The San Francico Chronicle blessed us all with the following which I would have posted yesterday if AOL hadn't been on life support. (BTW, thanks for ISP suggestions guys--you @Home boys are an enthusiastic bunch! Don't know if the damn thing is playing in my hood, though):
Subject: SF>Chronicle
Date: Mon, Mar 2, 1998 11:18 EST
From: Rang1995
Message-id: <19980302161800.LAA25804@ladder03.news.aol.com>
QUALCOMM INC./Stock of the Week
JONATHAN MARSHALL
Monday, March 2, 1998
c1998 San Francisco Chronicle
URL: sfgate.com
Headquarters: San Diego
Business: Qualcomm is a leading developer of wireless communications technology and equipment, a
major partner in the Globalstar mobile satellite communications system, and operator of OmniTRACS,
a satellite-based vehicle tracking system.
Background: Investors and analysts either love Qualcomm or hate it. Until recently, skeptics warned
that its main wireless phone technology, Code Division Multiple Access (CDMA), would never work in
practical installations, but it has been successfully adopted by many major carriers in the United States,
Korea, Japan and other countries. Qualcomm's stock soared from about $44 in mid-August to $71 in
November before falling back to the $40s in December on fears that Asia's economic crisis would slash
earnings. Shares rose recently on news that the company will supply $240 million in wireless phones to
three wireless carriers in the United States.
52-Week High/Low: $71 (11/20/97), $42.38 (4/22/97) Friday's Close: $51.56
Timothy Luke, Lehman Brothers, New York
Recommendation: Buy
I think Qualcomm is one of the coolest growth opportunities in the wireless sector and one of the most
innovative technology companies in its field.
They have extensive intellectual property in CDMA wireless technology. CDMA is now seeing very
rapid growth, and is used by Sprint, Bell Atlantic and AirTouch Communications. Outside the United
States, it has become one of two major wireless standards. The other is GSM, the dominant standard in
Europe.
Qualcomm profits in quite a few ways. Anytime someone sells a phone that uses CDMA, they pay a
royalty to Qualcomm. Anytime some equipment manufacturer wants to develop new CDMA products,
they also pay a one-time licensing fee, and then a royalty on every piece of equipment.
Qualcomm also is the leading manufacturer of CDMA phones for the North American market, and a
major manufacturer of CDMA wireless base stations, in competition with Motorola, Lucent, and
Nortel. Another very exciting business for them is they are the leading manufacturer of chipsets for
CDMA phones and base stations.
A really big opportunity for Qualcomm is its position as one of the founding partners in Globalstar, the
satellite communications network. Qualcomm is making all the terrestrial base stations. This year alone
the business could be $150 million.
My view is Qualcomm could earn as much as $2.70 a share in their next fiscal year (ending Sept. 30,
1999), up from $1.55 in fiscal 1998.
The situation in Korea will impact earnings, but Korea will be a smaller piece of a very fast-growing pie.
As many as 10 million wireless customers now use CDMA; we predict there will be 50 million by the
year 2000.
Marc Cabi, Deutsche Morgan Grenfell, San Francisco
Recommendation: Hold
The weakness in the Korean currency, the won, could seriously cut into Qualcomm's earnings potential
this year. Since the company gets more than half of its royalty revenues from the region, the severe
currency devaluations last fall could reduce royalties over the next two quarters.
Qualcomm more generally is over-reliant on the Korean CDMA market, which accounts for nearly 40
percent of its net income. Continued economic setbacks in that country could slow the company's
growth.
In the longer run, Qualcomm faces significant competition in the CDMA network equipment market
from telecom giants Lucent Technologies and Northern Telecom.
It also faces the prospect of competition in the handset market from such major companies as
Motorola, Lucent/Philips and Siemens, whose enormous manufacturing resources and economies of
scale may put Qualcomm at a disadvantage when they ramp up production.
A further competitive shock could come from Samsung, the Korean manufacturer that now uses
Qualcomm chipsets in its CDMA phones. We keep hearing that Samsung is in the process of designing
its own CDMA chip set, portending the potential loss of an important customer.
Even now, with a near monopoly on handset production, Qualcomm's margins on that business are
disturbingly low, in the low single-digit range. We are perplexed as to why its margins have not
increased over time despite increased production volume and improved technology.
Until some of these issues are resolved, we are inclined to remain on the sidelines. We continue to
believe that the company has not exhibited performance that would compel us to model solid operating
and earnings improvements.
c1998 San Francisco Chronicle Page D3
Mike Doyle |
