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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Boplicity who wrote (17260)	11/17/2000 1:00:52 PM
From: T L Comiskey	Read Replies (1) \| Respond to of 65232

Greg.....considering the Q's action as of late Seems Someone knew the pot was soon to boil First Union Securities Covers QCOM By: First Union Securities 11/17/00 7:48:27 AM QCOM: HYUNDAI ANNOUNCES CDMA WLL CONTRACT IN INDIA - REITERATE STRONG BUY QUALCOMM, Inc. (QCOM-NASDAQ) PRICE: $88.06 52-WEEK RANGE: $200-22 KEY POINTS -- Hyundai Electronics announced that it had won a $120 million contract to supply QUALCOMM-based CDMA wireless local loop (WLL) equipment to the state run Department of Telecommunications Services. -- The contract is for 150,000 lines, implying a price of about $800 per line. -- Hyundai said the Indian Government plans to deploy 200 million WLL lines over the next few years. If true, the implied value could be over $150 billion. -- We have no WLL revenue in our forecasts for QUALCOMM at all. -- We reiterate our Strong Buy. If the Indian government decides to move forward aggressively, our estimates of growth for QUALCOMM and our price target could be too conservative. DISCUSSION The details of what we know. Several days ago Hyundai Electronics Industries Co. Ltd. announced that it had won a $120 million contract to deploy 150,000 lines of CDMA WLL for the India state run Department of Telecommunications Services in rural districts that currently don’t have basic phone service. This implies that the price per line is about $800. Hyundai also said that they expect follow-on business because India plans to deploy 200 million WLL lines over the next several years. The press release we have says the 200 million lines are to be deployed by the end of 2001 which, we think is clearly unrealistic. How it involves QUALCOMM. Hyundai buys all of their CDMA chips from QUALCOMM as far as we know. We also believe that the royalty rate on WLL equipment is the same as on cellular equipment. We suspect that the chipset used in WLL is an older QUALCOMM CDMA cellular chip – which probably sells for around $13-15. Doing the math we estimate that QUALCOMM makes about $45 pretax per WLL line. This makes WLL more profitable per unit than mobile wireless. QUALCOMM has a disappointing history in India. India has mandated GSM as the mobile wireless technology they use. India has periodically indicated that it wanted to move forward with widespread deployment of WLL but, never executed. India is a huge country with nearly 900 million people but with a very low penetration of basic phone service. QUALCOMM tried largely unsuccessfully in the early 90’s to get CDMA WLL deployed in India. We will see if India follows through with their current plans. If India goes ahead with the deployment the potential for QUALCOMM is huge. A 200 million-line deployment in India of QUALCOMM CDMA WLL could be worth $160 billion in equipment – implying over $10 billion in revenues to QUALCOMM. None of this is in our current forecasts or valuation models. Given the history of doing business in India we won’t add any revenues to our model until we see firm contracts. We reiterate a Strong Buy on the shares despite the share price approaching our conservative $90 price target (using our modified CAPM) because we suspect that there are more good news announcements coming over the next few months that could change the risk profile of the company’s earnings resulting in multiple expansion and a higher long-term earnings growth rate. WLL is largely a narrowband system that has most of the features of cellular except for the ability to roam and hand-off. WLL is cost effective and quick to deploy in areas where deploying traditional wireline phone networks would be time consuming and cost prohibitive. WLL is not really competitive in developed countries with highly developed wireline infrastructure – those markets are moving to more broadband data networks. Additional information is available upon request. First Union Securities, Inc. maintains a market in the common stock of QCOM. An author of this note owns stock in QCOM. QUALCOMM is on the Analyst Action List.