approaching millennium, infamous WSJ "Heard on Street" article of 1994 panning Q, thought you might be interested in revisiting:
Heard on the Street
Qualcomm 's Digital Technology Wins Praise,But Marketing Delays Are Raising Questions
By Susan Pulliam
10/11/1994
The Wall Street Journal
Page C2
(Copyright (c) 1994, Dow Jones & Co., Inc.)
Remember the 1980s battle of the videotapes? Betamax was thought to have
awesome technology, but VHS scrambled to market first -- and won.
Now some investors envision a similar plight for Qualcomm , a San Diego
developer of a better way to cram a lot of mobile-phone calls onto a small
slice of the airwaves. It's a good idea. But in technology, ideas alone won't
cut it. Speed in rolling out a product is vital. Qualcomm 's whiz-bang digital
technology is losing ground, some experts believe, to older digital methods
already adopted by the likes of giant McCaw Cellular Communications.
"It's too late for Qualcomm , at least in this round of technological change,"
asserts Marc Cabi, a Cowen & Co. analyst who rates the stock "neutral."
"The momentum has moved away from them."
Qualcom disagrees. "{Our} technology is superior to {competing}
technologies in every respect," says Richard Grannis, Qualcomm 's
treasurer. "The main challenge we have is making the equipment available as
quickly as possible. We are addressing that, and will have the equipment
ready next year." Qualcomm closed at 28 yesterday on Nasdaq, off 1/4.
Bears are circling. Qualcomm has been "promising for four years," says Fred
Wadler of Gilford Securities in Chicago. Gilford has sold Qualcomm short,
betting on a price drop; he values it at $10, including $5 for the wireless
business.
Some big investors bailed out earlier this year when Bell Atlantic said it would
use existing technology (rather than Qualcomm 's) in four big markets. That
was a blow, although Qualcomm still has some big players in its camp,
including AirTouch, Sprint, U S West, Ameritech, GTE and Nynex. There's
speculation Nynex may also back away; Nynex says only that "it will be a
market-driven decision." Bell Atlantic says it won't take sides but "we'll
provide the best available digital technology to our customers."
"My feeling is that { Qualcomm 's technology} won't be widely adopted,"
says Bruce Lusignan, a professor at Stanford University . "Its advantages as
a big technological breakthrough have been greatly overblown." Qualcomm
counters: "It appears Mr. Lusignan does not believe what's already been
proven by us and others."
Skeptics envision Qualcomm winning perhaps one-third of the total cellular
market. But bears say the stock reflects higher hopes. (Mr. Grannis says only
that Qualcomm expects a "major" market share.)
A year ago Qualcomm 's digital technology, called Code Division Multiple
Access, was widely deemed a big gain over existing digital technology, called
Time Division Multiple Access. And many carriers were expected to adopt
CDMA as the new way to carry wireless phone calls. Cellular calls today rely
on analog technology, in which electrical pulses represent the caller's voice.
The problem is that cellular carriers are running out of capacity and analog
technology is susceptible to static. Enter digital technology. It changes the
pulses into ones and zeros, or digits, allowing room for more calls.
McCaw has supported the older digital TDMA, though Qualcomm 's fans
say CDMA is better because it allows even more signals to travel at once.
While there were lags in developing TDMA, last spring it became clear the
CDMA effort was suffering from delays. Qualcomm too hit delays.
Qualcomm blames the industry standard-setting process and "the time
required for manufacturers to have equipment ready;" it says its technology
should be commercially available by mid-1995.
Others are dubious. "If CDMA has half the delays that TDMA had, the first
commercial application is still at least one year away," says Mr. Cabi.
Moreover, delays in CDMA may hurt Qualcom's ability to lure cellular
carriers that will bid for radio spectrum for Personal Communications
Services in a December government auction. Bidders "won't want to wait for
a technology that's not ready," says Mr. Cabi. "They'll go with a technology
from Europe that's already proven in the marketplace." Qualcomm says a
group including US West, Time Warner, Sprint and Bell Atlantic supports
CDMA for the so-called PCS market but adds: "There is no guarantee {they}
will adopt it." He says The Street often overlooks the company's potential
abroad, such as in Hong Kong, the Philippines, South Korea and Argentina.
Mr. Cabi's fiscal 1995 earnings estimate is way below the 61-cent-a-share
Street consensus. He looks for 50 cents to 55 cents; Qualcomm won't
comment. "There has been a lot of positive press generated by the company,"
he says. And Qualcomm still has plenty of believers. "Even if they don't get
much of the U.S. market, there will still be enough volume to make sense,"
says Joan Lappin, portfolio manager and president of Gramercy Capital
Management.
-- idler. |
