Qualcomm Hints at China Trial
Unstrung
11.15.02
The carrier trial of Qualcomm Inc.'s (Nasdaq: QCOM - message board) GSM1x technology will take place in the first quarter of 2003, and looks certain to be in China (see Qualcomm Claims GSM1x Trial).
Talking to reporters in London this week, Qualcomm's group president of the wireless and Internet group, Dr Paul Jacobs, said it is likely that "we will only see GSM1x in Europe if WCDMA continues to have technical issues." GSM1x is an overlay system that allows GSM carriers to deploy CDMA2000 1x radio access systems without having to upgrade their core networks. As the trial is said to be with one of the world's top five GSM carriers, China Unicom Ltd. looks to be the most likely trialist. Jacobs, son of Qualcomm chairman and CEO Dr. Irwin Jacobs, would not divulge any further information, however.
Jacobs Jr. was visiting London to talk to analysts and investors with two of his fellow senior executives -- Bill Keitel, CFO and senior VP; and Donald Schrock, president, CDMA Technologies Group (the chipset business). "We now have more investors in Europe than ever before," Keitel tells Unstrung, "and that's why we've come to London this time around." Unforgivably, we neglected to ask whether he was related to Harvey.
But we did ask him about the company's plans to try and boost its share price. It is currently at about $39, with a 52-week low of $23.20 and a 52-week high of $62.50. "We are focused on earnings and cash flow and believe the share price will track our cash flow. We are looking to grow our revenues in the 20 percent range next year." The company recently announced a $360 million profit for the financial year ending September 29, 2002 (see Qualcomm Posts Q4 Profit).
Those are the sorts of statements and figures that should please the shareholders currently at odds with our investment team's latest assessment of the CDMA giant (see Qualcomm: In Need of a Revamp).
Keitel is also hopeful that certain business areas that are still "in development" will grow to be strong contributors to the bottom line, mentioning in particular its applications platform, BREW. Is there any prospect of BREW being deployed outside the key CDMA territories of Japan, Korea, and the U.S.? "We are having discussions with a number of operators in Europe about BREW," says Jacobs. "We have shown it working on GPRS and have some interest from operators, but we have no definite agreements as yet."
He also dismissed claims that Qualcomm is negative about the role of Java in the mobile world. "We are not anti-Java. It's a programming language and BREW is a services platform. We have Java-compliant software that runs on BREW."
Sticking with Europe, Jacobs took the opportunity to talk down EDGE as a technology that would gain any traction with carriers. "We are skeptical that EDGE could provide the data rates claimed [up to 384 kbit/s], and the vendors would have to persuade the operators to buy more base stations if they were to deploy it. Also, it doesn't help with voice capacity."
The trio is much keener on WCDMA, the 3G technology to be deployed by Europe's mobile operators -- understandably so, since it's based on some of Qualcomm's patents. The company is doing as much as possible to help the development and rollout of WCDMA. "We have generated UMTS [WCDMA cell network, GSM core] chipsets and have shipped 1,500 dualmode GSM/UMTS tester terminals that are interoperable with the products of eight different base station vendors," says Schrock. "We have also supplied dualmode chips to Samsung Electronics Co. Ltd. for a handset it will deliver to Vodafone Spain (see Qualcomm Chips Prosper).
Analysts at Lehman Brothers believe Qualcomm will face competition in this dualmode chipset market from LM Ericsson (Nasdaq: ERICD - message board), Infineon Technologies AG (NYSE/Frankfurt: IFX - message board), Motorola Inc. (NYSE: MOT - message board), Nokia Corp. (NYSE: NOK - message board), and STMicroelectronics NV (NYSE: STM - message board).
Moving on from the hardcore GSM territory that is Europe, Schrock then talked about Qualcomm's prospects in China, where, potentially, three different versions of next- generation CDMA technologies could be deployed -- CDMA2000, WCDMA, and the Chinese homegrown TD-SCDMA (time-division synchronous CDMA). The trio does not believe TD-SCDMA will be that widely adopted. "The Chinese vendors want something they can export, and TD-SCDMA doesn't offer that" says Shrock.
"Political decisions will take export opportunities into consideration," notes Keitel. "We see TD-SCDMA as a niche technology," though, again, one that will bring licensing revenues from the use of its CDMA patents if and when it is deployed.
Just how much Qualcomm charges for the use of its patents is still under wraps, though. "We have never disclosed them publicly," says Jacobs. And what does Qualcomm think of the recent agreement among other CDMA patent holders to cap their royalties from essential patents related to WCDMA equipment? (See 3G Giants Strike Patent Deal.) "Good luck to them. It doesn't affect our agreements. We are happy with our royalties arrangements."
— Ray Le Maistre, European Editor, Unstrung www.unstrung.com
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