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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (25231)	8/5/2002 11:06:35 AM
From: Ramsey Su	Read Replies (2) \| Respond to of 196492

cdg.org

To: Ramsey Su who wrote (25231)	8/5/2002 11:45:16 AM
From: Neeka	Read Replies (1) \| Respond to of 196492

Unicom bulls see past CDMA worries for reversal of fortune Monday August 5 12:00am South China Morning Post Copyright 2002 South China Morning Post Ltd. It's either bold or desperate for a broker to recommend a stock like China Unicom. The strikes against the mainland cellular group are many. The mainland regulatory outlook is completely muddled; the company faces the ignominy of a likely failure in its goal to quadruple its code division multiple access (CDMA) subscriber base before the year is out; and a group of deal-starved investment bankers are expected to hit the road soon to sell billions of dollars in shares for the mainland's third major telecommunications group, China Telecom. Yet hasn't this stock suffered enough? Unicom is down 38.95 per cent for the year, compared to 12.33 for the Hang Seng Index and 22.04 per cent for chief rival China Mobile. ABN Amro analyst Joseph Locke sums up the story: "They fouled it up." By that, he means the group spoiled a nice double-digit growth story for its global system for mobile (GSM) network by leasing some of the parent company's CDMA network. The firm is unlikely to attract enough users to cover the US$ 1 billion leasing costs - Mr Locke says only half if they're lucky. And with this year's net income of $ 4.4 billion - according to consensus figures from Thomson Financial First Call - one can see this would have been a much higher growth story otherwise. Yet none of this is new. Indeed, Fung Ee Lim and Dylan Tinker at UBS Warburg say most of the recent news has been more positive. Costs have been cut and the CDMA subscriber base - while likely to fall considerably short of the four million goal for year-end - is nonetheless improving. For this reason, UBS says investors should switch out of China Mobile and into Unicom. It says that in terms of monthly returns, the stock has only outperformed China Mobile once this year and three times over the past 12 months. "We expect a reversal of fortune in coming months," Mr Lim said. UBS is taking a bet on "positive news" items which - if they occur - could give the trampled stock a bounce. One source of positive news could come from the CDMA subscriber numbers. Consensus says Unicom will accrue 2.5 million subscribers by the end of the year, which implies average monthly net adds of 261,000. The group added 83,000 in May and 151,000 in June to reach just less than one million. UBS estimates more than 200,000 for last month and says the numbers will rise steadily from here. "There is a reasonable chance of an upside surprise," said Mr Lim. The reason for this is that the cost of CDMA handsets is falling and supply increasing. This is important because a problem with handset supply was a big obstacle to the group's subscriber goal, which not too long ago was seven million for the year. Indeed it was a bit of a tragicomedy: Unicom was supposed to add all these subscribers even though there were not enough handsets to go around. Also, the handsets were expensive and considered ugly. That story is changing. CDMA handset prices have crashed 30 to 40 per cent and several manufacturers are quadrupling their output. Sounds good. However, if Rohit Sobti at Salomon Smith Barney is right, more negative news events are on the horizon for Unicom. Citing an unconfirmed report from Bloomberg, on July 25 Mr Sobti said the company might be reviving plans to acquire more provincial GSM networks from the parent, possibly as early as next month. He said the group might be able to acquire the networks at a reasonable discount but that it would have to raise equity to complete the deal. And he said the distraction of integrating new networks was the last thing the company needed as it dealt with the CDMA fiasco. The final threat facing Unicom is the upcoming listing of China Telecom. On Friday, news reports said the group had submitted applications for United States and Hong Kong listings, further evidence that it will proceed with its roadshow as planned next month with an initial public offering in October. Unicom fell 4.54 per cent to HK$ 5.25 on the news. China Telecom only runs fixed-line businesses but it is expected to gain a cellular licence at some point after listing. UBS thinks markets have overreacted, saying big China listings in the past have had no discernible effect on the share price of listed competitors. Goldman Sachs also weighed into the argument, saying brokers sold China Mobile at the time of the Unicom listing so they could finance shares in the new competitor. However the effects did not last long, Goldman says, noting Unicom is still not a constituent of the Morgan Stanley Capital International (MSCI) indices. MSCI does not usually admit companies until they have been listed for two years, which means China Telecom is also unlikely to become a benchmark stock soon. wirelessweek.com