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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 (9924)	5/10/2000 10:34:00 PM
From: Ruffian	Read Replies (2) \| Respond to of 13582

CSFB Report From 4/25 On Q>>>>>>>>>>>>>> The company attributed the quarter's revenue weakness to seasonal trends and major customers efforts to rebalance inventory to demand. Management expects the business to rebound in the coming quarter, with the chipset business surpassing the December level and licensing continuing to post strong growth. While the rebound is encouraging, we believe the growth rate is underwhelming given strong industry growth rates. We are projecting wireless subscriber counts growing over 40%, from 480 million at year-end 1999 to 680 million at year-end 2000. In CDMA, the company is forecasting strong growth in handset sales, from 40 million for 1999 to approximately 70 million in 2000. We believe several trends are taking shape that are causing the company's revenue growth to lag the higher industry and growth rates: Chipset momentum slowing: The company is coming off a quarter where it saw sluggish 6% YoY revenue growth in the chipset business. While the company attributes the weakness for seasonal factors and rebalancing, the company is still projecting a light growth rate in the June quarter, when considering the rapid growth in the industry. Management is guiding the chipset business toward approximately 15 million MSM chipset sales in the June quarter, roughly 33% growth in shipments over the prior year. When factoring in price erosion, we believe the growth could be closer to the mid-teens in revenue. We are modeling $362.9M for the June quarter, or roughly 14% revenue growth. We see a couple factors at hand that could be limiting growth in this business: Nokia and Motorola Gain Share. Qualcomm has a lock on supplying chipsets into most CDMA handset vendors, but have not been able to penetrate the Nokia account and are only supplying a limited quantity into Motorola. We believe Nokia will begin to gain this summer and fall when it rolls out upgrades in the core classic segment. We believe the company could gain significant share once it has more competitive product for the CDMA market. As for Motorola, the recent resolution with Qualcomm gives Motorola the opportunity to produce and sell CDMA chipsets without a royalty fee. We believe Motorola is seeking to build its own presence in the ASIC business and could continue to limit its purchases from Qualcomm. As Nokia and Motorola gain share, we see Qualcomm holding a still dominant, yet declining share of the CDMA ASIC business. We believe these factors held back the company from market share gains in the current quarter and should result in a mid-teens revenue growth for the business. Maturation of Korean market. Korea has and should continue to be a significant driver for Qualcomm. While Korea's share of worldwide CDMA has declined over the past couple years, the market still represents roughly 40% of the CDMA subscriber base. We see a strong replacement cycle for wireless data sales, which should sustain sales in this market. However, as this market has now surpassed 50% penetration, we see an inevitable slowdown in new subscriber additions. We believe the decline in new subscribers will cause an overall slowdown in the market in spite of the transition to replacement data enabled models. We believe this drop in additions ultimately could reduce Qualcomm's chipset sales to Korean vendors supplying into the market. We believe Qualcomm could have more difficulty attaining the same revenue streams with a W-CDMA deployment. Qualcomm adamantly stands by its licensing royalty rates and believes it will be ready with chipsets when the market develops. The company has stated it will be able to receive the same royalty rates on any network based on CDMA technology. Our position is that more players have a share of W-CDMA IP and could make that market tougher to sell into with chipsets and through the same licensing rates.