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

To: Gregg Powers who wrote (13233)	8/3/1998 10:50:00 AM
From: tero kuittinen	Read Replies (2) \| Respond to of 152472

For the next two or years or so, earnings growth of all these companies depend on second generation standards. And here's where GSM's triumph in China is going to matter a lot. Nokia's overall handset sales growth during second quarter was 50% - but China was the company's growth hot spot, the growth there was well above 50%... possibly in the 80%-120% range. Even Ericsson managed 60% sales growth in China despite the fact that its overall sales growth fizzled. I remember hearing something about a billion dollar CDMA infrastructure deal "at the tail end of Clinton's visit to China". Just how long is this guy's tail anyway? Or has China scrapped the CDMA expansion plans, because this was all along a pet project of the military, which is now being stripped of its commercial interests? The CDMA overlay in Europe, of course, is not happening. The pilot project was much publicized around January and there has been no commitment by the major European operators. And how could there be? Bringing CDMA handsets to Europe at their current quality level would be a recepy for a commercial fiasco. Meanwhile, Nokia's US expansion has been a smash success. Businessweek just gushed for about five pages about how the 6100 is the biggest global mobile hit of the year. Shockingly, US sales of Nokia phones grew actually faster than the European sales, despite the fact that overall European mobile phone sales are more brisk than in America. Nokia has revitalized the TDMA and GSM standards in USA. The 6100 sell out as soon as they hit the stores and some cities have waiting lists for 2-4 weeks. You don't hear much talk about CDMA overwhelming USA nowadays, do you? Nokia's unique global launch strategy of its leading models gives the company production volumes nearing 10 million units in its most popular models (6100 and 5100). This is the key to why Nokia's profit growth keeps outstripping its sales growth, even as the sales growth accelerates towards 60% and 70% in the second half of the year. Low volume manufacturers get crushed in the progress. I thought I read somewhere that Qualcomm's phone sales in the second quarter were practically flat compared to last year. It must have been just malicious slander, right? Right? When Nokia can finally meet the demand for its GSM and TDMA phones in USA during the third and fourth quarters we will see the real state of the US standard competition. Qualcomm fans have always stressed how they want the marketplace to decide... like so often in this life, they may get what they want just to discover it ain't what they expected. Tero

To: Gregg Powers who wrote (13233)	8/3/1998 5:28:00 PM
From: bananawind	Respond to of 152472

Gregg, Re: All this belaboring of GSM here and IS-95 there will likely become far less relevant as digital technologies converge over the next two-to-three years.[snipped] ...we really should understand the long-term dynamic and its implication for royalties and earnings. Let's give it a try. Q's current run rate for royalties looks like about $200 million for calendar 1998. Dividing that by 11 million projected new cdma subscribers (growing worldwide from 7 mil. to 18 mil) gives a royalty per new sub of about $18. We know that over time the source of royalty won't be constant across infrastructure, ASICs and handsets, so this is just a rough proxy. Ok. Now jump forward to August 2001. Subscriber growth still going great and it looks like we have a lock on 40 million new cdma2000 subs for the current year. This implies $720 million of royalties. Not bad, about $9.60 per share (that should get us above the "natural" home in the 40's). Flash, Ericcson, QCOM and the ITU issue a joint press release announcing a convergence of the competing W-CDMA and cdma2000 standards. Beginning immediately QCOM will offer to license its IP under the new W-cdma2000 standard at a rate approximately two-thirds of its previous cdma2000 rate. The new rate will also henceforth apply to all previously executed cdma2000 licensees. Now, instead of getting $18 per cdma sub we will only get $12. But going forward we will get $12 for all those GSM/TDMA folks who have waited all this time for a 3G handset and of course for all their new subs too. While it might take a year or so to build the momentum, lets say we can now look forward to the equivalent of 80 million subs per year, or $960 million in royalties at $12 each (up to $12.80 per share now). Also, don't forget that by this time Surfer Mike's Q-phone is no longer cutting edge, and he (along with a few million Koreans) is once again chewing his nails over which of QCOM's models to buy. So there is an upgrade market to consider too. [Before Maurice jumps on me, as a matter of principle I don't think Q should lower the price of their IP to the Johnny come lately crowd - would much prefer to just tell Ericcson to go stuff it. But the good news is that Q's management is much smarter than that and will see the compelling economics of a shorter route to a much, much, bigger pie.] I know these figures are just pulled from the ether, but they should give us an idea of the magnitude of QCOM's opportunity vis-a-vis convergence. Five years out I could easily see QCOM having twice its current revenue and profit prospects in a converged, all-CDMA, world. Would welcome other opinions. -JLF