Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Scott Overholser who wrote (33618)	6/29/1999 5:37:00 PM
From: Ruffian	Read Replies (1) \| Respond to of 152472

Good Q News SP> Tuesday June 29, 5:10 pm Eastern Time S&P raises Qualcomm Inc ratings (Press release provided by Standard & Poor's) NEW YORK, June 29 - Standard & Poor's today raised its corporate credit, preferred stock, and bank loan ratings on Qualcomm Inc. (See list below.) The ratings have also been removed from CreditWatch, where they were placed June 9, 1999. The upgrade on Qualcomm reflects the company's substantially improved business and financial profile following resolution of patent disputes with AB LM Ericsson on terms favorable to Qualcomm. The rating additionally reflects the sale of its unprofitable base station manufacturing operations to Ericsson. These are offset by expected increasing competition for handsets, which represent nearly 50% of revenues and price pressures on special-purpose chips which the company supplies to most suppliers of code division multiple access (CDMA) wireless products. Furthermore, the company is obligated to offer a substantial degree of financial support to several speculative-grade businesses. San Diego, Calif-based Qualcomm manufactures wireless communications products based on the CDMA technology which it commercialized. CDMA patent royalties are substantial, based on equipment manufacturers' revenues. Royalties will also apply to equipment built for the next generation of the European wireless network, starting in about three years. Qualcomm is the dominant supplier of profitable CDMA semiconductors to the industry, although competition is developing. Qualcomm also generates good cash flows from its truck fleet communications service, and provides services and equipment to the Globalstar satellite communications system. Royalty income stability has been enhanced by favorable resolution of intellectual property disputes with Ericsson and the sale of the unprofitable base station business. While earlier handset manufacturing problems have been overcome, the handset business is subject to profitability pressures, rapid product line evolution, continual execution challenges, and the uncertainty of consumer tastes. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins have recently risen to about 17%, pro forma for the base station divestiture, from the 10%-12% range, including royalties. While funds flow from operations is good, rapid growth has entailed substantial increases in working capital levels. Resulting operating cash flows have been negative, exacerbated by large historical capital expenditures to build handset and base station factories, and by rising levels of vendor finance extended to several customers. The company's decision to exit the base station business should moderate its construction expenditures and will curtail the growth in potential vendor finance commitments. Still, future prefinancing cash flows will depend on the growth rate of the handset operations and on customer requirements for vendor financial support, potentially totaling over $1 billion. Cash balances of $200 million are likely to decline over the near term. Debt leverage is low, as growth has been financed by over $1 billion in common and preferred stock offerings in the last five years. Financial flexibility is enhanced by $600 million of revolving credit agreements. OUTLOOK: POSITIVE If the company can sustain its recent operating earnings and cash flows and retain its conservative capitalization as the wireless industry evolves, ratings could be raised, Standard & Poor's said. RATINGS RAISED AND REMOVED FROM CREDITWATCH To From Corporate credit rating BB BB- Preferred stock B B- Bank loan BB BB-