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

To: Jim Lurgio who wrote (19347)	12/8/1998 6:20:00 PM
From: Gregg Powers	Read Replies (5) \| Respond to of 152472

To all: It appears that the stock action today was due to a remarkable disinformation campaign sponsored by First Boston and Marc Cabi. I have corroborated the substance of the comments from several of the firm's institutional sales people and will address the claims and points one at a time: /1/ Cabi is apparently about to release a long and negative research report about Qualcomm. What is particularly amazing is that First Boston is out telling people about the existence and substance of the report PRIOR to its publication. If this is in fact true, it would violate the compliance regulations of most every major wirehouse, i.e. the nature, topic and opinion found in an analyst's research is generally carefully guarded until a compliance review, investment policy committee approval and official publication. If Cabi et al has actually been front-running this piece, I would suggest this to be an actionable violation. /2/ Cabi is claiming that the Korean market is saturated. Ironically Qualcomm raised this concern during the October conference call, noting that the country's wireless penetration has been rising steadily and that subscriber growth is likely to slow. Cabi neglects to point out that Korean royalties and ASIC demand encompass both domestic, i.e. Korean consumption, and export demand. Moreover, Korean domestic demand has been surprisingly strong so far this quarter and has EXCEEDED Qualcomm's expectations. Finally, Cabi neglects to note that Qualcomm specifically factored such a possible slowdown into the guidance it gave Wall Street back in October. /3/ Cabi is claiming that the Koreans in general, and LG Electronics and Hyundai in particular, are looking to switch to another ASIC vendor because they are "mad" at Qualcomm. The argument goes that QC is charging too much for ASICs and therefore DSP and/or VLSI will displace the company. Despite intense efforts, WE CAN FIND NO EVIDENCE TO CORROBORATE THIS CLAIM. Again, Qualcomm disclosed during the last conference call that is has aggressively reducing prices on its MSM2300 chip (while introducing the next-generation MSM3000 chipset) specifically to thwart such a competitive action. The Cabi team cites no specifics, i.e. no particular handset program at Hyundai or LG where QC has been displaced. Instead they appear to be relying on innuendo rather than fact and seem to be ignoring (a) the technological lead that QC ASICs hold in the market, (b) the lead time for developing a handset based on a competitor's ASIC, i.e. twelve to eighteen months, (c) the certification process that such a handset would have to undergo with carriers, i.e. six to nine months,(d) that the competing ASIC vendor, if successful, would be required to pay Qualcomm royalties and (e) the rapidly expanding size of the CDMA ASIC market, i.e. this is not a binary situation where in order for DSP/VLSI to succeed, Qualcomm must fail. Duh. /4/ However, the lynchpin of Cabi's position was TIMED TO EXACTLY COINCIDE WITH ERICSSON'S ANNOUNCEMENT REGARDING HARMONIZATION. Cabi is claiming that IF HARMONIZATION IS ACHIEVED, ERICSSON'S IPR WILL CANCEL QUALCOMM'S IPR AND THIS WILL LEAVE QC'S BUSINESS MODEL IN RUINS AS THE COMPANY'S ROYALTY INCOME DISAPPEARS. This is one of the most offensively manipulative and deceptive arguments that I have ever heard. Let's think about this for a second... Marc Cabi is arguing that QC management has been fighting to achieve harmonization...fighting to force Ericsson to merge W-CDMA with cdma2000...fighting a protracted and nasty political battle in a worldwide forum...for the express purpose of destroying the company's business model! What a total crock of sh.t!! To believe Cabi's thesis, one would have to posit that Irwin Jacobs has been hell bent on self-destruction since he began the quest for convergence. This is simply the most egregious line of horse manure ever to slide from the mouth of our vexatious antagonist. But the logic is even worse than it first appears. Even if ERICY and Qualcomm agreed to a zero royalty cross license (which will happen on a very cold day in Hell), EVERYBODY ELSE WOULD NEED TO LICENSE THE IPR FOR THE CONVERGED STANDARD FROM ERICY AND QUALCOMM. So even if the absurd Cabi argument were correct, QC would continue to collect royalties on existing and future IS-95 deployments AND it would derive an entirely new royalty stream from everybody but ERICY when 3G is deployed. Of course, Qualcomm has NO INTEREST in a zero royalty transaction with Ericsson, so the entire premise grossly understates the most probable outcome of Ericsson's concession, namely that Qualcomm continues to enjoy a lucrative IS-95 royalty stream and that an entirely new stream of royalties will added to this base when 3G happens. Question. If you think everybody is out to get you, and you are right, are you crazy, paranoid or just smart? Take a look at time and sales for Qualcomm stock today...the selling began almost to the minute that the Ericsson press release on harmonization hit the tape. Now, call me crazy, call me cynical, call me paranoid...but does anybody else find it strange that Mr. Cabi would be able to concoct and disseminate this bullshit argument exactly in concert with Ericsson press release, of what I might add was supposed to be non-public information? Is this simply the most timely and the most prescient misinformation ever to come from the Cabi camp...or is there more to it? It is rather interesting that at the point where Ericsson finally moves off center regarding W-CDMA, the company's leading "bull" analyst has a magical explanation that neutralizes the perception that this is a negative for Ericsson and a positive for Qualcomm. Finally...the most stupid part of Cabi's premise is the most obvious. If Ericsson's IPR was of equal value to Qualcomm's, why did ERICY need to compromise on W-CDMA? Why didn't it force Qualcomm to modify IS-95 to harmonize with the Ericsson standard? Cabi would have us belief that the company forced to make concessions, i.e. Ericsson, is somehow the company bargaining from the greater position of strength. Sure..okay..that makes sense. Beyond the prima facia absurdity of this nonsense is the simple fact that roughly $75mm worth of Qualcomm stock (adjusting for double counting) appears to have been sold in response to this "research". I only hope, for my industry, that the sellers were momentum-oriented traders and not fundamental-oriented investment managers. For the latter to have owned Qualcomm stock predicated on such a poor understanding of the business, and then sold it in response to such a blatantly manipulative and false concoction, suggests something approaching malfeasance. Best regards, Gregg