Another one 'gets it' (I apologise for the formatting of the tables, I haven't quite figured out the html for it.
Randy Durig: Let The New Cycle Begin (QCOM -$25.82)
August 13, 2002 1:08:00 PM ET
LAKE OSWEGO, Ore, August 13 /PRNewswire/ -- An article was issued today by Randy Durig of Durig Capital, LLC.
Data wireless is here ... Qualcomm has successfully launched their 1x network.
The Korean market is the first successful marriage of high-speed wireless mobility and the Internet. Korea networks are about 10 months ahead of most major markets in 1x (which equates to doubling the capacity) of the rollout. The combination of data and voice in Korea has exceeded 13 million users. The Japanese wireless carrier, KKDI was the second national launch of 1x. KKDI has now exceeded 1.5 million users in a little over three months. These advanced network launches have changed data wireless from a concept to reality.
PRODUCT
1x allows you to run wireless Internet service to products like Palm, PDA's (personal digital assistant), laptops, desktops, smart phones, and voice phones. This first introduction to broadband wireless could also accelerate wireless local loop (wll), which means your whole electronic office could work without copper lines. Forecasts now say Korea will upgrade 50% of its network to 1x this year. Some forecasts were as high as 70% prior to subsidy issues.
This is the first successful launch of the world's largest platform, the wireless phone, over the fast growing solution, the Internet. Qualcomm appears to have many advantages over its competitors, such as first mover, lower costs of data, higher data rates, and better use of spectrum. Perhaps the most important advantage over the competition is a low-cost, upgradeable migration path.
Sprint and Verizon have now launched in the U.S., Telesp in Brazil, Bell Mobility and Telus in Canada. The big question is, "Will the Korean and Japan high success rate be duplicated over the other networks?"
The first mover success in Korea has allowed Qualcomm to test additional next generation products as well. One of the additional products tested, that may possibly have great potential, is Brew. Brew is preloaded solutions in the phone chip. Qualcomm plans to give this free to the carrying phone companies, but to share in the profit from the additional changes as the phones are used. In a very small test with only 1 carrier in Korea, the average data usage was up over 500% in minutes. KKDI in Japan, and Verizon in the U.S., are now attempting to duplicate the Korean Brew success. Brew could give Qualcomm a fast growing annuity business.
Brew is now a successful product since it surpassed 1.3 million users. Brew has a chance of being more revenue per unit than CDMA (code division multiple access) royalties, assuming an average 2-year life:
Assumed Price
Of Phone or Assumed # of Times
Service Qualcomm Income Rate Charged in 2 Yrs. Revenue Generated
$200 (phone) 5% 1 = $10.00
$6.00 (service) 10% 24 = $14.40
Brew could increase the income on Brew units from $10 to $24, not including chips. Last quarter Qualcomm claimed the average cell phone sold for $200. KT Freetell, the first established Brew client, is averaging around $6/month in Brew services.
Brew, GPS, Radio One, and e-911 are data based solutions. Qualcomm is trying to leverage these new products in their next generation solutions chip set, before others like Nokia could gain a foothold on the 1x chip.
UPCOMING LAUNCHES IN ASIA
Qualcomm seems to be gaining a strong foothold in Asia. Below is a list of countries that are evaluating or have launched 1x:
Australia Bangladesh Cambodia
China Hong Kong India
Indonesia Japan Korea
Malaysia Mongolia Myanmar
New Zealand Philippines Thailand
MARKET SHARE
Possibly next year, the much larger GSM (global systems for mobile) and TDMA (time division multiple access) standards will start to migrate to W-CDMA (wide-band code division for multiple access). GSM is a global standard that is based in Europe and lead by Nokia, Erickson and Motorola. TDMA is a version of GSM with AT&T wireless and Cingular the largest U.S. carriers.
Qualcomm will receive the same royalty rate on both global standards, W-CDMA and CDMA. Currently, Qualcomm is getting royalties off about 18% of the voice market. In the wireless data market, Qualcomm's share of CDMA 2000 plus W-CDMA could be about 80%. This could lead to a four-fold increase in the market share.
POSSIBLE CONCERNS
Qualcomm is an aggressive large capitalization company with a higher volatility in both earnings and stock price compared to its peers. In the past Qualcomm has demonstrated extreme value fluctuation.
The telecom recession has greatly slowed down the amount of capital invested in the industry. Once the CDMA 2000 network is built, as it has been in Korea and Japan, the money utilized, then the companies will try to get returns off of the investment. The longer other networks take to make the financial commitment, the more time a window will be open for new technologies to catch traction.
The patent portfolio often focused on, should not be much of an issue. Qualcomm has contracts with most major vendors, and the contracts should take precedence.
The fact that Japan and Korea have had such strong success is proof that wireless data works on the 1x network. Until you have a working solution for W-CDMA, there is always a chance that the technology might not work, and/or take years longer to deploy than originally estimated.
MIGRATION
Data and voice could be twice as big as voice, as it is in the land market. The migration to data and voice allows 1x to run data at average speeds of about 40K-70K. Korea just launched at 2.4mk peak rates, which should produce data at an average speed of about 500K. Qualcomm believes long-term CDMA data rates should be on an exponential curve, or simply a cousin to Gordon Moore's law, which was that the processing speed of computers would double every 18 months.
Intel, Microsoft and IBM are all forecasting great growth for the wireless data industry, as are many others. They are seeing a revolutionary shift that they plan to use as an entry point. The first Smart PDA phones from Intel and Microsoft have just started to arrive. The leading industry experts forecast great unit growth from around 400 million today to over 900 million in 2005. Intel also believes the processor speed for the smart phone will follow Gordon Moore's Law.
This will be a good study for history when two separate exponential curves will merge into the base of a new product family. For simplicity, I'll call it Moore's Marriage.
The shift from a voice product to a data and voice platform is the largest single upgrade in the wireless industry. We believe this shift is of the same magnitude as was DOS to Windows in the PC industry. During that migration in platforms, Microsoft was able to leverage off the Windows platform to help it lead in solutions like Excel and Word. Today the BackOffice solutions have larger sales than the Windows platform. With this new cycle started, it appears Qualcomm is not only a well positioned company with its CDMA technology, but with the success of 1x, combined with its success in Brew and possibly other applications, Qualcomm has a chance to gain market share while improving margins.
Randy Durig has been in the investment industry for over 15 years. He has spent most of his early years studying and measuring monopolistic companies. He believes that separating and measuring the advantages of the past "Monopolies" should increase the accuracy of forecasting the next great dominator. After many years of study and finding no other investment vehicle with this simple, long-term tax efficient model, he introduced and became the Manager of the Monopoly Portfolio in 1997. His definition of "Monopoly" is a company with several tangible advantages over the competitors.
Randy Durig, CEO
Durig Capital, LLC
17020 S.W. Pilkington Road, #200
Lake Oswego, OR 97035
503-697-6800 or toll free 866-277-7800
Registered Representative of and Securities transactions through
FINANCIAL WEST GROUP, MEMBER NASD / SIPC / MSRB
Contact: Investors, Randy Durig, 503-697-6217 or rdurig@fwg.com,
Troy Haugen, 503-697-0895 thaugen@fwg.com , both of Durig Capital, LLC
For more information on Qualcomm, visit www.qualcomm.com
The new information contained herein is based on sources believed to be reliable but is neither all-inclusive nor guaranteed by Durig Capital. Opinions contained herein reflect our judgment at this time and are subject to change. Durig Capital does not undertake to advise of changes in its opinion or the issuers of securities that are the subject of our research. The securities discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial situation and needs. Randy Durig is an owner of QCOM common stock and takes no fees from Qualcomm. This report was written by Durig Capital and does not contain the opinions of Financial West Group.
Randy Durig is a member of the National Association of Securities Dealers, CRD number 1269163.
MAKE YOUR OPINION COUNT - Click Here
tbutton.prnewswire.com
© 2002 PRNewswire |
