The discussion about franchises and WIND versus QCOM wireless play are relevant to this thread.
Let me start with the last question:
>Like you, I believe that WIND is in the best position to command a
>royalty stream from wireless, as the ultimate RTOS behind the DSPs
>running spread spectrum. If this is the case, why bother to take a
>sizable position in QCOM at all?
Because optimal asset allocation necessitates the picking of other stocks, irrespective of your wealth status, as long as your utility function for return is not linear. If you are super wealthy, you will need to locate about 30% of your assets in other stocks. If you are like most investors, then you need to find non-WIND homes for 70% to 90% of your assets (as I recall, I indicated most investor should limit their investments in WIND to 10% of assets; whereas more recent refinements may extend the optimal allocation nearer to 30%.)
>While I believe that QCOM's experience as a networking software company,
>coupled with their existing relationships, gives them a valuable lead, I am
>still concerned about technology shifts in this arena. How likely is it that
>someone else will invent a better form of spread spectrum technology,
>promising even more bandwidth utilization than QCOM's current standard?
Similarly, I was asked recently by Kevin Melia about QCOM's vulnerability to wide-band CDMA.
First the facts as I know them. QCOM's ability to extend their patents to wide-band is fuzzy. As I recall, QCOM was sued successfully by IDC, a wide-band company, which resulted in QCOM licensing their technology. In addition, QCOM is working with a US standards committee on extending CDMA to broadband versions. Meanwhile, Ericsson, not QCOM, has a contract in Japan to develop wide-band CDMA for the Japanese next-generation systems. If this contract results in a commercial wide-band CDMA deployment, expect QCOM to sue Ericsson over patent infringements. As wide-band CDMA becomes a reality, one expects QCOM to be a major player, especially through their WLL efforts if not elsewhere.
Despite the threat or opportunities of wide-band CDMA, the current IS-95 standard is enough to establish an enviable franchise leading to a profitable business that will last at least 10 to 20 years. The reason for this is that the world can only afford so much non-standard communication. In order to field a new, technologically advanced communication standard, it is necessary to convince operators to invest in infrastructure and likewise for handset manufacturers. I believe there is no room left on the PCS playing field for a major new juggernaut, because it would be impossible to sell the notion of inevitable economies of scale needed to bring the technology to maturity. Notice that Japan, a nation that inclines toward setting worldwide standards, publicly deferred to CDMA, noting that it would rather be a nation producing lots of products for a non-Japanese standard than one producing limited numbers of products based on a non-global, Japanese standard.
I suggest that one of the miracles of this decade is that Jacobs managed to convince major would-be PCS carriers to buy into the unproved CDMA alternative to GSM. It was sold on the basis of being many times better, but per usual the facts are less flattering. CDMA is probably better, but it is not yet cheaper per unit of capacity to deploy, and will only be cheaper at best after another generation or two of design/manufacturing advancements. This miracle will not be repeated anytime soon, if ever.
Allen |
