Qualcomm Dips as Motorola Plans Chip Sales
As reported August 4 by the SD Union Tribune
Shares of Qualcomm fell more than 8 percent yesterday, after nemesis
Motorola announced that it will launch a new round of competition by
aggressively selling semiconductor chips that rival those produced by the San Diego telecom giant.
Qualcomm's stock has risen fivefold this year on expectations that its profit will surge on sales of its chips, and on royalties from companies that use its technology. The shares closed down $12.50 at $140 on fears Motorola's plans will cut into those profits.
However, some observers said Motorola's announcement amounted to
nothing more than saber rattling -- or perhaps pre-trial posturing.
The two companies are embroiled in a legal battle over patent rights, giving intriguing context to Motorola's renewed initiative, unveiled during one of the market's slowest months.
Motorola made the announcement during an "analyst day" in Chicago.
Officials said the company would "take a more aggressive posture" with
regards to the selling of semiconductor chips, a pledge it made a year ago.
But analysts and Qualcomm quickly noted that Motorola, the world's No. 2 mobile phone maker, could only sell its chips, known as Application Specific Integrated Circuit chips, or ASICs, to just a few other phone makers without having to pay Qualcomm royalties.
And even in those cases where Motorola could skirt royalty payments, under existing licensing agreements, many of the phone makers would have to pay higher per-phone royalties to Qualcomm if they didn't use Qualcomm's chips.
"Motorola was trying to seed innuendo to screw Qualcomm," said one
analyst, who requested anonymity. Others took a similar view.
"They (Motorola) were vague on exactly what they would sell and to whom they would sell it," said Mark Roberts, an Everen Securities analyst who attended the announcement. "They were given an opportunity to clarify, and they did not."
Roberts added that it would take a year for a phone manufacturer to design and develop phones to accommodate Motorola's chips.
Motorola has been making chips for its own line of phones based on code division multiple access, or CDMA, technology that Qualcomm pioneered and has successfully positioned to become the global mobile phone standard.
Peter Peterson, with Volpe Brown Whelan, said Motorola, if it follows
through, could accelerate and expand deployment of CDMA and, thus,
benefit Qualcomm.
"I'm more bullish on CDMA because of this," Peterson said. "CDMA needs
to have strong product offerings vs. others. Having Motorola becoming that much more committed is a positive for CDMA."
Mario Rivas, Motorola's corporate vice president and general manager of the company's Wireless Subscribers Systems Group, said in a phone interview last night that yesterday's presentation offered a banquet of information, but that analysts and the media chose to focus on the chip issue.
Rivas said the company merely reiterated its desire to sell chips, and did so without regard to the ongoing lawsuit with Qualcomm.
Rivas declined to say which companies would be buying Motorola's chips.
"We are working with several," Rivas said. "It would be premature to tell you names of companies."
Roberts said a competing analyst at Hambrecht & Quist misinterpreted Motorola's statements during the meeting and disseminated the belief that Motorola had "engineered" a way around having to pay Qualcomm royalties.
This, coupled with typically slow August volume, contributed to Qualcomm's stock slide, Roberts said.
The Hambrecht & Quist analyst could not be reached for comment.
Peterson predicted that Qualcomm's stock would snap back in time, but might remain depressed through the summer vacation season -- a perfect buying opportunity, he said.
Qualcomm saw its stock explode in late March, when the company
announced it was selling an ailing business unit as part of a sweeping patent settlement with Swedish rival Ericsson. The stock has since split and was recently trading at $167 a share.
Meanwhile, Qualcomm, which owns about 90 percent market share in the
ASICs market, sounded a lot like its aggressive software partner, Microsoft, when confronted with Motorola's latest salvo.
Dick Grannis, Qualcomm's treasurer, said Qualcomm has vanquished the
Schaumburg, Ill.-based giant before. He noted that Motorola lost in the battle against OmniTracs, Qualcomm's satellite tracking system used in the trucking industry.
Grannis also kicked sand in the face of Iridium, the troubled
Motorola-backed satellite phone system that may confront serious, if not fatal, competition later this year from Qualcomm-backed Globalstar.
"If they want to compete with us on ASICs, we look forward to doing that," Grannis said. |
