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Technology Stocks : Qualcomm Incorporated (QCOM)

QCOM 174.54

-1.2%

3:59 PM EST

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To: Joe NYC who wrote (20680)	1/3/1999 8:33:00 AM
From: tero kuittinen	Read Replies (6) of 152472

Joe, Nokia has already launched the new 9110 smartphone in Europe. Comparing pdQ specs to the 9000 is not very constructive - the 9000 was launched three years ago. Nobody knows when smartphones will actually become a consumer hit. Right now they are vanity or prestige projects, meant to raise corporate profile and impress consumers. It's unlikely anyone will make real money with smartphones in 1999. The real money is made in mainstream, run-of-the-mill handset market. Many people still seem baffled as to why I'm so fascinated by handsets. The answer: it was the mobile phone sales growth that fueled Nokia's nearly 80% profit growth and 240% stock price increase this year. Not infrastructure sales. Not IPR. Not 3G prospects. Not smartphones. Just plain, ordinary, 200 buck mobile phones. They are Nokia's ticket to 3 billion dollar pre-tax profit in 1999. The growth in China, Europe and USA is now so hot that any company who can tap into these markets has a license to print money. Wall Street is still out to lunch - they are flabbergasted by every Nokia quarterly result and will be floored once again later this month. People were so convinced that handsets would become a commodity that analysts are not believing their own eyes when it's not happening. If you don't believe this theory, just wait for three weeks and read Nokia's 4Q numbers. Don't you see - it doesn't matter that Nokia's CDMA phones aren't currently competitive. They are selling every phone they can manufacture in USA. Their digital phone sales in USA will be up by 400% in 1998; from 1 million units to 5 million units in one year. They just can't turn out GSM and TDMA models faster than they currently are. If they had started making 61xx CDMA models before Christmas, they would have had to cut down the production of 61xx GSM models. Of course they are not going to subsidize Qualcomm if they can sell a GSM model instead! Within three months Nokia will launch the CDMA version of 61xx if they can stick to the schedule. Their manufacturing expansion is now enabling them to crank out enough models for every standard. In the meanwhile, the lack of 61xx CDMA models hasn't hurt Nokia - it has hurt CDMA as a standard. Investing is a game of finding companies that can beat expectations. The expectations for CDMA in US marketplace were built so high that nobody really thought that GSM and TDMA can deliver vigorous growth in America (except me - see my June 1998 post). It now looks like TDMA will be the fastest-growing digital technology in the United States of America in 1998. And GSM growth may be slightly ahead of CDMA's during the last six months of the year. The two best-selling model platforms in USA are 61xx and 51xx - available only in GSM and TDMA formats. Joe, I know that some of the Qualcomm models are adequate. But that's not enough. Consumers don't go for adequate products anymore... they have been spoilt. As are investors. They only love companies that can do substantially better than expected. When you look at how GSM was expected to perform in USA and China and how it is actually performing you can easily spot the biggest mobile telecom upset of 1999 in the making. Tero

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