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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (124971)	10/30/2002 9:14:52 PM
From: kech	Read Replies (1) \| Respond to of 152472

Good post John. I agree with everything you said and it is important to watch for this scenario very carefully. It has played out just as you say in many industries. There was a Forbes article recently on China saying that many companies got involved with China thinking of the China Market - 2 billion feet for Nike etc - but eventually they all came around using China as a production platform to flood the rest of the world with cheap exports. Sometimes with Chinese firms making the thin margin on the products. One difference this time MIGHT be that a US firm is not going in to sell to the China market but largely to enable Chinese Manufacturers to sell to the Chinese market rather than European companies. All for only a 2.5% royalty and the purchase of some chip sets which with the MSM6050 are already designed to be about the lowest cost chip out there that is possible. With Q's volume and design expertise on these chips it will be hard to come up with a lower cost alternative even at the low end. So the question is, do the Chinese get the profits on production of phones using Q chips and CDMA technology, possibly exporting some phones to India and Latin America, and maybe even moving up the value chain to other markets, or do they squander this opportunity to have Europeans make the phones, or make phones for TDSCDMA which no one wants (even inside China)? I agree, even if they choose the right way, it remains to be seen if Q ever gets any free cash flow out of China but the choice of technology is obvious.

To: Stock Farmer who wrote (124971)	10/31/2002 10:34:18 AM
From: carranza2	Read Replies (2) \| Respond to of 152472

But I would ask you in return "who precisely do the manufacturers pay to get these ASICS", and "How does the answer 'A Chinese FAB licensed by Qualcomm (China) LLP' strike you"? The problem with the scenario you set forth is that Q has very carefully licensed the manufacture of ASICs. Not a single domestic Chinese manufacturer is licensed. The present licensees are Infineon Technologies AG, Koninklijke Philips Electronics N.V., LSI Logic Corporation, PrairieComm Incorporated, NEC Corporation, and Texas Instruments. No doubt Q is aware of the strategies you suggest the Chinese have used in the past. They have been successful because they involve the manufacture of simple goods like tennis shoes and rudimentary electronic equipment. Fortunately for Q, the manufacture of CDMA ASICs is an extremely complex undertaking--just ask Nokia, a giant who has struggled for a long time trying to manufacture its own CDMA ASICs without Q's assistance. The bottom line is that the more complex the goods are, the more control the holder of IPR has. And Q has a death grip on ASIC licenses. This, I think, puts the arrow into your argument that the Chinese will use a Chinese fab licensed by Q to put the screws to Q. It's too simple a tactic and too easily avoided. I would suggest to you that before Q allowed a domestic Chinese entity to manufacture ASICs, all kinds of protections would be in place, including provisions calling for the repatriation of profits. Otherwise, I can't imagine Q entering into any ASIC license agreement with a Chinese fab. Your arguments and their articulation are good, but you need a more detailed factual background in order to capture the essence of the game that's being played. It's like three-dimensional chess. You're not going to begin to understand it without knowing where the pieces actually fall. I'll admit that my understanding is rudimentary. One last thought. There has been a suggestion that Q is making more money from domestic Chinese manufacturers than the domestic manufacturers are making from domestic sales. This is probably a real problem for the Chinese, who are used to being master negotiators able to wheedle the best deal possible. We hear whining from Q's customers regularly (usually at a time close to earnings reports) so this is nothing new to long time observers. As Maurice Winn has said, the Koreans predictably whine like a fleet of 747s but the Chinese are going to whine like a gaggle of Saturn Vs until, of course, they realize that they to can make a lot of money by playing Q's game. Same old, same old. The commentary by the Chinese actually is a very positive thing, in my view, as it shows that the Q game plan is unfolding nicely. I'd be concerned if the negotiating moves, FUD, PRs, etc., were not taking place. They are all positive indicators, not negatives..

To: Stock Farmer who wrote (124971)	11/6/2002 2:49:53 AM
From: Maurice Winn	Read Replies (1) \| Respond to of 152472

<Ergo, sooner or later (if not already) we will see a Chinese foundary with all of the processes and equipment necessary to build ASICs for Qualcomm. > John, I am rubbing my hands with glee. Since 1986 I have been advocating getting involved with China. First with my old company, BP Oil International and in recent years with QUALCOMM. I'm delighted with proceedings and China's acceptance of QUALCOMM nirvana. I hope that China does everything from foundry work, to handset manufacture and on to helping with the design of later cyberphone designs for 2010. China has got 1.3 billion people who would love to get involved with such profitable business and since they can do it cheaper and better than QUALCOMM's traditional suppliers, I'm all for it. Of course, it won't be too many years before China becomes too expensive and new production needs to be opened up in India, Bangladesh and the like [subject to political acceptance allowing reasonable agreements in those countries]. My mother, who was born in China during the last foreign association, would be thrilled were she alive to see these developments. She retained a lifelong association with China and it's great to see China getting back into the international sphere in a big way and using foreign capital and technology to do so. Hu Jintao is getting the reign and reins of the dragon at an opportune time. For a while, they'll buy QUALCOMM ASICs made by foreign foundries. But that shouldn't last too many years. When they have got things humming, they'll be able to start exporting handsets to the rest of the world at lowwwww prices. Demand will be enormous. They'll pay a 7% royalty for exports. The internal royalty is only 2% and will be trivial. So trivial that we can ignore the TD-SCDMA as an attempt to play out negotiations a bit more, or at least provide a fig leaf for QUALCOMM and China to use while they negotiate more substantive issues. Your theory that no money will leave China is false. Well, it's sort of true. The money will leave China before it even gets there - the money will come from the 7% royalty on exports. The 2% will go into internal development. As will profits from joint venture companies China establishes or has established with QUALCOMM. But the 7% won't disappear into the China, never to be seen again. There might also be other income from China - BREW, Graviton, Eudora, and the long list of QUALCOMM interests which will be sold in China. There's a small glitch in your theory too. QUALCOMM has signed most favoured nation deals with Korea to the effect that nobody gets a better deal. Korea whined like a fleet of 747s that China had to pay only 2%, so Korean royalties should be lowered. QUALCOMM patiently explained that China's exports would involve a 7% royalty and that if Korea would like to take that royalty deal too, they are welcome. QUALCOMM can't lower China's rate without being sued by Korea. Korea dropped the subject and stopped whining, going back to giggling as they carted their truckloads of CDMA profits to the bank. Whining and giggling are incompatible activities - go on, try it! We won't be seeing any lowering of royalties or renegotiation of them. QUALCOMM has now got CDMA success worldwide with growing market share. Their royalties should have been higher, but they had to accept lower rates in the early days and are stuck with them now. But they certainly won't be lowering them at all. That's my theory. So, I agree that a lot of money will go in and never come out. But there'll be lots more orbiting outside the black hole event horizon, being generated by the enormous gravitational field within. Mqurice