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Technology Stocks : Nokia (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (3932)	4/1/2000 6:01:00 PM
From: A.L. Reagan	Respond to of 34857

My concern is just that QCOM's share be sufficient to justify its market cap I suspect it will be and based on only the vaguest idea of the value of NOK/ERICY et. al. IPR, maybe (sticking my neck out here) 4.5% to San Diego and 1.5% back to the Scandinavian contingent +/- 1/2 percent. So a 2.5% to 3.5% net to San Diego. But, as Tero observed, the more interesting aspect is the industry-wide effect, particularly what it does to (or generates from) Asian manufacturers and maybe MOT. So you can see that if QCOM or LSI or whoever's chips end up in Asian phones, NOK et. al. could get back say 1.5%, which might well largely offset the 4-4.5% sent to San Diego on NOK's handsets. From QCOM's standpoint, a net 2.5% to 3.5% on wideband might end up looking pretty good. In terms of both NOK and QCOM stock prices this could be analyzed as beneficial to both as (1) eliminating the uncertainty that is currently priced in; and (2) accelerating the present value of 3G deployment and arguably broadening the universe of devices using this wireless technology. I do not believe for an instant that when the Hitachi's of the world sign W-CDMA licenses with QCOM they are agreeing to pay 100% of list price for two-thirds of a loaf of bread. Any contract the wily Occidentals negotiate would include an adjustment factor for non-QCOM essential IPR royalties. As Tero observed, MOT still appears to be something of a wild card, but despite their efforts to the contrary, MOT may end up as the emperor with no clothes. MOT clearly has to be buddies with both QCOM and the Europeans in order to play in wideband 3G. Any "odd man out" could conceivably have to pay royalties to both QCOM and NOK et. al. Now, this whole train of reasoning is based on the premise that NOK et. al. have essential wideband IPR that QCOM can not design around - and nobody really knows with absolute certainty the answer to this now (although it sure fills a lot of posts on SI). (I suppose QCOM fanatics can still argue that wideband won't work, or nobody will actually want it, or it won't arrive in our lifetime, or some other blather that the facts don't appear to support.) Remember, though, QCOM has never stated that it has (or will have) a 100% wideband solution. It has stated that wideband will require QCOM IPR, and that the royalty rate would be the same. BUT, such a statement is not inconsistent with a cross-license of European IPR into QCOM (and its licensees) wideband chipsets. IMO, it would be extremely negative for QCOM's market cap if its only participation in W-CDMA was as licensor of basic CDMA patents. These patents, like the Viterbi decoder, soft hand-off etc. have a finite life. I think that QCOM has to play in the wideband chipset market - it may be true, as Walt Piecyk of Paine Webber maintains, that in x number of years 80% of wireless devices will use code division algorithms, but that could well be 30% narrowband and 50% wideband, which may be optimistic for narrowband when you consider which value chains around the world are promoting which standard. As Mika K. has observed more than once around SI, it isn't necessarily the laboratory purity of a technology that carries the day, but the value chains that adopt it. (Otherwise the world would not have been paying tribute to MSFT all these years.) And the value chains in the present-day dominant GSM and TDMA world are flat out not going to wholesale adopt cdma2000. Period. So, a "dog in the manger" strategy by QCOM could ultimately marginalize it looking forward several years to 4G standards (where narrowband and wideband likely would grow further apart, not closer) and the expiry of the basic CDMA patents. Jacobs and his gang are way too smart for this. There's also the more immediate global roaming issues which are becoming a drag on IS-95, and can't be completely solved with SIM cards. So, there really needs to be kind of a mutual capitulation, and I suspect everybody's top management already realizes this, and a lot of the current smoke and mirrors is posturing for the best deal. If there were a 3G x-license deal, NOK might even buy chipsets from QCOM, but to do so now would be suicidal. As Tero observed, about all we can do is watch and wait as this posturing melodrama plays out. The huge prices being bid for 3G spectrum in the U.K. right now imply that the carriers will be putting great pressure on their vendors to resolve the royalty matters. (And also imply either that the potential 3G market is larger than previously thought, or that the carriers are really, really stupid.)