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Technology Stocks : The New Qualcomm - a S&P500 company -- Ignore unavailable to you. Want to Upgrade?

To: engineer who wrote (750)	8/11/1999 11:09:00 AM
From: slacker711	Read Replies (1) \| Respond to of 13582

Lehman analysis from last week....indicates MOT may incorporate some of Q's chipsets in their domestic phone offerings (currently the Q's ASIC's only go into phones for the Korean and Brazilian markets). lehman.com Headline: QUALCOMM Inc: MOT Comments on CDMA Chips Overdone, Reiterate 1 Buy Author: Tim Luke, Mark Sue (212)526-4993 Rating: 1 Company: QCOM Country: COM CUS Industry: TELECM Ticker : QCOM Rank(Old): 1-Buy Rank(New): 1-Buy Price : $152 1/2 52wk Range: $167-19 Price Target (Old):$200 Today's Date : 08/04/99 Price Target (New):$200 Fiscal Year : SEP ------------------------------------------------------------------------------ EPS 1998 1999 2000 2001 QTR. Actual Old New Old New Old New 1st: 0.29A 0.33A 0.33A - -E - -E - -E - -E 2nd: 0.13A 0.41A 0.41A - -E - -E - -E - -E 3rd: 0.17A 0.75A 0.75A - -E - -E - -E - -E 4th: 0.27A 0.88E 0.88E - -E - -E - -E - -E ------------------------------------------------------------------------------ Year:$ 0.85A $ 2.37E $ 2.37E $ 3.80E $ 3.80E $ 3.70E $ 3.70E Street Est.: $ 2.05E $ 2.06 $ 2.77E $ 2.79 $ 4.78E $ 4.80 ------------------------------------------------------------------------------ Price (As of 8/2): $152 1/2 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: 22.57 Bil. P/E 1999; 2000 : 64.3 X; 40.1 X Current Book Value: $19.42 /sh Convertible: YES Debt-to-Capital: 0.1 % Disclosure(s): C, A ------------------------------------------------------------------------------ * Yesterday, shares of QCOM came under pressure following comments by MOT management during the Q&A session of its annual analyst meeting that they plan to be more aggressive in selling CDMA chipsets to third parties. Based on our confidence in the strong growth outlook for QCOM's chipset unit we are reiterating our 1 Buy rating on QCOM and we would use the weakness as a buying opportunity. * While MOT, like Lucent, has limited rights to sell CDMA chips to third party handset vendors (together with full chipset licensees VLSI and DSP), the company has struggled to produce platforms that are able to compete with QCOM's advanced ASICs. We note that MOT has been hoping to expand its presence in CDMA chipsets for some time and made similar comments in meetings last year. * In fact, offline MOT management confirmed it would be challenging to persuade handset vendors who have already designed in QCOM's chipsets into their current platforms to change suppliers. In our view, MOT may be unlikely to penetrate accounts until new platforms such as IS-95C based phones are released in 2H00. * In the near term, MOT management confirmed offline that its Personal Communications Sector (handset division) may actually expand its use of QCOM's chipsets. Semiconductor chief Hector Luiz suggested that in addition to using QCOM's ASICs in phones sold in Korea and Brazil, MOT may now begin using QCOM's chip for some models sold into the U.S. * With QCOM's current 4Q99 tracking very well and visibility on FY00 improving we continue to view our estimates as conservative. We believe chipset shipments to Ericsson beginning as early as 1Q00 could provide significant further upside to our estimates for FY00. Reiterate 1 Buy. Price target $200 or 40x FY01 of $5.00. ------------------------------------------------------------------------------ During its annual analyst meeting yesterday, Motorola management suggested that they will further pursue opportunities in the rapidly accelerating CDMA market. While expanding its profile in the CDMA chipset market did not feature in management's formal presentation, Motorola in reply to questions during the Q&A session for the Semi unit stated that it is likely to target the merchant market place as it improves on its current generation of CDMA chipsets. Motorola currently uses chipsets from QCOM in its handsets sold to the Korean and Brazilian markets while its internally developed designs are used in the company's high end U.S. offerings. In our subsequent offline discussions with management however, we have learned that due to the importance of time to market and the technical challenges involved in providing high performance low cost chipsets, that it is unlikely that vendors including Motorola will change chipsets for their current digital handset offerings. Furthermore, Motorola stated that it may even use QCOM's chipsets in some of its U.S. offerings over the next several months. Motorola currently has a license agreement from QCOM to manufacture and sell chipsets to other vendors and the current terms of their agreement prevents Motorola from bundling silicon with the necessary software codes developed by QCOM to provide a total solution. In essence, this "limited license" requires MOT to internally develop its own instruction set for their chipsets and any work around the stated limitations may lead to significant delays in coming to market, we believe. While QCOM remains the current leader in CDMA chipsets, other vendors have been granted full licenses to sell chip sets to third parties including VSLI and DSP Communications. Considering the increase in competition, we have already modeled QCOM's market share for merchant chipsets to decline from current levels of more than 90% to approximately 60% over the next 24 months. However, we note that the rapid acceleration of the CDMA market combined with QCOM's 12-18 month technological lead is likely to ensure that QCOM remains the key beneficiary of the growth in CDMA wireless subscribers. Additionally, as CDMA continues to grow at its torrid pace, license fees and royalties are further likely to aid QCOM's growth. Stock Opinion: Reiterate Buy We remain encouraged by the strong growth prospects for both Qualcomm and the global CDMA market. We believe the current strong CDMA growth and continued wireless buildouts is a testament to the benefits of CDMA technology. In the US, 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. We also believe Qualcomm will benefit from increased royalty revenues as the existing CDMA market expands and as a converged global third generation wireless standard based on CDMA begins to be deployed. Separately, QCOM will host its annual analyst meeting in NY on September 15, 1999. We continue to view QUALCOMM as a highly attractive investment vehicle in the wireless equipment sector. Our 1 Buy rating and our twelve month price target of $200 is based on Qualcomm achieving a multiple of around 40x our new high end calendar 2001 estimate of $5.00 BUSINESS DESCRIPTION: QUALCOMM provides advanced communications systems & products based on digital wireless technology. These include the OmniTRACS sys. & digital wireless telephone sys. 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. ]