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

To: SKIP PAUL who wrote (22517)	2/5/1999 10:11:00 AM
From: Ruffian	Read Replies (2) \| Respond to of 152472

Red Herring> Qualcomm still hunting for bulls By Peter D. Henig Red Herring Online February 4, 1999 If ever there was a stock caught in a brawl between bears and bulls, it's got to be Qualcomm (QCOM). Despite monster revenue growth throughout the 1990s, reaching $3.3 billion by the end of 1998, investors have remained unconvinced that the company's moves into the wireless infrastructure market and the highly competitive handset business merit the hot premiums granted to firms like Nokia (NOK.A). In an effort to lure bulls back to its corner, Qualcomm CFO Tony Thornley pitched a roomful of institutional investors at the 1999 NationsBanc Montgomery Securities Conference on the company's vision for "building the wireless future." The bulls snorted. GLOBAL ACCESS Qualcomm, a pioneer in the development of wireless CDMA technology, expects that growth in the wireless industry will remain hot for the foreseeable future, particularly in international markets such as Japan and Brazil. Mr. Thornley said that CDMA subscribers in Japan should jump from 400,000 in 1998 to 3 million in 1999, that there are "tremendous growth opportunities in Brazil and China," and that despite proceeding cautiously in Eastern Europe, it soon expects deployment of CDMA technology in Russia. Such rosy growth projections were only enhanced by Mr. Thornley's other bullish comments. He called Qualcomm's Omnitracs System, a satellite-based transportation monitoring system with over 80 percent market share and over 1 billion transactions per year, "very profitable." He assured the audience that Qualcomm's affiliated businesses with Globalstar (GSTRF), a low-earth-orbit (LEO) satellite communications system that is close to full launch, is very strong. "That's the frustrating thing," said one trader and Qualcomm investor attending the Montgomery Tech conference. "If business is so good, then why has the stock stayed so flat?" The stock has actually dipped below flat. Despite revenues that appear to be doubling every two years, current share prices are actually trading below 1997 highs of almost $70. FIFTH WHEEL "Why is a company that's growing at 30 percent not getting any respect?" asks another Montgomery conference attendee. Good question, but Wall Street has no shortage of answers. Analysts have questioned whether Qualcomm's handset business can compete with the likes of cell phone giants Motorola (MOT) and Nokia, even though short-term demand remains strong throughout the industry. Qualcomm watchers also question whether the company's decision to enter the communications equipment infrastructure business was a wise one. The infrastructure business, which is capital-intensive, would need to generate $800 million in sales to be profitable, says new CEO Richard Sulpizio, although to date it has yet to generate even half of that. For these reasons, Qualcomm recently announced a workforce reduction of 700 employees, and rumors have been churning that the company may even be shopping around to sell its infrastructure business. NEW TOYS ON THE WAY While Mr. Thornley admitted Qualcomm's earnings per share still remain lower than management would have hoped, the CFO highlighted some of the company's new products and services in an attempt to draw the bulls out of a snoozing audience. Mr. Thornley tried to generate excitement by discussing Qualcomm's smart phone that will integrate PalmPilot and CDMA technology into one slim package, to be unveiled in March 1999, and Digital Cinema, an upcoming strategy to transmit movies via satellite. But with a forecasted 1999 price-to-sales ratio trading at just slightly more than 1, and a forward price-to-earnings ratio for 1999 of approximately 23 times estimated earnings, Qualcomm's metrics remain near the bottom of the list for its industry. As a result, either investors are missing the value opportunity of their lifetime, or the doubts concerning future competition in handsets and the drag on earnings by Qualcomm's infrastructure business are continuing to keep the bulls at bay.