Shards and Shreds from Analyst Meeting
Friends
Let me share with you some impressions from the Analyst Meeting 5/22; indulge me that I am not tech-cognizant and that, as an investor not an analyst, I am quick to extrapolate and generalize (sometimes right -- sometimes wrong).
1. Overview. Q approached the meeting like a 20 game winner at top of his game. Confidence not arrogance. Some attitudes are clear. Disparagement of other companies or technologies is out. IJ repeated three times that he had predicted 2.5 yrs ago that wCDMA would not achieve mass distribution till '04 - '05, but he and others are at pains to point out that wCDMA is coming of age and will achieve substantial accepatance and share. Their demo booth of wCDMA (first time for me to see it in action) is impressive. The Sanyo/ Vodafone handset is small and elegant; the video is excellent. They claim good power and handoff characteristics with 6200 chip. No bashing of TD-SCDMA or of companies but cautions that "much work remains to be done before commercial . . . " as to exotic techs and new competitive offerings (see more below). One of the booths (there were about six with product demos) had a prominent banner "Actions speak louder than words . . .". I read this as the Q mantra for the next few years. They have traction in major markets -- take China, India, U.S. and Japan to name four of top ten demographic markets, and will push their products in their markets but WILL NOT PUSH THEIR STOCK PRICE. So all posters who want Q to make statements or take steps to juice their stock price will be disappointed. What they do (e.g. with stock buyback fund) they will do quietly; they are not going to dump on competitors, boast of their reuslts or forecast out-year financial results. Qtr by qtr they are going to put up a chipset and profit number that they can beat by a bit and let the market respond to financial results in its own time. [Two data bits: IJ indicated that his personal stock sales are pursuant to a SEC release which permits a regular program of selling at fixed times (not quiet periods) in pre-determined amounts as a safe harbor from insider trading attack, no matter what stock price moves occur; his program may take two years to bleed out the 2M shares he plans to sell "for estate planning and charitable giving purposes". BK (Bill Keitel) gave out one new data bit on QSI; Q has previous indicated about $150M of new funding will take place in FY'03; he now adds that Q expects that $280M of prepayment of Pegaso debt will take place (As I recall Telefonica agreed to prepay this debt if Pegaso converted to GSM which it is doing) so net cash for QSI will be positive $130M. He also indicated that of ~$500M of unfunded commitments, $464M are in favor of Ericy projects and of this amount $346M of commitment expires in 11/03 and it is clear that the substantial part (read all ??) of this will not be drawn (only Ericy new CDMA infrastructure projects qualify).]
2. Competition. Obviously Q has been pushed in last several weeks by questions and analysts to reply to "new competitive threat" from Samsung (own chips), INTC (wireless foray not well understood by anyone) and recently NOK, STMicro and TXN. This Board has already filled with buzz and comment on Q positions. The market forecast slides (and inconsistency btwn Shosteck 10/02 and 2/03 projex) have already been noted and discussed here. EricL is quite right that emphasis from IJ and TT was on Shosteck's projection of 47% market share for CDMA (including WCDMA); IJ went so far as to say that it appears that CDMA would be majority share in '08; TT said CDMA may in time become 100% technology (strained laughter). Really, he averred, all flavors of CDMA may very well become the market. But the numbers and projex were not the principal focus. Check carefully the SJ (Sanjay Jha (By the way; first time I have seen him in person and I was very impressed; Yes, he talks fast, but it is fact-saturated; logical and persuasive. Q likes SMART managers and he is another in the mold) slides. Of course there will be competition in this growing market. But Q has substantial timing, skillbase, product, customer acceptance, and reputation advantages. The road map of full array of hi-mid-lo products, tuned chipsets for specific markets, multi-modes; this will not be easily or quickly matched. You all know the party line but he put it out in great detail, the nine generations of chipsets, the only direct conversion (ZIF) cdma chipset (GSM, in a sidebar question, he made clear has done this for years), the relaible and proven software stack, the full Applications suite, the 2000 cdma engineers providing reference designs (read, Welcome to new handset manufacturers from China, India, Brazil, Taiwan), testing tools and software and consulting advice). But he added some specifics which were pointed. He had closeup photos of the NOK cdma handset and he pointed to three chipsets within, one made by NOK, one by TXN and one by STMicro. Alongside he had a Q cdma modem (don't kow why he compared modem to handset but he pointed out that it was an apple and an orange) which has a single chip and about one-third the area. So now the three will collaborate to make an advanced CDMA chipset when they are direct competitors to provide components for handsets and to integrate into their own products compoonenets made by their new joint venture partners. he invited scepticism by alluding to the difficulties in semiconductor world in joint venture development projects.
3. Applications. A theme in recent quarters (years?) from QCOM is that growth of data use of wireless will not be PUSHED by new networks and handsets but will be PULLED by customers demand driven by desirable applications. My words, not company's. It's not a "build it and they will come" wireless data world. And it is not a single must-have application; it's Choice (their word). Many applications will be developed and offered, one or more of which will generate demand pull from different constituencies. Productivity for enterprise; games for teens; cameras for yuppies and new parents; location-based for families and teens and so on. So it was made clear that BREW is to create applications and (my words) BREW is the new QSI. It's PJ's (Paul Jacobs) job to grow the developer community and to grow new applications not to make profit from BREW margins and turnover. In Q&A when asked about BREW profit, BK joined by PJ made it clear that it's improvement has been a loss reudction not a turn to profit. IJ broke in, that it was his direction to grow BREW not to make money. PJ was very pleased, euphoric really, by the recent BREW conference and by the ebullience growing in the carrier community. Adoption by Vivo was very good news to them; Vivo's ceo gave a huge upbeat video promote-piece for use by Q ("GSM/GPRS cannot support wideband data applications"). The VZ numbers on use of BREW were very strong; the KTF ARPU numbers on BREW use and its signing a multi-year renewal of BREW contract just weeks after the big fuss about Korea's own WiPi software were played up by Q. The Q release on 5/22 of the chipset 6700 supporting Revsion D for EV-DV attracted many questions, some going over my head. As I could gather, Q's focus on Applications has made them realize that certain applications, e.g. multi-pixel photography, will soon demand high speed revese link data rates (as well as forward link). Rev C, apparently, see IJ slides, will support reverse link of only 307 kbps whereas Rev D will support 1.2 mbs in reverse. So it appears to me that from a tepid acknowledgement of EV-DV, Q has been in fact working in the back office on DV, and has somewhere along the road shifted their support from Rev C to Rev D. Comment is solicited on what is going on in DV world!! It is worthy of note that the most dramatic of the Q press releases on 5/22, the 7xxx chip series, the 6700 chip, have sample dates WELL out in future; IJ stated that sampling and testing would start in '04 with no significant commercial adoption until '05 or possibly '06. In sidebar questioning I tried to find out more from IJ and SJ about DV and relative strength of DO and DV in Q's estimation. As you all know, DV proposes to put both voice and data on a single 1.25 mhz carrier. In order to protect QoS for voice, the data bits representing voice must be assigned a priority which will minimize latency and assure in sequence arrival of data packets representing voice. IJ answered that "they" do not even have the algorithim for this priority manipulation yet so we are a good way from working out DV. The operation of this software to handle the voice priority will take power and use capacity, and it will be necessary, IJ said, to "leave some unused space" in the band. So DV will not optimize data as efficiently as DO, but it will avoid the dedication of a carrier to data; some carriers will prefer DV for this reason. The Q intention, I infer, is to develop a family of chipsets, e.g. the new 6700 which will operate in either DO or DV mode to let the carrier choose.
4. Growth in the Near Term. IJ and TT reviewed growth in general terms. We have already touched on the slides which project market growth and market share. But, as in rior meetings, they also reviewed national markets. In China, IJ stated twice that they believe that the two new wireless licenses will be issued, hopefully by end of '03 but if not then in '04 and that Q expects that both will be for a form of CDMA. he states that ChinaMob will "most likely" migrate to wCDMA. In sidebar, he described the last day in office decision of Minister Wu?? to order CDMA 450 carriers to cease and desist and said that the carriers had not ceased and that the decision would be re-considered. In India, he and TT expressed confidence that the vacillation in government decisions would result in decisions favorable to the CDMA operators, Reliance et al., because of the compelling public interest in expansion of telecom, increase of data access and low prices. Q is also very happy at the merger of Telefonica and TelPortugal to form Vivo in Brazil. TT confessed that Vivo has put enormous pressure on Q to get low cost handsets to Brazil with success. I believe I heard him say sidebar that there is an $80 cdma handset now offered in Latin America, and he referred in the public session to Qs support of a Taiwan handset mfger to produce a <$100 handset ("substantially below $100, he added). Indonesia, Thailand and Vietnam were all mentioned in passing as well as Russia's 450 emergence and the Russia-China collaboration on 450 as both ZTE and Huawei are producing 450 infra equipment.
5. BREW whatsup? Let me touch back on BREW for a minute. PJ touched on a principal frustration of Q in trying to explain that BREW is not an operating system in competition with Java. They now insist BREW is an Application and also emphasize that it can support GSM/GPRS (although no GSM operator has adopted BREW, of course). They describe BREW (my words) as a messenger-manager of Apps, offering them to user, filling in applets be fetching them to make them work with user's hardware/software, protecting the App software from virus and assuring that only certified Apps, approved by the carrier in question can be downloaded and arranging for billing and to developer payment. Developers, he repeated a dozen times, are thrilled that they are getting checks. Some have rec'd over $1M. Q is delighted that they have a BREW carrier in each major CDMA market, Korea, Japan, China, U.S. (three) and Brazil (Vivo). The carriers evidence considerable satisfaction and several created testimonials for Q's use. In sidebar, I asked whether there was a downside to BREW in blocking user from finding new applix on the web and downloading them. A little defensively, he said that is a downside but the gains are worth the cost. Developers, even tiny companies with two or three people,, are being certified and made available; security is being protected; applix are not being ripped off with no compensation to developers. He strongly believes that the methodology of BREW is the only way to get carriers to make a huge variety of applix available to users and that the diversity of applix is what will drive data usage to levels which will make CDMA predominant. PJ also said, sidebar, that the reason PCS was cold on BREW was that, before BREW was even announced, they had their own software group working on download and control software for data applix. BREW was an endaround for this group which was not supportive of being made redundant (my inference from his few words). QChat came up, I think in sidebar but maybe in Q&A (my notes are not clear). PJ said that Q tried hard to sell QChat to VZ and PCS. They weren't interested but Nextel was VERY interested. So the road they have gone down precludes offer of QChat in competition with NXTL. They are very excited about QChat and as PR 5/22 indicates they have recently tested QChat and demonstrated <2 secs connection from dormant sender to dormant receiver. They are pushing QCht with international carriers; I believe Unicom was mentioned.
I think I have touched on the points which most interested me. I apologize for not using Slide # references; I am working off the notebook they gave us with all slides reproduced but it does not show the slide #s. I apologize for typos and abbreviations used inconsistently. I appreciate how careful most of you on this board are about including sources, links and precise quotes. I just do not have time or web experience for a careful research piece.
propitious |
