converted about 1.5 million of their subscribers to 1x - to third-generation. They expect that by March of next year, 7 million of their subscribers will be on third-generation systems. They are migrating them very quickly. They are the first to have introduced position location services on a nationwide basis and this is using Qualcomm’s position location technology – gpsOne – this is another service where we are providing technology that is generating revenues for the operators and we will share in some of that revenue. They also launched BREW services this year – actually launched them over a period of time so we’ll see more impact of BREW. But the combination of BREW and gpsOne has meant that KDDI’s financial status has improved, its market share has improved and this is in a market where DoCoMo has dominated the market. It is interesting to compare the KDDI performance with DoCoMo which introduced WCDMA late last year and today has 120,000 subscribers. They have been going very slowing because the technology just isn’t mature yet.
In U.S. the Verizon and Sprint launches combined with the introduction of color screens on phones and the wide array of services that are coming with this, the very strong advertising campaign is very good for our business. I think that the potential of the Christmas selling season is very good for CDMA operators. In the U.S. market, gpsOne service is being introduced to satisfy the FCC requirements for e911 service – that’s being paced by the local authorities upgrading their systems to be able to cope with the e911 wireless call. But looking forward, I think we’re going to see a lot of position location based services on a commercial basis that will drive the market. Other operators launching 1x – Alltel, U.S. Cellular, Leap – are all in various stages of upgrading their networks.
China is a subject that is very important to our business. The China market is actually a driver of Asia market as a whole and, in the longer run, the worldwide market; because it is such a large market, it drives influence over other markets and it also drives scale. [Regarding Unicom] .., in the first half of this year there was some disappointment in the financial markets about the progress of the CDMA subscriber growth. From our perspective, thought, that was very expected. To launch a nationwide time in the time that Unicom did last year was remarkable. Certainly, it was to be expected that there would be a need for the fine-tuning of the network. Because they introduced slightly different technology in the phone, with a SIM card which hadn’t been introduced anywhere else, the availability of phones was an issue. However, over the last couple of months, we have seen a lot of those problems put behind them; we’ve been helping a lot in getting their network fine tuned. As a result of that, the subscriber growth has begun to pick up. As of the middle of August, they had over 2 million subscribers on the CDMA network and they were adding at 15,000 [a day] and most recently we have heard higher numbers than that. We have been consistently saying 3 to 4 million subscribers this year in China. Unicom has been saying sometimes larger numbers than that [7 million], sometimes around the 4 million. We are very comfortable about our forecasts.
Looking into next year most importantly, Unicom is investing most of its assets into CDMA and we expect to see accelerating growth from the China market. We also have seen very good signs that the new operators that will come into the China market – today there are only 2 - will be using CDMA technology. One of the manufacturers in China announced that they are going to manufacture equipment at 450 MHz, which is a band that we’ve been promoting on a global scale. This is just going to expand the availability of CDMA around the world and particularly in China.
India - also a very important market for us in terms of large scale growth. This year it’s been in development. The changing of the regulations to allow limited mobility has meant that the CDMA market has been expanded considerably. Reliance is our particular partner – we’ve been working very closely with them.. We have not funded our investment yet but expect that we will over coming months. They are at the stage of actually building their network. The plan is to launch up to about 500 towns in commercial service by March of next year. So this is on a very large scale. Reliance has talked about a target of 35 million subscribers by 2005. |
