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Technology Stocks : Nokia (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: DaveMG who wrote (760)	7/16/1998 9:07:00 AM
From: tero kuittinen	Respond to of 34857

Dave, I'm gonna make an exception here to my posting principles and quote the latest Swedish pop sensation Meja: "It's all about money, it's all abut dum-dum-duh-deh-dum-dum, I don't think it's funny, to see you fade away!" I suspect Meja is trying to convey the basic lesson in technology marketplace: the importance of economies of scale. When Nokia started racking up phenomenal profits in early Nineties it was able to do so, because it had pricing power. There wasn't enough competition around to force Nokia to cut its profit margins. Qualcomm is facing a different ball game. It has virtually no pricing power - the competition is dictating how much a digital phone can cost in the US marketplace. Nokia can prospere in this tough atmosphere... it poured all those early profits right back into R&D and advertising. Nokia has a lock on the vast, unified European/Chinese GSM market that is pouring money into its coffers. Qualcomm is forced to fight for market share in just one of the four multi-million unit digital standards in USA. It's basically competing in one region in one substandard. CDMA is growing rapidly right now, but the time when competition starts to eat into that growth rate is here. In 1998, both 6100 and 5100 model platforms are predicted to sell close to or over 10 million units worldwide. Ericsson's 778/768 platform may come near, it's too early to say. The world's only real blockbuster models are GSM phones. This gives these companies huge cost advantages. A smaller, less known brand can try to overcome established competition by A) clearly superior technology B) undercutting Qualcomm cannot afford to undercut Nokia and Ericsson. They do not have clearly superior handsets on the market. The equation is ominous. Back to Meja: what good is rapid sales growth if it does not bring rapid profit growth with it? As Korean chip manufacturers have demonstrated, you can buy market share all the way to the poorhouse. This is why I'm so interested in the phone specs. The moment I see Qualcomm coming up with a phone that is both cheap and competitive is the moment this stock becomes a good investment. But until that happens Qualcomm is locked in a ruinously expensive race to market mobile phones, up against companies with ten times higher production volumes and research budgets. Tero Tero