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Technology Stocks : QUALCOMM-The Wireless Wonder in 1999 -- Ignore unavailable to you. Want to Upgrade?

To: GO*QCOM who wrote (49)	2/3/2000 8:34:00 AM
From: Jack Jackson	Read Replies (1) \| Respond to of 343

CONGRADULATIONS ON YOUR INTERVIEW...Can't wait to get a copy. Another long timer, Jack February 2, 2000 J.P. MORGAN SECURITIES INC. - EQUITY RESEARCH GREGORY GEILING (1-212) 648-3320 Angelo Liberatore (1-212) 648-8623 QUALCOMM (BUY) QUALCOMM Signs CHINA Chip & LIcensing Agreement - Potential Upside to 2001 Numbers Fiscal QCOM Earnings Per Share P/E 52-Wk ----------------------- --------- MkCap 2/1 Rge 9/99 9/00 9/01 2Q/00 2Q/99 9/00E 9/01E Yld ($MM) ---- ----- ----- ----- ----- ----- ----- ------ ------ --- ----- $136.06 $200-8 $0.62A $1.05E $1.40E $0.24E $0.10A 129.6 97.2 NA 107,600 Calendar QCOM Earnings Per Share P/E 52-Wk ------------------ ------------ MkCap 2/1 Rge 12/99 12/00 12/01 1Q/98 1Q/99 12/00 12/01 Yld ($MM) ---- ----- ----- ----- ----- ----- ----- ---- ---- ---- ----- $136.06 $200-8 $0.77A $1.11E $1.45E $0.24E $0.10A 122.6 93.8 NA 107,600 Event: QUALCOMM yesterday announced an agreement with China Unicom (China United Telecommunications) to license CDMA technology to Chinese manufacturers for both handsets and infrastructure equipment. As part of the agreement, QUALCOMM will charge the Chinese manufacturers a lower than usual royalty rate for products sold inside China, and in exchange, the Chinese companies will buy all of their chips from QUALCOMM. The companies will pay full royalty rates for any products they ship outside of China. QUALCOMM expects to have individual licensing agreements in place with the Chinese companies over the next several months. Unicom, China's second-largest state-owned phone company, plans to deploy a CDMA network this year with capacity for 10 million users and add capacity for an additional 10 million each year until 2004. Our View: This agreement is extremely positive for QUALCOMM as it clears the last remaining roadblock to CDMA in China, potentially the world's largest wireless market with a population of about 1.2 billion and current wireless penetration of about 3%. While it is too early to quantify the potential upside to QUALCOMM's numbers as a result of the agreement, we view the announcement as very bullish for QCOM shares given that no expectations for China are included in our current estimates. QUALCOMM said it expects chip shipments to China to begin in late fiscal 2000/early 2001, with significant royalty revenues ramping in 2002. We would conservatively estimate the agreement will have a significant impact on 2001 numbers, and perhaps some upside will come as early as this year. It's also important to note that the Unicom agreement only covers new Chinese manufacturers that wish to license CDMA. Motorola (MOT/$137/BUY), Ericsson (ERICY/$79.94/Long-Term Buy), Lucent (LU/$56/BUY), Nortel (NT/$94/BUY) and other international vendors - all of which are expected to compete for CDMA business in China - will still pay QUALCOMM the same standard royalty rates set in their individual licensing agreements. Unicom said it plans to begin building a network "promptly," and we would expect that will mean a large portion of the initial build will go to international vendors. We reiterate our BUY rating on QCOM shares and $170 price target. (J.P. Morgan Securities Inc. acted as co- or lead-manager in an offering of securities for LU, NT and ERICY within the past three years. A director of J.P. Morgan is a director of LU. The covering analyst or research associate holds a position in LU.)