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

To: Houston_CPA who wrote (12228)	7/11/1998 7:06:00 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 152472

LA Times (below) is interesting. When will AirTouch get Q-Phone? Telecom Industry Has it Rough If you think competition in advanced technology and international markets is a high-toned game played by Marquess of Queensberry rules, think again. Qualcomm, the inventive San Diego-based telecommunications company, was sailing toward a great destiny this year when it was almost kneecapped by international competitors and government regulators who outmaneuvered it. L.M. Ericsson Inc. of Sweden devised a new standard for the next generation of cellular phones that is based on Qualcomm's technology, but not compatible with it. Then Ericsson got European communications regulators as well as Nokia of Finland, Siemens of Germany and Nippon Telegraph & Telephone of Japan, to agree to its standard. Next it is going to place the new standard before a United Nations rule-setting body on telecommunications. The upshot may be that Qualcomm, the 13-year-old company that has grown to more than $3 billion in revenue and 9,000 employees, will continue to be frozen out of Europe's markets and severely damaged in its present and future business everywhere. Threats in All Sizes Qualcomm is fighting back. Chairman Irwin M. Jacobs, company co-founder and co-inventor of the CDMA (or code division multiple access) technology for cellular phones, is threatening intellectual property lawsuits on a grand scale and trade action by the U.S. government. He may succeed in securing Qualcomm a chance to compete in every market, including Europe, as mobile phones advance to data transmission and even Internet access. "His chances of success are better than 1-in-3 and improving, but they're not yet even money," says a telecommunications expert. What's at stake is a huge market. Mobile phone use worldwide, now approaching 200 million customers, is projected to reach 1 billion before 2005 and keep on growing. In the United States, AT&T had a technology similar to that of Ericsson. But in San Diego, Qualcomm devised the CDMA system, which breaks phone calls into digital bits and codes each bit. The effect is to allow many calls simultaneously over the same line, thus greatly increasing the capacity of cellular phone systems. CDMA was a timely development, but Qualcomm's system was not welcomed. Competitors complained that the United States was confusing the market by allowing multiple standards. And as recently as 1996, some experts predicted that CDMA would not work. But it did work. CDMA phones, whether supplied by Qualcomm, Motorola or others, gained acceptance in the United States and Asia. Even European companies began to concede they needed CDMA's capacity for their systems. Qualcomm's future seemed limitless, and its stock hit 72 at the end of last year. Surprise Competition But in the early months of 1998, a different picture emerged. Ericsson's new system would be compatible with Europe's GSM, but not with Qualcomm's CDMA. Furthermore, the European Telecommunications Standards Institute approved it as the single standard for all of Europe. Qualcomm was caught by surprise. With its business already hurt by the Asian financial crisis, the company now faced a threatened future. The stock fell back to its present 56. Jacobs flew to Europe last month to confer with telecommunications providers. "The new standard must be friendly to our technology," he says. Some Telecom Experts Think He'll Get His Wish. "Ericsson tried a politically driven strategy, but I don't think it will work," says Bradford Peery, head of Brad Peery Inc., a San Francisco investment research company specializing in telecommunications. But the final verdict is far from certain. Truth is, Qualcomm will succeed only "if the U.S. government comes down unambiguously for open markets," says Peter Cowhey, a telecommunications expert at the University of California, San Diego and a consultant to Qualcomm. What lessons does the story hold? One is don't underestimate competition. Qualcomm became too impressed with its own technology and was caught flat-footed by Ericsson. Two is that messy, competitive markets are better for entrepreneurial opportunity and for consumers than orderly standards that governments in Europe and elsewhere prefer. Finally, competition for the huge prizes in advanced technology is not a game of pattycake. But it's exciting. Los Angeles Times Syndicate