Tommaso - Here's the Big Picture
I have seen lots of concept stocks drop by 90%, even those that seemed to have a monopoly. QCOM has no monopoly. There are all sorts of companies getting into wireless communications--the Israeli company Tadiran, for example.
What once sold for $20 a share within the past year could easily do so again.
Tommaso,
When a Company has the International Standard for the Hottest Industry in the World, and holds 327 Patents on the Technology, with 846 Patents Pending, you simply can't call it a concept stock, a bottomless gold mine for the next 5 years maybe, but a concept stock! ROTFLOL.
You really need to understand what QCOM has! Below I've placed a few paragraphs from the latest Fortune Mag. Article to help bring you up to speed.
In 1999 Qualcomm earned $420 million on $3.9 billion in sales.
thanks to the 3G accord, literally billions of phones and other devices will incorporate CDMA. Because Qualcomm holds the vast majority of CDMA patents, that means money for the company--lots of money. Qualcomm collects a royalty of about $10 for each CDMA phone sold, a figure that may shrink in the future, but won't go away. Multiply $8, $6, even $4 by the billions of devices people will buy, and you get immense sums--nearly all profit.
The first commercial system to deliver CDMA was not in the U.S., but in Hong Kong, in 1995. CDMA grew quickly to become the world's third-most-widely-used wireless technology, behind GSM (global system for mobile communications, the dominant European standard) and TDMA (the dominant U.S. one); it has an estimated 60 million subscribers, or 13% of the world market. More important, it is the fastest-growing of the three, with subscribers up 118% in 1999.
The 327 patents make up a portfolio so broad and deep that "you can't deploy a CDMA product without infringing," boasts general counsel Steven Altman. Nor have Qualcomm's inventors slowed down; it has 846 patents pending.
Qualcomm amassed so many patents because for many years it was the only company developing CDMA. Today any company that makes CDMA products, be they chips, phones, or nfrastructure gear, has to get a license from Qualcomm.
Licensees pay a one-time fee for access to the patent portfolio and then royalties based on the value of the CDMA products that they sell. For cell phones, analysts estimate the royalty averages 4.5% of the sales price. In 1999 the average sales price of a CDMA phone was $245. So each time one sold--ka-ching!--Qualcomm was $11 richer. In the fourth quarter of 1999 alone, Qualcomm took in $177 million in patent royalties, up 140% over 1998's figures.
Some Wall Street analysts, like Paine Webber's Walter Piecyk, are extremely bullish on Qualcomm's royalty stream. You may remember Piecyk: He's the analyst who put a $1,000 price target on Qualcomm stock in late December 1999--two days before the stock, which had rocketed 80% in the previous weeks to nearly $500 a share, split four to one. Piecyk believes Qualcomm could pull in $20 billion a year from its CDMA patents by 2010. That is a big number, and 2010 is a long way off, but the prediction isn't as crazy as it may seem. Piecyk predicts that three billion wireless phones will sell in 2010, that 85% of them will incorporate
CDMA, that the average price will be $180, and that Qualcomm will continue to get a 4.5% royalty on each phone sold. Do the math, and you arrive at $20 billion. And Piecyk isn't backing off: "I should probably have said 100%" of the wireless phones will use CDMA, he says.
For now, however, nearly all wireless manufacturers have signed patent licenses with Qualcomm. These cover not only CDMA products but also products that incorporate so-called WCDMA (wideband code division multiple access), the technology slated to become part of the European standard. The licensees are practically a who's who of telecom: They include Ericsson, Lucent,Nortel, Motorola, Hitachi, and Samsung.
Being fabless has paid off. Qualcomm sells 90% of the chips that go into CDMA phones. In the fiscal year ended September
1999, that translated into $1.1 billion in sales, more than one-quarter of Qualcomm's total revenues. Analysts estimate that Qualcomm will pass $2 billion in chip sales next year, with a pretax profit margin of more than 40%. Qualcomm has actually run a few competitors out of the business. Oki Electric, LG Electronics, and Sony all made CDMA chips for their phones but dropped those efforts in favor of buying chips from Qualcomm. Why? Because Qualcomm has been able to add features, like geographic-positioning circuits and MP3 music-playing capability, sooner than anyone else. What's more, Qualcomm's "chip sets" use fewer chips than those of competitors, making possible cell phones that are more compact and that need less power. The chip sets also cost less to produce, giving Qualcomm the freedom to cut prices or make higher margins.
All the same, the wireless market is growing fast enough for Qualcomm's chip business to continue to expand. The company
shipped some 50 million CDMA chip sets in 1999. Analyst Piecyk expects that to grow to 73 million this year and 100 million in 2001. And that's just CDMA chip sets. Some expect Qualcomm to shed its single-minded devotion to CDMA and introduce chips for other standards. Qualcomm's design expertise and portfolio of technologies, like geographic-locator circuits that work even inside buildings (acquired when it bought startup SnapTrack this year, for $1 billion), could be put to good use in these markets as well.
The primary obstacle to progress, Jacobs says, is that today's wireless systems were designed for voice communication, not data.
They can handle data at a much lower speed than people have become accustomed to on their PCs. Today's CDMA phones offer
only 14.4 kilobits per second, vs. 56 kilobits for a standard dial-up modem--itself pathetically slow compared with the broadband cable and DSL modems that are gaining popularity among users.
Cell phones are starting to speed up. Japan recently introduced a generation of CDMA phones that offer up to 64 kilobits per second. To help wireless networks gain still more speed, Qualcomm has a technology called HDR (high data rate), which offers a fast 2.4 megabits per second. "We can actually do full-motion video with HDR," says Jeff Jacobs, another son of the CEO's and the senior vice president of business development. (The Jacobs' other two sons, Hal and Gary, do not work at Qualcomm.) HDR has the support of Ericsson, Lucent, Hitachi, and others. It can work in existing CDMA networks but does require cellular
companies to add costly equipment at each cell site. Nokia and Motorola have a rival solution they call 1XTREME. The
differences between it and HDR are too technical to get into--just one more battle in the standards war.
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