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

To: DaveMG who wrote (8206)	4/2/2000 1:55:00 PM
From: Randall Knight	Read Replies (4) \| Respond to of 13582

Warning: Long post on "W-CDMA" It's true of course that it's also a victory for QCOM but ti's not the total victory a CDMA2000 sweep would have been.We'll have to wait and see what sort of ASIC marketshare Q can garner and what royalty rates really end up being before we can assess the magnitude. "W-CDMA" was/is an effort on the part of the European GSM-dependent wireless suppliers to thwart the early claims of QCOM of essential IPR on 3G CDMA. Since the Ericsson purchase of the infrastructure division, the war has been over. Current posturing by the European companies regarding the rollout of "W-CDMA" can only be an attempt to gain some sort of revenue stream from royalties they must feel they would be due for that brand of CDMA while at the same time delaying the end of their GSM monopoly. These royalties would have to be paid on top of the royalties that would have to be paid to Qualcomm. There can be no form of 3G CDMA without royalty payments to QCOM. It doesn't matter what form of CDMA it is. The key here is that QCOM owns the ESSENTIAL IPR. That means that if QCOM says "No, you can't use our IPR," then it doesn't happen. This includes W-CDMA, CDMA2000 or anything else having to do with mobile CDMA. However, QCOM has stated is that they will license their essential CDMA IPR for all forms of 3G CDMA at equal rates. In addition, there are only a handful of vendors who are licensed to develop and provide CDMA ASICs to the market. The thought that there is a threat to QCOM's ASIC position if W-CDMA is proven to actually work, is adopted by carriers, and is installed and rolled out, is without merit. QCOM is the only ASIC provider who has demonstrated the ability to make and deliver CDMA 3G ASICs in any form. Who will be their competition? Although Nokia has a license to make CDMA ASICs for use in their own phones, I don't believe that license extends to selling ASICs to other handset manufactures. According to Dr. J during the latest conference call, the roll out of CDMA in any form for 3G is fine for QCOM. Their only interest is seeing it happen as quickly as possible. To this end they are pushing CDMA2000 because it requires no infrastructure replacement for current CDMA carriers and there are working ASICs for both the base stations and the handsets RIGHT NOW. Now let's think about the business ramifications for wireless carriers based upon their choice of which version of 3G CDMA it chooses and the impact on QCOM: If a GSM-based company goes with "W-CDMA", then they will have to acquire additional spectrum, spend billions to replace their base stations, hope that the technology actually works, pay royalties to QCOM and try to figure out who else is entitled to royalty payments. The impact on QCOM is that revenues for 3G CDMA are delayed. If a CDMA-based company goes with "W-CDMA", the same result as above applies. If a GSM-based carrier adopts CDMA2000, they will have to purchase rights to additional spectrum, spend billions to upgrade their infrastructure that is available and works, and require handset manufactures to supply handsets with 3G capable ASICs. If a CDMA-based carrier goes with CDMA2000 (starting with 1xCDMA) they will have to upgrade the CSM chips in their base stations and require handset vendors to provide phones with MSM5000 or equivalent chipsets. Both of which have been demonstrated in the field and will be in production later this year. The impact on QCOM is that revenues from 3G CDMA are realized much sooner. There is also the ability to offer 3G data rates for both air interfaces by installing HDR infrastructure or CSM chips (depending upon the vendor) and letting HDR take care of the data needs. Although I believe that this is the cheapest route to go for GSM carriers, politics will probably prevent them from considering it until HDR is shown to blow away the competition in Korea and elsewhere. Given the above scenarios you may ask why any carrier would choose "W-CDMA." In the case of GSM carriers, they are relying on their primary suppliers to come up with solutions to the 3G upgrade. There is an inherent conflict of interest. Why would Nokia, for example, push CDMA2000 or HDR if they have no essential IPR, no license to provide them and no success in developing it? Also, the longer it take GSM carriers to make the financial commitment to 3G CDMA of any sort, the longer Nokia can make money from the "band-aid" fixes such as GPRS and Edge. In the case of DDI going with "W-CDMA", they don't need to state publicly that they have decided on CDMA2000 because CDMA2000 doesn't require the purchase of additional spectrum or any major infrastructure replacements. They can just move right along and offer 1x at 300kps/sec and upgrade as the chipsets are improved. At the same time, if they want to ensure the future, they will make sure that their competition pays through the nose to upgrade to 3G. "W-CDMA" requires the purchase of additional spectrum. To that end, they will need to be on record as saying they will use "W-CDMA" so participation in spectrum auctions makes sense and doesn't appear to be just an effort to prevent others from getting it at a cheap price. Why let NTTDoCoMo get the spectrum they are going to need without bidding it up? Given that "W-CDMA" is still a future technology and requires no expenditures until delivery is assured, what do they have to lose? Obviously this is all a simplification of circumstances and possible events and includes forward-looking statements and some opinion, I think that may help to clear up some misunderstandings or at least provide substance for debate. Randy