Report from the San Diego Union Tribune:
Qualcomm stock falls on warning
of lower sales
By Mike Freeman
UNION-TRIBUNE STAFF WRITER
January 27, 2000
SAN DIEGO -- Recent Wall Street darling Qualcomm Inc.
saw its shares tumble yesterday as investors reacted to the
company's warning of lower chip and phone sales in the
second quarter.
Meanwhile, the noise generated from the plunge in
Qualcomm's stock, which fell more than $24 a share to
close at $124.621/2, nearly drowned out news of its
pending purchase of a small wireless locator company,
SnapTrack Inc., for $1 billion.
Qualcomm officials declined to say how many shares the
company will issue to buy SnapTrack. The deal is
expected to be completed in March.
On Tuesday, after the market closed, Qualcomm reported
record earnings for its first quarter, but it also warned of
lower profits during the pending second quarter because of
parts shortages and seasonal slowdowns.
When trading began yesterday, investors bolted en masse,
with more than six times the average number of shares
changing hands.
The company's share price fell below $120 before
rebounding. Its woes dragged down the technology-heavy
Nasdaq exchange, which fell 97.5 points, or 2.34 percent,
to 4,069.91.
"Anybody who has followed the company for some time
knows that lineality is not something that the company is
known for," said
Ajay Diwan, an analyst with Goldman Sachs, said,
"Basically, they gave some guidance that revenue in
general would be lower than it would be in the December
quarter, and that resulted in a sell-off."
Diwan remained bullish on Qualcomm, which pioneered
code division multiple access technology, or CDMA -- the
foundation of mobile phones.
But two other Wall Street firms downgraded their ratings
for Qualcomm.
Merrill Lynch dropped from "accumulate" to "neutral,"
while Salomon Smith Barney switched from "buy" to
"outperform."
"I think the market overreacted," said Dale Pfau, an analyst
with CIBC World Markets. "But I also feel the market
overreacted to good news in December" when Qualcomm's
stock soared after an analyst boosted its target price to
$1,000 a share. The company has since undergone a
4-for-1 stock split.
While Pfau expects Qualcomm's stock to continue to be
volatile, he maintained a "strong buy" rating for the
company.
Ironically, Qualcomm's losses came the same day that it
announced the buyout of SnapTrack, a 70-employee,
privately held company that's expected to give Qualcomm a
stronger grip on mobile phone technology.
SnapTrack develops software that pinpoints locations of
PCS and cellular phones.
Cell-phone companies see this as a key safety feature, and
the Federal Communications Commission has been pushing
for the technology so 911 operators can find callers during
emergencies. The FCC deadline for providing locator
phones is October 2001.
"There's something like 100,000 cell-phone calls a day to
911," said John Cunningham, a spokesman for SnapTrack.
"Of the 100,000, about 30 to 40 percent don't know where
they are when they make the call."
SnapTrack's software is built into chips in the handset. It
taps into the U.S. government's Global Positioning System,
or GPS, to track wireless phone users. It has nearly 50
patents either issued or in process.
Founded in 1995 by Steve Poizner, SnapTrack will
become a wholly owned subsidiary of Qualcomm. The
company will remain in San Jose, said Christine Trimble,
a Qualcomm spokeswoman.
"They have a very strong patent position in
wireless-assisted GPS," said Trimble. "We're merging
technologies."
Trimble declined to release financial details about the
closely held company. According to The Wall Street
Journal, however, SnapTrack raised about $20 million in
capital to develop its tracking system. Top investors
include Motorola and Texas Instruments, as well as
venture capital firm Benchmark Capital.
While the FCC deadline may be driving locator
technology, analysts say its potential extends well beyond
use in emergencies.
By knowing a cell-phone user's location, companies can
deliver a host of services through cell phones that
customers theoretically would pay for, such as driving
directions and traffic reports. Commercial services could
include package delivery tracking.
In addition, wireless companies would be able to find
where subscribers use their phones, thereby packaging
services based on distance billing.
According to SnapTrack, the estimated market for these
services ranges from $4 billion to $20 billion a year.
"To incorporate that function into (chipsets) that Qualcomm
makes gives them another significant advantage over
anyone out there," said Pfau, the CIBC analyst. "I think it's
a good move that adds to their technology portfolio."
Diwan, the Goldman Sachs analyst, said he didn't think
Qualcomm paid too much for SnapTrack, given the San
Diego company's market capitalization of $82.23 billion.
"Two years ago, a billion dollars was a big deal," he said.
"Now it's not that big a deal."
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