Dow Jones Newswires -- June 15, 2000
Dow Jones Newswires
SMARTMONEY.COM: Still Riding The Qualcomm
Express?
By ALEC APPELBAUM
NEW YORK -- Talk about a yo-yo of a stock.
Six months into what one analyst pegged as a 12-month climb to greatness, Qualcomm (QCOM)
is on the skids. Enthusiasm has turned to suspicion, blind faith in Qualcomm's patents has turned to
hemming and hawing - and $179.25, Qualcomm's price on Jan. 2, has turned to $61.44 Thursday.
On Wednesday, CFO Anthony Thornley came clean at a Bear Stearns conference. He said last
week's decision by the Korean government to stop subsidizing cell phones could have an impact on
demand in Asia. As for China, which some investors had hoped would sponge up Qualcomm's
intellectual property, he admitted prospects were uncertain. And failing satellite phone company
Globalstar (GSTRF), in which Qualcomm holds a big stake, could burn up 10 cents of
Qualcomm's per-share earnings next year if it goes under, Thornley added.
That screeching sound you hear is previously giddy investors getting off the Qualcomm Express.
Wojtek Uzdelewicz of Bear Stearns, one of two analysts to publish bearish reports on Qualcomm
Thursday morning, points out that general "downside risk" from Korea, Globalstar and China -
rather than specific bad news - led him to lower his earnings estimates. Uzdelewicz still expects the
company could grow brilliantly. But he expects it to face its own miasma of uncertainties, making it
vulnerable to nasty surprises.
Such uncertainty leads to varying interpretations. Chase H&Q's Ed Snyder cited Korea in a report
lowering his share-price target to $50. Fretting that there was "no positive news in sight," Snyder
predicted that Qualcomm would trade in line with other wireless-technology patent holders, like
Nokia (NOK) and Ericsson (ERICY). And Globalstar's struggles look poised to "result in a
psychological drag."
This isn't the reality investors expected last winter. The wireless-technology licensing shop
restructured its business last year, ditching cell-phone and large-equipment manufacturing in order
to concentrate on royalties. The idea was that Qualcomm's code division multiple access, or
CDMA, programming, which allows lots of voice and data traffic to travel smoothly across wireless
networks, would go into every new cell phone in a few years. With a passel of important CDMA
patents, Qualcomm was supposed to cop a royalty every time somebody bought a mobile phone.
And by producing only chipsets, it could make higher profits than competitors that make
low-margin phones. Walt Piecyk of PaineWebber (the analyst who saw greatness in the stock)
went on record predicting a $250 price inside of a year.
Provided you haven't lost precious wealth, though, you could take a mellower attitude toward
Qualcomm. Mark Roberts of First Union Securities pointed out that the Korean subsidy ban could
lead cell-phone makers to de-emphasize that market and sell more units in the Americas, which
would help Qualcomm. (Roberts, it bears mentioning, has owned Qualcomm stock since 1996.)
What's more, Korea has abandoned previous plans to abolish cell-phone subsidies in the past,
making the latest news less of a potential threat. And Uzdelewicz, despite shaving earnings
expectations by five cents this year and 10 cents next year, is still bullish on Qualcomm's future.
"Despite the risks, we are still excited [about] the long-term prospects for Qualcomm," he wrote.
(Bear has underwritten Qualcomm in the past but did not participate in its most recent equity
offering.)
Ah, yes. Long-term prospects. First Union's Roberts, talking via cell phone, asserted that last
winter's run-up had a lot to do with analysts and money managers rushing to hop on the Qualcomm
bandwagon in time for year-end reports, which shareholders read to see if their funds hold the
sexiest names. Roberts says Qualcomm had been hot all year as it refined its business. But it
became burning-the-saucepan hot in December, he says, due to a "pile-on effect."
Once that effect evaporated, he argues, investors returned to the skepticism they showed before
last year. "People have made a lot of money over the years taking a contrarian view," Roberts says,
referring to the historically high levels of short interest in Qualcomm stock.
Indeed, Qualcomm has promised to dominate the future of wireless communication for longer than
SmartMoney.com has operated a site. It's just that before last year it was fighting with Ericsson
over patents and tied up with expensive manufacturing operations. Perhaps investors wanted to
believe that once it shed those problems it would never struggle again.
The truth is, a month from now Qualcomm could rocket on fresh news - in either direction. Roberts
expects to hear cautious but encouraging earnings projections from the company during its July
conference call. He also suspects the Korean ban may evaporate by midsummer. If he's right on
either count, this could be 1999 all over again. But nobody should expect a smooth ride to financial
Nirvana. Even last fall, Deutsche Banc Alex. Brown's Brian Modoff described Qualcomm stock as
"volatile as all hell." That seems to be the one indisputable truth about it.
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