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

To: Ramsey Su who wrote (9518)	3/31/1998 7:58:00 PM
From: Caxton Rhodes	Read Replies (1) \| Respond to of 152472

S&P revises Qualcomm Inc outlook (Press release provided by Standard & Poor's) NEW YORK, March 31 - Standard & Poor's today affirmed its double-'B'-minus corporate credit rating and single-'B' preferred stock rating on Qualcomm Inc. At the same time, Standard & Poor's assigned its double-'B'-minus rating to Qualcomm's $400 million unsecured revolving credit agreement, and revised its outlook on the company to stable from developing. Qualcomm's corporate credit rating reflects the company's technological strengths and maturing manufacturing capabilities, as well as predictable cash flows from certain operations. These are offset by heightening cellular equipment competition and the potential for high levels of vendor financing activities to support network sales to its expanding global customer base. Code division multiple access (CDMA) wireless technology, developed and commercialized by Qualcomm, has become an accepted cellular and PCS communications standard in many countries, although most CDMA networks are in North America and Korea. Qualcomm now manufactures millions of handsets per year in a joint venture factory with Sony Corp., and can make about 5,000 base stations per year. Qualcomm generates reliable cash flows from the sale of specialized semiconductors to its licensees, from contractual R&D and initial equipment production for the developmental Globalstar satellite system, and from its mainstream OmniTRACS truck data communications system. Sales grew 250% in 1997, reflecting a very steep ramp up of demand and manufacturing capabilities for CDMA handsets and chips, growth in royalties and contractual revenues, plus revenue recognition of certain 1996 shipments to Sprint. Operating margins in 1997 were 10%. This is lower than historical years due to the long term mix shift towards CDMA products from traditional lines. Margins could remain pressured over the near to intermediate term due to the entry of independent handset competitors into the market, lesser-than-anticipated sales of higher end handsets, and lower royalties due to the Korean economic crisis, offset by ongoing improvements in manufacturing efficiency. Capital expenditures in 1996 and 1997 totaled $380 million to construct the company's CDMA manufacturing facilities. Coupled with working capital usage to support rapid sales expansion, Qualcomm's free cash flows have been materially negative over the last several years. Future cash flows are expected to remain substantially negative due to likely high levels of vendor financing to support expected growth of infrastructure sales. The timing of specific commitments and Qualcomm's ability to resell them to third parties are currently uncertain. Cash balances were $653 million at Dec. 31 1997, but are likely to decline in the future. The company's $400 million three-year revolving credit agreement is rated double-'B'-minus, the same as the corporate credit rating. As unsecured lenders, the banks would be expected to fare the same as other senior lenders in the event of default. OUTLOOK: STABLE Qualcomm's well-managed rapid growth during 1997 and successful implementation of several customer networks have eased concerns about the company's ability to become a volume telecommunications industry supplier. Additionally, Qualcomm generates good cash flows from its technology contracts and its traditional trucking datacom business. These factors provide a good degree of downside ratings protection. Rising levels of vendor financing commitments could entail significant increases in debt, which is likely to constrain upgrade potential over the next few years, Standard & Poor's said.