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Technology Stocks : Ericsson overlook? -- Ignore unavailable to you. Want to Upgrade?

To: Steve Morytko who wrote (1315)	2/6/1998 9:20:00 AM
From: DWB	Respond to of 5390

It's entirely possible that there is some overall decrease to the growth in telecom buildouts in SEA, but if you look at the QCOM problems, they primarily stem from Korea. Since Korea is a CDMAone only country, and since it's economy is one of the ones in the worst shape, the effect may be fairly concentrated. Remember that a huge chunk of QCOM revenues are royalties, and lacking Korean sales of CDMAone hardware, that royalty flow dies rather rapidly. On the other hand, companies like Ericsson who have a majority of their SEA exposure in China, seem to have weathered the downturn more gracefully. E's stock may still get tarred with the same broad brush that paints QCOM black today, but just like the earlier drop when the whole SEA mess showed up, as details came to light, it showed that Ericsson was in a much better position to survive the current downturn. All-in-all, while the Korean/QCOM thing is still a short term effect, it still shows that some companies, like Ericsson, appear to be less affected due to the countries they are connected to. DWB

To: Steve Morytko who wrote (1315)	2/9/1998 10:54:00 AM
From: Michael Donahue	Respond to of 5390

Steve Here is Individual Investor's take on the current QCOM situation. The following is from 2/5/98. Over the last four months, investors have expressed concern over the possible impact of the Korean economy's meltdown on Qualcomm's sales. Since the company has historically derived a large part of its sales from the country, the explosive growth that the company had witnessed was bound to be impacted. Sure enough, Qualcomm's management expressed precisely those sentiments after the market closed today. "Based on feedback from our key Korean customers, we are scaling back our expectations for the second quarter. We now feel that second quarter earnings will be comparable with last year's second quarter," said Irwin Jacobs, Qualcomm's Chairman and CEO, in a call with analysts this evening (February 5). Instead of earning $0.50 a share in the second quarter (ends March) as had been expected, QCOM will likely earn in the $0.20-0.25 range. While he was at it, Jacobs admitted that sales of Q phones were disappointing in the U.S. as well. Q phones are more expensive, feature-rich phones designed to appeal to affluent users. Consumers are showing an increasing predilection for basic phones. Predictably, gross margins are set to drop, since the Q phones were Qualcomm's highest margin handsets. Jacobs hinted at layoffs, stating that "conditions lead us to conclude that we need to scale back our operating expenses accordingly." Trying to put a positive spin on what looks to be a more competitive environment, Jacobs also added that, "hopefully, increased competition, which will drive down prices, will translate into stimulating a higher level of sales." Does all this portend a major slowdown in the overall CDMA market? Is this quarter indicative of what we should look for during the rest of the year? Not necessarily. But analysts are sure to revise their margin assumptions--and earnings estimates--downward. Especially given that Jacobs said he could not forecast how long the problems will last, we expect investors to react quite negatively to the news. Indeed, they already are. Although the stock closed today at $56.25, it dropped $9 lower in after-hours trading on Instinet (an institutional trading system that matches buyers and sellers of shares in crossing transactions). The stock should open tomorrow somewhere in the mid-$40s. With absolutely no visibility at this point, our hazarding a revised earnings outlook would be reckless. That being said, Qualcomm will be hard pressed to earn more than $1.25 a share in fiscal 1998--not much ahead of last year's $1.16 a share take. Where do we go from here? Here's what we think: If you already own the stock and were planning to hold it for more than 12 months, you should continue to do so. QCOM's long-term prospects may still pan out. But if you don't yet own the stock and are thinking of bottom-fishing, don't. The stock will be dead money for the next few quarters and may be taken yet lower if the Asian crisis worsens. With the cows already out of the barn, we are lowering our rating on QCOM to Hold. (Posted 2/5/98 with QCOM closed at $56.25) MD