Tero:
An excellent and worthy post!
First, given Qualcomm's $3 billion revenue run-rate, it is no longer a small company. If I have the conversion to Finnish Markka correct, QC is currently the same size as Nokia back in 1993 (but is growing more rapidly).
Your suggestion of megalomania would be accurate if your characterization of Qualcomm's actions were accurate. Unfortunately, you are largely incorrect. After developing the fundamental IPR for CDMA (IS-95), Qualcomm licensed its technology broadly (to over fifty companies including, as you well know, Lucent, Motorola, Alcatel, NEC etc.). The strategic position that it was better to have a small marketshare of a large market rather than owning 100% of a stillborn standard is precisely why IS-95 has come to dominate North America and has been adopted in over thirty countries worldwide.
Qualcomm's joint venture with Sony (QPE) was created specifically to address the challenges of high volume consumer electronics. Yes, there have been problems, but you seem to think that Ericsson or Nokia are somehow perfect. You are incorrect. The Nokia 2180 CDMA handset suffered from terrible software problems when it was first introduced--to such an extent that Airtouch pulled the product until Nokia got it right. Knowing this, I still have never suggested that Nokia is anything other than an excellent company--because I understand that start-up problems are the rule rather than the exception. I would however point out that Nokia's problem was technical (i.e. software implementation) while the QCP problem was mechanical (i.e. an out-of-tolerance part from a vendor). While neither is acceptable, Nokia's problem was more intractable and illustrative of a core engineering issue. Qualcomm's phones, from an audio and RF engineering standpoint, have been uniformly excellent. Mechanical problems, although painful, are fairly straightforward to resolve.
You claim that QC's performance over the last ten months has been poor. This is a highly revisionist view of the world. The company's performance in the September and December quarters of 1997 was excellent. Are you suggesting that QC management is responsible for the Asian crisis?
I don't know what you have read, but I speak regularly to people at Bell Atlantic, Airtouch, Ameritech, Sprint and PrimeCo and NOBODY has suggested that there are ANY systemic quality problems with the Qualcomm phones. All claimed to be very impressed with the company's responsive reaction to the QCP problem and many suggested that the company had gone far beyond what was necessary.
As for QC's pricing being widely derided, I presume you mean that Motorola complained that the ASIC's were too expensive? Well, with 20-20 hindsight, it would appear that QC's handsets were a terrific bargain given MOT's inability to ship a commercial product in their absence. Moreover, on MOT's conference call today, Chris Galvin indicated that MOT was now willing to purchase QC ASICs in the future to accelerate its rollout of CDMA handsets. Seems you are attempting to blame Qualcomm for Motorola's strategic mistakes.
You attempt to turn the whole standards debate into a "chip rate" issue, and dismiss the question by suggesting that I am simply "buying Qualcomm's line". Sorry to disabuse you of the notion, but I have spoken to a multitude of system operators plus engineers at Lucent and Hughes. Everyone basically says the same thing--which coincidentally(?) foots to Qualcomm's position. Tero...I suggest you try to get some direct insight into the chip issue..it would make the debate more interesting as opposed to your attempt to simply mock and trivialize my conclusions.
As for the whole management credibility issue, I am amazed by your blindspot here. Yesterday Motorola announced, two months into its quarter, that financial results for the current quarter would be well below Street expectations (and that it would be taking a $2bb restructuring charge). This is the third quarter in a row that Motorola has "preannounced" a reduction in guidance two-thirds through a quarter..yet nobody seems to be calling Chris Galvin a congenital liar. Both Ericsson and Nokia have, in their history, preannounced quarterly shortfalls, yet their managements' remain well regarded. What is it about Qualcomm's actions that you find so odious? What basis do you have for your claim that their actions were amateurish? As soon as the company's information changed, as soon as Hansol canceled its order and Samsung rescheduled, Irwin called a conference call and told investors. Coming on the heels of a positive conference call, this turnabout required much courage and integrity. Management could have waited a couple of months, and then done a Motorola-style preannouncement, but such was unacceptable to Irwin. He told us the truth as soon as circumstances changed and for this you attempt to vilify him. Go figure. And, by the way, I absolutely believe that Irwin tells me whatever up to the point of making me a corporate insider. I have an enormous amount of history with this man--through good times and bad--and I have never, I repeat, NEVER felt that he has misled me. And, if you believe me about anything, please believe me about this--there is nothing that I track more objectively and more fastidiously. At the end of the day, I don't have to own $200mm+ worth of Qualcomm stock. My firm has a nice, albeit unspectacular, return to date and there is no reason why I couldn't simply liquidate the position and move on, dignity intact. My perseverance is based on the emphatic believe that perceptions such as yours are incorrect.
I have tried repeatedly to explain the many moving parts that influence Qualcomm's business model. I have tried to point out that the Asian crisis is a mixed bag. There are, for example, two equations to Qualcomm's Korean business--ASICs consumed, and royalties paid, for handsets sold domestically to Koreans and ASICs consumed, and royalties paid, for handsets that are exported. Last I counted, there quite a few more (in aggregate) Americans and Canadians et cetera then Koreans. Why do you assume that Qualcomm's business will, in perpetuity, remain dependent on Korea and subject to the adverse vicissitudes of Asia?
Tero, I would prefer nothing more than to engage you in a high-level, even-handed, point-by-point debate that eschews name calling and other indignities. As I have said before, I think you are quite intelligent and a contrarian viewpoint is always valuable. However, much like Bill Frezza, your posts vary widely in intellectual content. Sometimes, you are thoughtful and concise and other times you simply proffer wild bearish opinions that appear unsupported. Without trying to sound sanctimonious, I would point out that many people read these electronic missives and we have an obligation to the truth. In this regard, I am proud of my trackrecord from the Frezza days to the present. I hope you can always say the same.
Best regards,
Gregg |
