Tero:
I was not attempting to bludgeon your credibility...I feel that, with no sarcasm intended, that you do a fine job of this yourself by continuing to characterize QC's royalty and ASIC strategy as a simple "license" fee story. You are making an economy of scale argument without even addressing the economies that QC has created for itself within its ASIC franchise. You neglect to consider that the ASIC module, for all intents and purposes, IS THE MAJOR TECHNOLOGICAL VALUE-ADDED in a wireless handset...which, I might add, is why Nokia and Motorola felt the need to create their own, proprietary chipset (which very mixed results).
As closely as you follow Nokia, I am sure that you are aware that the company disclosed recently that is considering a third-party ASIC vendor in order to improve its CDMA handsets' competitiveness. This should tell you something pretty important about the value of the ASIC. Qualcomm is the world's dominant vendor of CDMA ASICs AND it collects a royalty on the wholesale transfer price of the resultant wireless handset. I would argue, and did to you privately, that this is a SUPERIOR position to the standard handset business model because QC's subscriber business, taken in toto to include ASICs and related royalties, is far less product-cycle dependent than its competitors since the overall results derive more from the overall growth of CDMA than the success or failure of a particular handset (QC's included). You need look no further than Ericsson's recent handset performance to corroborate and amplify on this point. Consider that ERICY used to be the leading GSM handset vendor but has lost this position to Nokia...now it must pedal quickly to refresh its product portfolio and attempt to gain marketshare. This is tantamount to a perpetual beauty contest with enormous stakes. In contrast, under QC's CDMA subscriber equipment model, it collects royalties from all handset vendors, regardless of who is currently in the lead and it complements this strategy by providing the marketing leading ASIC module to the same vendors. This strategy may differ from the traditional model that you espouse, but that does not mean that it cannot and does not work.
To this end I would point out that Qualcomm reported its most robust financial performance, from an operating income standpoint, in a quarter where you claim that...based on the Dataquest analysis...the the company's marketshare had collapsed. Moreover, you are attempting to link the March/June problems solely to handset issues while neglecting the "minor" business dislocation that occurred in Korea.
Your revisionist view of March/June does not change the fact that QC's business is currently very healthy; that QPE is manufacturing to capacity and that margins expanded dramatically in September. It seems when the objective fundamental metrics contrast with your analysis, you simply ignore this data and continue with the dogma.
Best regards,
Gregg |
