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

To: Maurice Winn who wrote (8954)	2/27/1998 11:39:00 PM
From: Gregg Powers	Respond to of 152472

To all: Some food for thought (since I seem to have too much time on a Friday night) with respect to the QC royalty stream. On the infamous conference call, management indicated that Q2 royalties would be a "few million dollars less" than Decembers $44m. Based on this guidance, I'm using a $38mm estimate for Q2. The Street, however, is concerned that forward royalties (i.e. June and beyond) will be further depressed by slowing Korean handset sales and the devalued Won, but I had an interesting insight on the topic. Remember that QC recognizes royalties roughly ninety days in arrears. This means that March (FY-Q2) royalties derive from December quarter handset and infrastructure sales. Recall also that management indicated that March quarter ASIC revenue will be roughly flat with the December quarter. Since ASIC prices have declined modestly, this implies GREATER UNIT SHIPMENTS of QC ASICs during the March quarter than during the December quarter. ASICs, by definition, translate into handsets. It follows then that total third party (i.e. non QPE handset) production will be greater (worldwide) in the March quarter than in the December quarter. It also follows that with slowing subscriber growth WITHIN Korea, that these handset sales are taking place OUTSIDE Korea (i.e. dollar denominated transactions not impacted by the Won's devaluation). Also, with commercial shipments commencing from Japanese and other handset vendors, it would seem that non-Korean (i.e. non-won denominated) sales are increasing as a percentage of the mix. So what does this mean? Since the Japanese yen has not devalued materially against the dollar, the evolving mix, away from Korean domination, should improve QC's royalty realization per handset. Moreover, if ASIC shipments are increasing (as would be necessary to meet the company's revised revenue estimate), then total handset volume should be increasing. In addition, if the Japanese CDMA system turns on in April, related infrastructure royalties should become payable sometime between May and July. Therefore, unless I am missing something, QC's royalties should trough in the March quarter and begin moving higher again in June quarter. The thesis is further supported by commercial handset availability from Nokia and Motorola, both of which pay handset royalties but do not purchase QC ASICs--that is, the total universe of handset shipments equals (a) QPE plus (b) non-QPE vendors supported by QC ASICs plus (c) those coming from NOK & MOT. None of this should be surprising to people who are focusing on the worldwide growth of CDMA, but it may come as something of a rude shock to those bears myopically focused on Korea. Any comments? Gregg

To: Maurice Winn who wrote (8954)	2/28/1998 3:22:00 PM
From: GO*QCOM	Respond to of 152472

Motorola is 2 years behind shipping the popular CDMA phones and has lossed market share to QUALCOMM says a recent Buisness Week article.The article states Motorola won't have A CDMA startac out until the end of this year while QUALCOMM has already released tiny CDMA phones the size of a pack of cigarettes.The times how they have changed.