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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Sommers who wrote (4709)	8/14/1999 3:23:00 AM
From: Sommers	Read Replies (2) \| Respond to of 54805

OK boys, here's another dusty old 1995 article on Q. Hope it adds some spectrum to your weekend: QUALCOMM'S DISAPPOINTING PROGRESS (29-Jul-95 The Economist Newspaper Limited) Nothing makes short-sellers on the stockmarket more frustrated than an over-touted company that defies their predictions of doom. Their target is supposed to fall flat on its face, not soar onward and up. For the past year, sceptics have been expecting to make a bundle out of Qualcomm, a telecoms equipment specialist in San Diego, California, when its clever - but fiendishly complicated and unproven - technology for squeezing ten times more phone calls into cellular systems finally flops. They have been disappointed. Even optimists reckon that the technology, called 'code division multiple access' (CDMA), is a good year away from the market; some are sceptical that it can ever be made to work as well as promised. The main competing standard - 'time division multiple access' (TDMA), promoted by Sweden's Ericsson - has been used for years as the foundation of Europe's GSM standard. However, 11 of America's 14 big telephone carriers have now thrown their weight behind CDMA to bring their old-fashioned analogue cell-phone networks into the digital age. More surprisingly, so have companies planning to offer the new-fangled personal communications services - pocket communicators which are half way between cordless house phones and full-blooded cellular systems. Under their licences, PCS operators, which together spent $ 7.7 billion last March buying unused frequencies, have to deploy most of their networks within five years. However, with the conversion on July 21st of the biggest PCS bidder (an alliance including Sprint, Tele-Communications Inc, Cox and Comcast) to CDMA, only three of the bigger bidders remain committed to TDMA. Telecoms-equipment firms are now scrambling for licences from Qualcomm to make the necessary CDMA handsets and base-stations. A dozen big cell-phone suppliers, including Motorola, NEC, Mitsubishi, Matsushita and Sony, have paid Qualcomm more than $ 1m each for the technology. And half-a-dozen manufacturers, including AT&T, Northern Telecom and Motorola, have paid Qualcomm over $5 mil. apiece for the right to make network equipment for CDMA base-stations. CDMA's charm is simple. Where today's cell-phones assign a whole frequency channel to each telephone call, CDMA 'tags' each conversation with a special code of its own and then lets a dozen or more calls share the same channel. In theory, up to 20 conversations can jabber at once on a single channel. In practice, interference and other practical hurdles limit the number of simultaneous conversations to around ten; but that is still ten times as many as an analogue network can handle. Ericsson's rival TDMA standard splits conversations into blocks that are slotted one after another in a channel to form a continuous stream - like a freight train pulling wagons of different goods. That means it can handle only about a third as many calls at a time as CDMA. But TDMA is now a tried and trusted technique. So why have so many American cellular companies picked the riskier option? The answer is a mixture of trust, economics, nationalism and herd mentality. Given a choice between picking a European standard and promoting a home-grown technology's bid for world domination, telephone companies would have needed a compelling reason to reject CDMA. Once Qualcomm passed some technical tests earlier this year, enough telephone firms became interested for economies of scale to come into play: in particular, it looked likely that the price of Qualcomm's chip-set would drop by as much as 15-20% a year from the $100 or so it is likely to start at when introduced next year. One result may be that the stockmarket has overreacted. Despite expecting earnings of below $ 30m this year, the stockmarket values Qualcomm at a ludicrous $ 2.4 billion. Many cynics reckon that the PCS market will flop. Even if it does not, Qualcomm will still have to compete with the likes of AT&T, NEC and Motorola in the equipment market. Most of Qualcomm's cash is likely to come from royalty fees or orders for its proprietary microchips. That could, however, be quite a sum. Imagine that 500m cell-phones are sold over the coming decade, and that half of them use CDMA technology and pay Qualcomm a 4% royalty. That could provide the firm with a nice nest-egg of $ 3 billion. But only if CDMA works. ¸ 1995 The Economist Newspaper Limited. All rights reserved.