Mike, Valueman, and all,
The best read of all information about a company besides direct quotes from management is from SEC reports. My opinion (under lawsuit threat!). 6.5 % is QCOM portion of Globalstar besides others interests. Here is a partial excerpt from Quarterly reports,
"Due to recent events involving customers in South Korea, the Company expects a reduction in second quarter fiscal 1998 earnings and communications systems gross margin from the prior quarter. Two South Korean manufacturers informed the Company of partial cancellation or postponement of ASICs orders originally scheduled to ship during the second quarter of fiscal 1998. Further, following a visit to South Korea, the Company recently concluded that a previously announced order for 1800 MHz Q phones will not be fulfilled.
Sales of the Q phone are expected to be lower than planned in the second fiscal quarter due to the loss of the South Korean order for 1800 MHz Q phones, the delay in introducing the 800 MHz cellular dual-mode Q phone and a recent reduction in demand for 1900 MHz PCS Q phones. As a result, the Company anticipates a change in mix between the anticipated volumes of the Q phone, with its higher labor content, and the QCP models, with their lower labor content, which, combined with ongoing cost improvements and increased efficiencies, resulted in a workforce reduction of approximately 700 temporary workers announced in early February 1998. Accordingly, the Company expects that the change in product mix will cause the communications systems gross margin to decline in the second quarter of fiscal 1998.
Second quarter royalties from South Korean licensees will be impacted by the decline in the valuation of the South Korean won. In addition, the slowdown in shipments to South Korean customers, beginning in the second quarter of fiscal 1998, may also cause fluctuations in royalties recognized in future periods.
The Company's revenues generated from its proprietary CDMA technology are currently derived primarily from subscriber and infrastructure equipment and ASICs component sales to domestic and international wireless communications equipment suppliers and service providers. In addition, the Company has derived significant revenues and margins from license, royalty and development fees. Although the Company expects to continue to receive CDMA license, royalty and development fees from its existing agreements and may receive similar fees and royalties from new licensees, the amount and timing of these CDMA fees and royalties will depend on the extent to which and when the Company's CDMA technology is commercially implemented. Delays in roll-out of future cellular, Personal Communication Services ("PCS") or Wireless Local Loop ("WLL") systems could have a material adverse effect on quarterly and annual revenues. Additionally, revenues generated from license, royalty and development fees will fluctuate quarterly and yearly due to variations in the amount and timing of recognition of CDMA license fees, the timing, pricing and amount of sales by the Company's licensees and the Company's ability to estimate such sales, and the impact of currency fluctuations and risk on royalties generated from international licensees.
Sales of infrastructure equipment internationally are subject to a number of risks, including substantial competition with other providers of CDMA, Global Systems for Mobil Communications ("GSM"), and other competing wireless systems (most of whom have substantially greater resources than the Company and are well-established equipment manufacturers with long manufacturing histories) and risks related to unexpected changes in regulatory requirements, export controls, national standards, currency exchange rates, expropriation, tariffs and other barriers, political risks and difficulties in staffing and managing foreign operations. WLL systems in the U.S. and foreign countries are just beginning to be implemented, and their market acceptance is uncertain. The wireless telecommunications industry is experiencing significant technological changes. As a result, the future prospects of the industry, the success of PCS, WLL and other competing services and the Company's ability to generate substantial revenues and profits from sales of CDMA infrastructure and subscriber equipment are uncertain.
In order to commence operation, PCS and WLL operators will need, among other things, to invest substantial capital and complete their system designs and build-outs. Any delays in connection with the commercial rollout of CDMA technology by the Company's major customers, or any delays in obtaining orders for the Company's infrastructure equipment from both national and international customers could result in under utilization of the Company's manufacturing facility and have a material adverse effect on the Company's results of operations, liquidity or financial position.
An important element of the Company's strategy is to be a major supplier of CDMA infrastructure and subscriber equipment worldwide for cellular, PCS and WLL service providers, including C, D, E and F-Block PCS licensees in North America. The Company's ability to generate substantial revenues and profits from sales of infrastructure and subscriber equipment will require continued substantial capital investments by the Company and is subject to risks and uncertainties. The Company's ability to generate substantial sales of CDMA infrastructure and subscriber equipment to C, D, E and F-Block PCS licensees is subject to a number of risks in addition to those facing other wireless service providers. Many of these licensees have limited financial resources, are highly leveraged and will require large amounts of capital to complete the build-out of their systems. There can be no assurance that these licensees will be able to raise such capital. During 1997 two C-Block licensees, holding the second and third largest number of PCS licenses, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. There can be no assurance that other C, D, E and F-Block licensees, including those in which the Company has an ownership interest (NextWave Telecom Inc., ("NextWave") and Chase Telecommunications, Inc. ("Chase")), will not file for similar protections. Additionally, during 1997 the FCC granted the C-Block licensees three additional options to the installment payment of debt. The deadline for the C-Block licensees to elect one of the four options is February 26, 1998. Although the FCC has offered four payment options there can be no assurance that C-Block licensees, including NextWave and Chase, will be able to obtain sufficient financing to build-out their systems or meet their payment obligations to the FCC. The failure of NextWave or Chase to obtain sufficient financing or to meet their obligations to the FCC could adversely affect the value of the Company's investments in
these entities. The C, D, E and F-Block auctions were concluded over one year following the conclusion of the A-Block and B-Block auctions, which provided the A-Block and B-Block licensees with a significant time-to-market competitive advantage over these licensees. There can be no assurance that the C, D, E and F-Block licensees will be successful in building out their systems.
The manufacture of wireless communications equipment is a complex and precise process involving specialized manufacturing and testing equipment and processes. Defects or impurities in the components or materials used, equipment failure, product design issues, or other difficulties could adversely affect the Company's ability to meet planned production yields. There can be no assurance that the Company will not encounter difficulties in achieving planned yields on its products, which would adversely affect its margins, results of operations, liquidity or financial position.
The Company manufactures its CDMA based digital cellular and PCS subscriber equipment through QPE, a joint venture between the Company and a subsidiary of Sony. The risks associated with the commercial manufacture of the Company's infrastructure and subscriber equipment products. which are described in this document, also apply to the manufacture of subscriber equipment by QPE. To the extent that QPE experiences any of the complications, delays or interruptions described herein, the Company's results of operations, liquidity or financial position would be adversely affected.
A significant portion of the Company's CDMA subscriber and infrastructure equipment and ASICs components sales are, and are expected to continue to be, concentrated with a limited number of customers. As a result, the Company's performance will depend significantly on relatively large orders from a limited number of customers, as well as gaining additional customers, both within existing cellular, PCS and WLL markets and in new markets. The loss of any existing customer for CDMA equipment and ASICs components or the failure of the Company to gain additional customers could have a material adverse effect on the Company's business, results of operations, liquidity or financial position.
Revenues from international customers accounted for approximately 30% of total revenues in fiscal 1997. Since the Company is a relatively new entrant into some of these markets and its competitors may have long-standing, entrenched positions, it may be difficult for the Company to succeed in certain markets, thereby limiting international sales. Due to recent events involving customers in South Korea, the Company expects a reduction in second quarter fiscal 1998 earnings and communications systems gross margin from the prior quarter. Two South Korean manufacturers informed the Company of partial cancellation or postponement of ASICs orders originally scheduled to ship during the second quarter of fiscal 1998. Further, following a visit to South Korea, the Company recently concluded that a previously announced order for 1800 MHz Q phones will not be fulfilled. Other risks faced by the Company in its international business include unexpected changes in economic conditions, regulatory requirements, export controls, national standards, currency exchange rates, expropriation, tariffs or other barriers, political risks, difficulties in staffing and managing foreign operations and potentially negative tax consequences. These factors could have an adverse impact on the Company's operating results. In addition, because certain joint ventures between the Company and foreign firms provide for a minority ownership position by the Company in the joint venture, the Company may be limited in taking actions it might otherwise wish to pursue. The Company is subject to U.S. export control laws and regulations with respect to all of the Company's products and technology that are exported from the United States. The Company is subject to the risk that more stringent export control requirements could be imposed in the future on product classes that include products exported by the Company, which would result in additional compliance burdens on the Company or ensure the enforceability of its contract rights. In addition, the laws of certain foreign countries, including developing nations in Asia, South America, Africa and Eastern Europe, may not protect the Company's intellectual property rights or ensure the enforceability of its contract rights to the same extent as do the laws of the United States.
The Company generates revenues from its domestic OmniTRACS business by manufacturing and selling OmniTRACS terminals and related application software packages and by providing ongoing messaging and maintenance services to domestic OmniTRACS users. The Company generates revenues from its international OmniTRACS business through license fees, sales of network equipment and terminals and fees from engineering
support services. International messaging services are provided by service providers that operate network management centers for a region under licenses granted by the Company.
The Company has entered into a development agreement with Globalstar to design and develop subscriber equipment and the ground communication stations of the Globalstar system. The revenues from this contract are expected to be in excess of $700 million and the Company is reimbursed for its development services on a cost-plus basis. During April 1997, the Company was awarded a $275 million contract to manufacture and supply commercial gateways for deployment of Globalstar's worldwide Low-Earth-Orbiting satellite-based digital telecommunications system. This multi-year agreement has subsequently grown to $330 million and could grow to approximately $600 million as the Globalstar network is built out. The Company expects to begin shipment of their production gateways in mid-calendar 1998. Globalstar may require additional capital to fund payment for the equipment to be developed by the Company. To date, Globalstar has received funds and financing commitments totaling approximately $2.6 billion. There can be no assurance that Globalstar will be successful in raising additional capital, if needed, or that delays or technical or regulatory developments will not arise which could adversely affect Globalstar's ability to continue funding the development agreement, which could have a material adverse effect on the Company's business and results of operations. The Company's interest in Globalstar is owned indirectly through certain limited partnerships. The Company's current ownership interest in Globalstar is approximately 6.5%."
Valueman, 6.5% is QOCM portion of Globalstar.
Good luck to all.
Brian H.
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