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

To: Raymond who wrote (19773)	12/15/1998 11:02:00 AM
From: Valueman	Read Replies (1) \| Respond to of 152472

Stock of the Day Dec 15, 1998 Qualcomm: Angling for an Industry Standard Qualcomm (Nasdaq:QCOM - news) is one of many companies staking out turf in the market for digital wireless equipment. With over $3 billion in sales this is no small company, yet it is dwarfed by peers such as Ericsson (Nasdaq:ERICY - news) , Nokia (NYSE:NOKa - news) and Motorola (NYSE:MOT - news) . Essentially, Qualcomm is a big fish in a bigger pond. But this fish has a unique hook that it's trying to sink into all the fish in the pond--Qualcomm is angling to make its CDMA technology an industry standard for next generation wireless communications. Qualcomm is the developer Code Division Multiple Access, or CDMA. CDMA technology allows wireless communication systems to handle more capacity with higher sound quality compared to GSM, a competing technology that is well established in Europe and Asia. GSM, on the other hand, offers better roaming capabilities and the technology is less complicated and cheaper to build. Qualcomm licenses CDMA technology to other wireless equipment makers, so even when it doesn't sell the end product it still receives royalties if the product uses CDMA. It will be a long tough fight over industry standards, and the issue gets complicated by Qualcomm's direct competition with the companies who license its technology. Nonetheless, CDMA's momentum appears to be carrying the day in the US, with services that use CDMA like Sprint PCS rolling out in a big way this year. CDMA is also making inroads in other key markets of the future like Latin America and China. Qualcomm does more than just kick back and collect royalty checks from its CDMA technology, though. The company makes everything from the handsets to the chips and infrastructure equipment. The Q phone, recognizable by its clam shell design and internal antenna, received an MVP award from PC Computing magazine this year. Qualcomm is selling handsets faster than it can make them, though it recently had to pull one of its new models to fix a technical glitch. That hurt handset sales, and Qualcomm was depicted in a recent Dataquest market study as one of the big losers of market share so far this year. The study showed Qualcomm sales slipping to 8.2% of the market from 17.4%, but the company disputed those results, saying actual sales were more than twice the figure used in the Dataquest study. Qualcomm is also positioned nicely in the up-and-coming smartphone market. It recently introduced the pdQ smartphone which adds Palm Pilot functionality to a CDMA handset. Last month Qualcomm also launched a joint venture with Microsoft aimed at expanding the availability of information over wireless devices. The jointly-funded company will offer back end network operations to wireless service providers. The service, which may be available as soon as April, is aimed at giving mobile business users easier access to e-mail and other information off their corporate networks. Despite the reported decline in its handset market share, Qualcomm continues to deliver impressive results. In its Fiscal Year 1998 which ended September 30, the company posted 60% growth in revenues and a 53% increase in Earnings Per Share (EPS). The consensus from 16 analysts is for earnings growth to hit 53% again in FY99, with a projected 5-year growth rate of 34%. That's much faster than its larger industry peers, which are seen growing in 15%-25% range long-term. The near-term outlook for this stock will probably be dictated by CDMA handset sales during the holiday season, when 40% of all wireless phones are sold according to a recent Business Week article. But Qualcomm's ultimate fate will depend more heavily upon the proliferation of its CDMA technology standard, and not just in the US where it is establishing a stronghold, but also overseas. Qualcomm has done a good job penetrating Latin America with several significant CDMA infrastructure deals, including a $650 million 3-year contract in Mexico. In Asia, though, Korea is the only big user of CDMA systems and GSM is well-entrenched everywhere else in the region. The Chinese market is expected to explode from 13 million cellular subscribers last year to over 100 million in the next several years. That's the big fish everyone in wireless equipment wants to land.