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

To: Keith Feral who wrote (6323)	2/7/2000 9:12:00 AM
From: DaveMG	Respond to of 13582

<From the other thread>: To: Ruffian who wrote (66122) From: LBstocks Sunday, February 6, 2000 9:51 PM ET Respond to Post # 66133 of 66162 Prudential's (Pete Peterson) report on QCOM> QCOM: An Overview Of CDMA Royalties and Intellectual Property -QUALCOMM, the CDMA technology leader, owns the majority of mobile IP rights to CDMA -This week's China agreement, which includes a reduced royalty rate, opens China to CDMA -We estimate the royalty rates outside of China average around 4-5% of ASP, but differs by OEM -QCOM has claims to CDMA IP rights to both 3G standards, CDMA2000 and WCDMA -QCOM gets the same royalty rate no matter how much of its CDMA IP is used -Reaffirm our ACCUMULATE rating on QCOM Recent China agreement has generated a number of questions over royalties and intellectual property. QUALCOMM signed an agreement this week with China United Telecommunications Corporation (China Unicom), for QUALCOMM's CDMA intellectual property and for the manufacture and sale of CDMA wireless equipment by domestic Chinese manufacturers. The agreement include Chinese manufacturing companies assurances to purchase their requirements of CDMA Application Specific Integrated Circuits (ASICs) from QUALCOMM as long as QUALCOMM's ASICs are competitive in price and function. As part of this announcement, Chinese manufacturers will pay a lower royalty rate than the world average (4-5%). This announcement has caused a number of questions over royalty rates and the status of QCOM?s intellectual property (IP) claims. We will try and provide some clarity on this issue. QUALCOMM, the CDMA technology leader, owns the majority of mobile IP rights to CDMA. CDMA is the fastest growing wireless digital standard in the world, competing with GSM Technology for global telephony network deployments. QUALCOMM benefits from CDMA growth through product sales as well as through licensing and royalty fees from any CDMA product sold by a licensee. CDMA is considered the best digital wireless technology in terms of capacity, sound quality, and data throughput with a projected 5-year CAGR of 74%. This week's China agreement, which includes a reduced royalty rate, opens the Chinese Market to CDMA. The company did not disclose the royalty fee structure for strategic reasons but we estimate the rate to be more than Motorola's 2% but less than the industry average of 4-5%. The royalty rate has historically been negotiated on a manufacturer by manufacturer basis but for political reasons was negotiated on the national level in China. The favorable rates are for equipment produced for use within China and any equipment exported outside of China would be at or near the world average. In addition, the Chinese companies have agreed to use Qualcomm chipsets exclusively as long as they are price and technically competitive. We estimate the royalty average around 4-5% of ASP but differs by OEM. - MOT-We estimate Motorola has one of lowest rates (approximately 2%) because it was the earliest adopter. It uses QCOM ASICs and manufactures its own. - Korean manufacturers-The next widespread adoption took place in Korea and we believe that these manufacturers pay at or above the average rate. All Korean phones use QCOM chipsets. - NOK?We estimate Nokia royalties at approximately the world average. Nokia makes their own ASICS but has had some problem with software on these handsets and QCOM is working hard on getting into their handsets. - Japanese manufacturers?One of the last CDMA adopters and we believe these OEMS pay at or above the world average. All of the Japanese phones use QCOM chipsets. - ERICY-Is not planning on having a CDMA phone available until the second half of 2000. We believe that Ericsson will use QCOM chipsets and the royalty rate should be near the world average. QCOM owns the IP on both 3G standards, CDMA2000 and WCDMA. Recent agreements have designated WCDMA as the evolutionary 3G destination for GSM and TDMA. CDMA 2000 is the path for CDMAOne (the current CDMA we know) to evolve to 3G. This means that all 3G phones or appliances that uses these wireless standards will have to pay a royalty fee to QUALCOMM. QCOM gets the same rate no matter how much of the IP is used. If a manufacturer uses one piece of QCOM IP or every piece of IP in their portfolio, the OEM must pay the same royalty rate. This is very important because there is no weighted rate based on the IP content. Accordingly, we reiterate our ACCUMULATE rating on QCOM.