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To: DaveMG who wrote (119)	6/25/1999 11:32:00 AM
From: DaveMG	Read Replies (2) \| Respond to of 426

CDG on CDMAone evolution to 3G by Perry Laforge 6/99 Third generation (3G) technology is a topic that has been in the industry headlines constantly in the past year.The issues surrounding 3G have been publicized in the media with the CDMA Development Group (CDG)highly visible in its efforts to resolve the compatibility issues between cdma2000 and W-CDMA. The CDG's efforts on 3G have been much more than a public relations campaign, however, with the Advanced Systems and Evolution teams hard at work out of the public eye developing standards that provide for the timely and flexible implementation of 3G services for cdmaOne operators. As part of the overall IMT-2000 effort, standards activities for cdma2000 (the 3G version of cdmaOne) have been proceeding at a rapid pace to ensure that a flexible, cost-effective solution is in place for cdmaOne operators. Flexibility of deployment is an essential element of the CDG's 3G strategy together with preserving investment in existing systems and spectrum and offering the most technologically robust, advanced services to operators. These are the CDG priorities for developing cdma2000 and accelerating it through the standards process. Focused on delivering maximum value to the operators and the consumer in a timeframe that meets existing and emerging market demands, this 3G strategy is resulting in near term solutions for cdmaOne advanced services without needing to acquire additional spectrum or invest in intrusive, expensive network or handset upgrades. The 3G solutions for cdmaOne will build on its advanced data services that are unmatched by any other 2G digital technology. Operators today can deploy data rates up to 64 kilobits per second (kbps) with cdmaOne when using IS95B. Plans to introduce commercial services including Internet access at this speed by the end of this year have already been announced in Japan by DDI and IDO Corporations, and Korean operator KT Freetel is also building on its current data capabilities to introduce the higher speeds. QUALCOMM has shipped the high-speed packet data software solution for handsets that will facilitate the services planned in Japan and Korea. The solution provides wireless handset manufacturers and network operators with the ability to deliver high-speed internet access at speeds faster than those available in most homes today, up to 86.4 kbps. Network infrastructure to support the high-speed data services is being supplied in Japan by Motorola and in Korea by Samsung. The introduction of these data services is an example of the graceful migration and market leading abilities that are inherent in the cdmaOne platform. Discussing the move to 64 kbps data services, Tadashi Onodera, executive vice president with DDI Corporation, noted, "With this achievement, our current cdmaOne system will be enabled for high-speed packet data by the end of this year in the current handset form factor, allowing us to provide an exclusive service [in the Japanese market] which will lead into IMT-2000." Another recent example of leveraging today's cdmaOne platform to deliver the data services customers desire on the way to 3G services is Bell Mobility's recently announced series of initiatives that will provide its customers with instant access to wireless Internet, e-mail and e-commerce applications from their handsets. Bell Mobility unveiled two new services and launched two market trials for wireless on-line banking, real-time e-mail and web browsing in May. The growing number of data service implementations demonstrates the increasing demand for access to information tools from wireless phones. One of the most often cited uses for 3G is the ability to support high-speed Internet access. To provide an incremental increase to the 64 kbps data rate supported by cdmaOne today without requiring operators to implement rates up to 2Mbps that are not yet needed, the CDG worked with the standards bodies to divide cdma2000 into two phases. This strategy meets the operator requirements for flexible and cost-effective solutions paired with leading edge technology solutions. cdma2000 phase1 is evolutionary from IS-95B, can be deployed in an existing cdmaOne channel and encompasses enhancements that include the following: 1X and 3X 1.25 MHz channel support 144 kbps packet data rates 2X increase in voice capacity 2X increase in standby time Improved handoff The standard for this phase of cdma2000 has reached the final ballot phase within the Telecommunications Industry Association (TIA) TR45.5 sub-committee and manufacturers are already developing products to the specification. By introducing the 3G capabilities in a phased manner, cdmaOne operators will be able to maintain market leadership with the first available commercial 3G services. Only cdmaOne operators will be able to upgrade to 3G without acquiring additional spectrum, a key component to minimum time to market without additional, significant investment. The design of cdma2000 allows for deployment of the 3G enhancements while maintaining existing 2G support for cdmaOne in the spectrum an operator has today. Operators are presented with a number of options for using spectrum to combine cdmaOne and cdma2000 on 1.25 MHz channels within 5MHz blocks of spectrum. Both cdma2000 phase 1 and cdma2000 phase 2 can be intermingled with cdmaOne to maximize the effective use of spectrum according to the needs of an individual operator's customer base. For example an operator that has a strong demand for high-speed data services may choose to deploy a combination of cdma2000 phase 1 and cdmaOne that uses more channels for cdma2000. In another market users may not be as quick to adopt high-speed data services and more channels will remain dedicated to cdmaOne services. As the cdma2000 phase 2 capabilities become available, an operator has even more choices on how to use its spectrum to support the new services. Flexibility for cdma2000 extends to the spectrum bands that can be used for its deployment. As discussed, it is the only 3G technology that can be deployed by operators in all of today's cellular and PCS spectrum bands for mobile and fixed wireless systems. It is also compatible with IMT-2000 spectrum bands, so operators who do acquire new spectrum will be able to experience the benefits of cdma2000 as well. Operators around the world are announcing their plans to evolve their networks to the first phase of cdma2000. Ease of migration and the cost-effective manner in which cdmaOne supports 3G services are continually cited by industry executives as advantages they are realizing from their cdmaOne investment. In November of 1998 Bell Atlantic Mobile announced that it will begin phased introduction of new high-speedwireless data capabilities over its existing cdmaOne network in 1999 based on cdma2000 phase 1 enhancements provided by Lucent Technologies. The cdma2000 solution takes advantage of the existing cdmaOne format and combines radio spectrum to create a larger "pipe" for voice and data transmissions allowing the 3G enhancements to co-exist with the current cdmaOne network. This 5 MHz multi-carrier scheme will allow simultaneous service to current customers, yet will cost-effectively support mobile data rates nearly eight times faster than today's modems. "Backward compatibility to existing cdmaOne is the linchpin for delivering these advanced services, and that's why we intend to deploy cdma2000 capabilities in our network," Ted Hoffman, vice president technology development for Bell Atlantic Mobile said. "This phase of evolution will allow us to introduce 3G data rate services quickly and at minimal cost while substantially increasing our current digital voice capacity within our existing spectrum. This will give us the most competitive cost structures in the world for wireless services," Hoffman continued. On the other side of the world from Bell Atlantic Mobile, Telstra announced in March of this year its plans for a showcase of innovative high-speed wireless Internet, multimedia and packet data services for Australia beginning in 2000. "Providing cost-effective, high-speed multimedia services to our customers is critical for the future," said Lindsay Yelland, group managing director, products and marketing, Telstra Corporation. "We are very excited to be able to trial next generation services on the same platform already being built using Nortel Networks CDMA technology." The Telstra trial will support data services at up to 144 kbps using the first phase of cdma2000, providing Telstra's trial customers with access to a range of multimedia services including rapid wireless Internet connection. As the deployment plans for cdma2000 phase 1 are getting under way, the second phase of 3G technology on the cdma2000 platform is being standardized and will evolve from the phase 1 capabilities to add features that include: q Support for all channel sizes (6X, 9X, 12X) q Full support for circuit and packet data services up to 2 megabits per second (Mbps) q Advanced multi media call model q Framework for advanced 3G voice services and vocoders including voice over packet and circuit switched data Sprint PCS and Nortel Networks recently provided a glimpse of these future wireless services by demonstrating the high-speed data, voice and video applications of cdma2000 phase 2. The demonstration included voice over IP (Internet Protocol), web browsing, data transfers and video conferencing at speeds up to 384 kbps, a six-fold increase in data rate from the 64 kbps available today. The phased approach for 3G is delivering on the CDG's goal to maintain the technical superiority of cdmaOne while offering operators the most financially beneficial solutions to maintain their market leadership and continually evolve the service offerings they provide their customers. The fact that next year cdma2000 phase 1 can be deployed in an existing cdmaOne channel by both cellular and PCS operators around the world is an incredible advantage. The increases in data rate, capacity and standby time will facilitate the migration to more advanced data services at a pace that makes sense with current market demand. The data market is certainly emerging, but operators do not yet need full blown 3G rates in excess of 300 kbps. The devices and applications requiring these types of rates are not going to be available in the next year or two, so it would be an excessive deployment, taking resources away from services on the 2G platform. With cdma2000 phase1 the operators realize the best of both worlds: high-speed data services in line with the applications the consumer wants now in coexistence with the 2G network and a blueprint to add the faster data rates when the time is right.

To: DaveMG who wrote (119)	6/30/1999 9:22:00 AM
From: DaveMG	Read Replies (1) \| Respond to of 426

Complete Lehman report from 6/23..... lehman.com Headline: QUALCOMM:Happy Travels With Mgmt, Strong Trends, Ests & Target Raised, Buy Author: Tim Luke (212)526-4993Rating: 1Company: QCOMCountry: EPS CUS Industry: TELECMTicker : QCOM Rank(Old): 1-Buy Rank(New): 1-Buy Price : $130 11/16 52wk Range: $121-19 Price Target (Old):$150 Today's Date : 06/21/99 Price Target (New):$165Fiscal Year : SEP ------------------------------------------------------------------------------ EPS 1998 1999 2000 2001QTR. Actual Old New Old New Old New 1st: 0.29A 0.33A 0.33A - -E - -E - -E - -E 2nd: 0.13A 0.41A 0.41A - -E - -E - -E - -E 3rd: 0.17A 0.65E 0.68E - -E - -E - -E - -E 4th: 0.27A 0.72E 0.76E - -E - -E - -E - -E ------------------------------------------------------------------------------ Year:$ 0.85A $ 2.11E $ 2.18E $ 2.78E $ 3.02E $ - -E $ 3.70E Street Est.: $ 2.01E $ 2.02E $ 2.67E $ 2.71 $ 3.61E $ 3.61E ------------------------------------------------------------------------------ Price (As of 6/17): $119 15/16 Revenue (1999): 3.6 Bil. Return On Equity (99): N/A Proj. 5yr EPS Grth: 35.0 % Shares Outstanding: 148.0 Mil. Dividend Yield: N/A Mkt Capitalization: 17.75 Bil. P/E 1999; 2000 : 56.8 X; 43.1 X Current Book Value: $6.86 /sh Convertible: YES Debt-to-Capital: 99.8 % Disclosure(s): C, A ------------------------------------------------------------------------------ * After spending several days travelling with senior QUALCOMM management visiting investors in Europe, we maintain the wireless industry innovator and CDMA pioneer is continuing to experience strong trends across its all three of its core businesses of CDMA chipsets, handsets, and royalties. * Believe QUALCOMM's chipset unit has seen exceptionally robust trends in third quarter 1999 with sales now likely to exceed our estimate of $260 million versus $230 million in second quarter 1999 and visibility remaining good through fourth quarter 1999. Upside in fiscal 2000 could come from discussions with key target accounts; Ericsson, Motorola, Kyocera, and even Nokia potentially leading to new orders. * QUALCOMM's handset unit continues to make strides in improving operating margins with new ThinPhone seeing strong demand. Official launch of ThinPhone by Sprint PCS over next several weeks could coincide with new order announcements. Delays in launch of dual-mode offerings by rivals, i.e., Nokia also helping (sales may reach $450 million in third quarter 1999 versus $400 million in second quarter 1999). * CDMA royalty revenues should sustain impressive growth as network rollouts gain momentum in Japan, Brazil, and China and as sub growth accelerates in Korea and the United States with key vendors such as Nokia and Motorola releasing new handsets. Royalties to move from $77 million in second quarter 1999 to at least $85 million in third quarter 1999. * Based on strong revenue and margin trends, our high end earnings estimates move upwards for fiscal 1999 from $2.11 to $2.18 and for fiscal 2000 from $2.78 to $3.02. Continue to believe these estimates are likely to be revised steadily upwards as CDMA gains momentum around the world. Reiterate our 1 Buy rating and raise our price target from $150 to $165 or 40-45 times our initial calendar 2001 estimate of $3.90 ------------------------------------------------------------------------------ Summary: Last week, we hosted a trip to Europe with QUALCOMM President and COO Rich Sulpizio to visit with institutional investors in several countries. Mr. Sulpizio has been one of the key architect's of the recent upswing in QUALCOMM's operating performance and management's upbeat tone during our meetings with investors appeared to confirm our view that the company is benefiting from strong demand trends across all three core businesses as CDMA growth accelerates around the world. Mr. Sulpizio's visit included a keynote speech at Lehman Brothers Seminar in London on Wireless Data and Third Generation Networks. While we consider QUALCOMM is seeing impressive trends across all three of its principal units, we are especially impressed by the outlook for the CDMA chipset division. In addition to strong visibility on orders for third quarter 1999 and fourth quarter 1999, we maintain that QUALCOMM could potentially see incremental growth possibilities if the company is successful in translating initial discussions with key handset vendors such as Ericsson, Motorola, Kyocera and even Nokia into expanded chipset sales. While we do not expect any news or announcements on any of these potentially significant vendors for some time (months as opposed to weeks), we are encouraged that the door has been opened for discussions with these key players. In the meantime, we continue to see QUALCOMM adding functionality and features to it chipsets with more DRAM and more Memory and even a second CPU. We have also been encouraged made by the progress made by the handset division in improving its operating margins. We believe management has set aggressive targets for this unit (including double digit operating margins by first quarter 1999) and consider that the management team is willing to consider a range of strategic options if these tough goals are not met over the next 12 months. As highlighted above, the official launch of the ThinPhone by Sprint PCS during July may provide another catalyst for investors and supply further evidence of order visibility. New Estimates Conservative We continue to believe our earnings estimates may be revised steadily upwards over the balance of 1999. In third quarter 1999, we believe our estimates for chipset sales at $260 million versus $230 million in second quarter 1999 may prove conservative as QUALCOMM benefits from ramping shipments of the new MSN3000 chipset. Royalty revenues may be another area of possible area of upside. We have now modeled $85 million in royalties for third quarter 1999 up from a prior level of $80 million and up modestly from $77 million. We also maintain that substantial improvements in QUALCOMM's operating costs in the handset area may lead to margins improving at a faster rate than we have modeled.Stock Opinion; Estimates Raised, Reiterate 1 Buy Rating, Target $165 Based on this robust outlook, with CDMA hitting its stride and visibility improving on third quarter 1999 and the balance of fiscal 1999, we have raised our high end estimates for QUALCOMM. Our earnings estimates for fiscal 1999 and fiscal 2000 have moved from $2.11 and $2.78, respectively, to new levels of $2.18 and $3.02. Our revenue estimates (ex-royalties) are $3.7 billion in fiscal 1999 and around $4.1 billion in fiscal 2000. We are currently looking for royalty revenues to increase from $214 million in fiscal 1998 to around $297 million in fiscal 1999 and as high as $392 million in fiscal 2000. With QUALCOMM's gross and operating margins likely to provide considerable leverage, we believe these estimates may prove conservative and we believe our estimates may move steadily high over the balance of fiscal 1999. We are currently modeling that QUALCOMM's operating margins should move from 3.7% in second quarter 1999 to around 13.6% by the end of fiscal 1999. We anticipate further upward revisions to our estimates during fiscal 1999. Looking forward, we remain encouraged by the strong growth prospects for both QUALCOMM and the global CDMA market. We agree we management's bold statement that the transition around the globe to CDMA-based networks should be seen in terms of "when not if." In the United States, we believe the highly successful one-rate plans offered by many major carriers such as Sprint are likely to continue to drive rapid CDMA subscriber growth. Overseas, the removal of uncertainty of standards should help several large new markets such as Japan, Brazil, India, and China gain momentum in 1999. Following the conclusion of the landmark settlement between Ericsson and QUALCOMM, we believe QUALCOMM will benefit from increased royalty revenues as the existing CDMA market expands (following Ericsson's endorsement of that market) and as a converged global third generation wireless standard based on CDMA begins tobe deployed. We continue to view QUALCOMM as a highly attractive investment vehicle in the wireless equipment sector. Our 1 Buy rating and our new 12-month current price target of $165 is based on QUALCOMM achieving a multiple of around 40- 45 times our new high end calendar 2001 estimate range of $3.90 to $4.00. BUSINESS DESCRIPTION: QUALCOMM provides advanced communications systems and products based on digital wireless technology. These include the OmniTRACS systems and digital wireless telephone systems based on CDMA technology. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. This document is for information purposes only. We do not represent that this information is complete or accurate. All opinions are subject to change. The securities mentioned may not be eligible for sale in some states or countries. This document has been prepared by Lehman Brothers Inc., Members SIPC, on behalf of Lehman Brothers International (Europe), which is regulated by the SFA. ]