A 3G Coup For Qualcomm Ambitious CDMA Guru Picks Up Steam
From the November 22 edition of Wireless Data News
By Marisa Torrieri
The bearish market conditions lately may have actually scared Qualcomm [QCOM] into living a healthier lifestyle. Trimming the fat from its busienss model, the company is ready to debut its leaner and meaner wireless persona.
While plans are still in effect to spin off its handset and infrastructure businesses the same way it spun off Leap Wireless in September 1998, Qualcomm is furthering the adoption of CDMA for wireless data by investing $500 million in strategic venture investments for CDMA startup devotees. Qualcomm Ventures, the program focused on delivering the cash, launched this week.
Also this week, the San Diego-based CDMA developer joined the Bluetooth 1.2 Special Interest Group as an associate member.
And whileQualcommmay have lost much of the spotlight to other wireless technology companies, such as Palm [PALM], this year, fresh technology and new strategies for third-generation services could change that.
In a year that included both the acquisition of location technology vendor SnapTrack in January and the late June layoff of 200 employees, along with the decision to spin off its excesses, Qualcomm is now returning to its roots.
"Initially, Qualcomm's intent at the very beginning was to license CDMA technology, and they ran into so many problems with people not believing it would work, but they ended up building everything," says Barney Dewey, a wireless analyst with the Andrew Seybold Group. "So they really are returning back to their original business model by selling off their handset business, their infrastructure business."
Two weeks ago, the wireless data giant announced a new wideband-CDMA multiple access chipset suited for 3G and designed to enhance handset capabilities and improve quality of service. The MSM5200 single-chip mobile station modem software is part of a package that meets the International Telecommunication Union's WCDMA standard for 3G services and high-data rate features.
In addition, Qualcomm's high-data rate technology was approved earlier this month as an industry standard by the ITU. Qualcomm's 2.4 Mbps high-data rate standard - called CDMA 1xEV - is the first of its kind for 3G and should pave the way to many royalties for the CDMA pioneer, analysts say.
"As far as Qualcomm itself, they're in a very good position. They don't care what version of CDMA wins right now," Dewey says. "They're going to get royalties on everything that's built in the next five years, if not longer."
James Reynolds, who covers Qualcomm for financial institution Ragan MacKenzie, agrees.
"I think that, increasingly, people believe the third generation of wireless is a technology rollout that will go until 2010, 2012, and the 3G technology is all based on the various flavors of CDMA," Reynolds says.
Financially, things are looking better since Qualcomm released its earnings report early this month.
After beating fourth quarter estimates Nov.2, Qualcomm's stock rose more than 14 percent to $71.75. Stock continued rising to 83 and 7/32 on Nov. 15, then to 84 and 7/8 Monday morning.
Its financial report for the fourth quarter supports Qualcomm's decision to delay spinning off its integrated circuits and system software business until more favorable market conditions emerge.
Qualcomm reported net income of $139 million for the July-September period, up from $136 million in the company's 1999 fourth quarter. Per-share earnings for the quarter were 17 cents, down from 18 cents in the 1999 quarter. Revenues for the quarter were $635 million, down from $1.1 billion in the year-ago period.
The company entered into eight licensing agreements during the quarter, increasing its licensing total for its fiscal year to 28 contracts. Qualcomm also signed 13 research and development pacts in its fourth quarter, but the company attributed the drop in its revenue total to the sale of its consumer products business in February 2000 to Japanese manufacturer Kyocera [KYO].
Qualcomm's decision last month to delay the spin off of its integrated circuits and systems software was an important guard measure, Reynolds says.
"I think it was sort of a necessary move," he says. "You had unstable market conditions, a lot of companies reporting disappointing results, such as AT&T [T], WorldCom [WCOM] and Sprint [FON], plus shortcomings from networking stocks, such as Lucent [LU], plus Verizon Wireless [VZ] pulled their IPO."
Mirva Anttila, a Josephthal & Co. financial analyst, gives a thumbs-up to the spin-off plan.
"I think that makes strategic sense for them to spin off the semiconductor business," says Anttila, who has a "buy" on the stock. "It sort of allows them to continue to generate royalty revenue. It's a nice move for them. Once that happens, it could be one of the catalysts for the stock to move forward."
Dewey agrees: "I think their long-term view is to get out of most other businesses, anything that will become a commodity," he says. "I think it's brilliant."
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