Merry Christmas everyone!
Kyocera Surges 12% on Qualcomm Phone Unit Purchase (Update2)
(Adds further analyst comment in 11th through 13th
paragraphs.)
Tokyo, Dec. 24 (Bloomberg) -- Kyocera Corp. shares soared 12
percent to a record closing high after the Japanese maker of
mobile phones said it agreed to buy Qualcomm Inc.'s phone-
making unit, giving it a foothold in the North American cell-
phone market.
The maker of personal digital cellular and cdmaOne mobile
phone handsets and components climbed its daily limit of 2,000
yen to 19,350. With today's gains the shares have more than
tripled this year as Kyocera gains from its exposure to Japan's
cell phone industry, a market expected to grow fivefold in the
next 10 years.
Under the agreement, announced Wednesday in the U.S.,
Kyocera is taking over a business that makes cell phones based on
the code-division multiple access, or CDMA, standard that
Qualcomm developed. In exchange the Kyoto-based company will buy
most of its CDMA semiconductors and software from Qualcomm for
the next five years.
''Kyocera had practically zero in terms of overseas sales of
mobile phones before this, but sales will swell in one go next
year now it's got its hands on a new market,'' said Yuzuru Sato,
an analyst at Wako Securities Co.
Financial terms of the agreement weren't disclosed.
Qualcomm, whose shares have surged more than 18-fold this
year, is selling the handset business to focus on making chips
and collecting royalties from companies that use its CDMA
technology.
In return, Kyocera gets a share of the CDMA handset market,
now dominated by Motorola Inc. and Nokia Oyj.
The purchase includes any Qualcomm phone inventory, its
manufacturing equipment and existing commitments to customers.
Qualcomm will form a subsidiary to employ workers from its
handset unit and contract them out to Kyocera for as long as
three years.
Employees of Qualcomm Personal Electronics, a joint venture
with Sony Corp., will be transferred to Kyocera. Between them,
Qualcomm's handset unit and QPE employ about 4,000 people.
Shares in Qualcomm, the leading stock in the Standard &
Poor's 500 Index this year, fell 18 15/16, or 4 percent, to 466
1/2 in Nasdaq trading. The shares rose to a 52-week high of 522
1/8 Wednesday.
Kyocera shares weren't traded in Japan yesterday because of
a national holiday to celebrate the Emperor's birthday.
CDMA Target
The purchase ''has the potential to vastly lift Kyocera's
handset business,'' said Hitoshi Kuriyama, an analyst at Merrill
Lynch Japan Inc. Kuriyama reiterated his 'buy' rating on the
stock and raised his long-term target price for Kyocera to 22,300
yen from 18,500 after the news.
Kyocera, which said last month first-half earnings in the
six months ended Sept. 30 rose 29 percent thanks to healthy
demand for phones, said it expects to make 16 million CDMA
handsets in the fiscal year ending March 31, 2001.
That compares with likely sales of 3.8 million units for the
current fiscal year ending March 31, said Merrill Lynch's
Kuriyama. There are about 40 million CDMA users worldwide as of
the end of the third quarter, according to Qualcomm.
Jeff Schlesinger, an analyst at Warburg Dillon Read LLC,
forecasts about 50 million users by year-end.
Kyocera, also a maker of software to give wireless devices
access to the Internet, said the handset business will become a
unit of its U.S. subsidiary, Kyocera International Inc., and
remain in San Diego. The Kyocera unit will lease some facilities
from Qualcomm.
Qualcomm, which expects the sale to close by the end of
February, will take a pretax charge of $30 million in its fiscal
first quarter ending this month.
Telecommunications Role
The agreement with Qualcomm comes a week after Kyocera's
expansion of its role in Japan's telecommunication industry
through the purchase by DDI Corp., Japan's second-largest long-
distance telephone company, of two domestic telecom rivals.
Kyocera will be the largest shareholder of the new company,
with a 15.8 percent stake. DDI will be Japan's biggest provider
of international services and will have a nationwide cellular
phone network once the takeover is complete.
''Kyocera is being viewed positively for management's
forward-looking stance on mergers and acquisitions,'' said Wako
Securities' Sato.
Qualcomm has been negotiating the sale of the handset
business for the past three months. The business has had
operating margins of about 2 percent. Nokia Oyj, the No. 1 cell-
phone maker, has operating margins of almost 20 percent.
Qualcomm Chief executive Irwin Jacobs said on a conference
call he chose Kyocera over rival bidders partly because it agreed
to keep the handset business in San Diego, where Qualcomm is
based, and committed to using Qualcomm chips.
Nokia and Matsushita Communication Industrial Co., maker of
the Panasonic brand, had been mentioned by analysts as being
among the likely suitors.
Kyocera said its royalty agreements with Qualcomm will
remain in place under existing terms. The sale is subject to
regulatory approval. |
