John,
Thanks for sharing the article about Nokia. It's really fascinating, especially because I'm relatively ignorant of the telecom space and find this stuff very refreshing and intriguing.
I still can't find out how the qcom deal affects nokia.
The deal makes it a LOT easier for the various standards bodies to agree upon a single standard, or at least a single standard with several options as the case is likely to be. As manufacturers feel the world is coming closer to adopting a standard, there will be more investments made in that market which will help it grow. Until a single standard is adopted, investments will be more limited than they otherwise would be because no one wants to invest in the "wrong" standard, as Sony infamously did with their Beta-max VCR technology.
Right now there are too many technologies being used, most of which aren't compatible with each other. The existence of those competing technologies that aren't compliant with each other has an effect of creating barriers to adoption of wireless products. By somewhat reducing those barriers, the market opportunities for all sellers of wireless devices, including Nokia, will grow farther and faster.
Remember the market potential, that in the U. S. only 25% of the people have used a cell phone and as of 1996 only 10% of the world's population had ever made a telephone call of any kind. More important, right now people are making those telephone calls mostly to exchange voice. It won't be long before the vast majority of exchanges will be to access data, not voice. Nokia is the current king of the wireless space and would have to execute poorly (more about that later) not to benefit from the upcoming opportunities that "the deal" helps foster.
The media has placed far too much emphasis in my opinion on the elimination of legal costs as the reason Ericsson and Qualcomm did their deal. The really big cost was the opportunity cost, not the legal costs. Ericsson and Qualcomm knew the legal battle could have gone on for years. If that had happened, that could have limiited the market opportunities for both of them. Those opportunity costs are FAR greater than the legal costs.
Do you have any input? For example handsets: [Nokia comes] out almost monthly with new enhancements. Nokia is a large corp. while qcom is still very small in comparison.
I'd like to clear up what appears to be a misunderstanding of Qualcomm's revenue sources. Take a look at the list of Qualcomm's customers on page 5 of their 10K at sec.gov Every major, international manufacturer of hand-held wireless devices is Qualcomm's customer for their subscriber products, including Nokia. (Ignore the list of infrastructure customers now that Ericsson will buy that business from Qualcomm as part of the deal.)
There's no question that Nokia, Lucent, Motorola and all the others compete with Qualcomm in the sales of handsets. But every time a competitor's handset gets sold that makes use of an innovation of CDMA technology patented by Qualcomm, a royalty gets paid to Qualcomm. More than 25 million Qualcomm chip sets using patented CDMA innovations have already been sold. Motorola and Lucent want to have immediate access to Qualcomm's latest and greatest innovations, so much so that both companies have enterred into special royalty-providing agreements with Qualcomm.
My long winded point is that it doesn't matter whether it is Nokia's, Motorola's, or Qualcomm's handset using patented CDMA technology is sold. In all cases Qualcomm generates revenue.
I don't think either [Qualcomm or Nokia] should be [considered a potential gorilla] at this time due to the competition in the business.
As I mentioned before, it's my belief that the prudent investor will look at a potential gorilla and at least be aware of that potential long before it is achieved. As an example, I've been aware of Qualcomm's potential (my opinion) for a long time but never became seriously interested in pursuing it until their deal with Ericsson was announced. I still haven't invested but I do think my portfolio's performance might some day be attributed to the limited homework about Qualcomm I did a couple years ago and the more expansive homework I did this weekend. I hope so.
The amount of competition in a particular business arena has absolutely nothing to do with identifying potential gorillas. Just the opposite, the authors of Gorilla Game promote an investment strategy that we would buy a basket of those competitors, gradually eliminating over time those that have absolutely no chance of becoming a gorilla until we're left with the stock of one company that hopefully emerges as the gorilla. (Sorry for the long sentence!)
Why wouldn't you be looking @ nokia as a potential gorilla?
Frankly, I'm probably not knowledgeable enough of Nokia to fully understand its potential (or lack of potential) as an upcoming gorilla. My limited understanding of their role in the wireless space is that they, for the most part, resell other manufacturers' proprietary technologies every time they sell a wireless handset very much as Dell resells others' proprietary technologies every time they sell a computer. If my understanding is accurate, neither Dell nor Nokia will be a gorilla using the definition used by the authors of Gorilla Game. If my understanding is not accurate (entirely possible), I'd appreciate someone more knowledgeable than me explaining the proprietary enabling or applications technologies that could power Nokia to becoming a gorilla.
In the article you provided, there was a very short sentence that jumped off the page. I don't remember the exact wording, but it was something along the lines of "Nokia must execute." One of the primary distinctions between a king and a gorilla is that a king must execute. Contrast that with a gorilla, whose executive management team can really mess up for a few years without significantly harming the company's prospects. That's partly because of the value chain that supports the gorilla because every company in that chain is in desparate need of the gorilla's success, and partly because of the cost of switching that prevents customers from adopting a competing technology. In the case of the enabling technology, which Qualcomm's is, the value chain and the cost of switching has the greatest possible long-term impact that inures to the company's benefit.
Hope this helps. Now it's time to go to my day job, which this week I've aggregiously limited to only six days. UGH!
--Mike Buckley |
