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

To: Maurice Winn who wrote (23006)	2/18/1999 2:39:00 AM
From: djane	Read Replies (4) \| Respond to of 152472

IBD. Qualcomm Vs. Ericsson Reaches A Critical Stage Date: 2/18/99 Author: Reinhardt Krause Qualcomm Inc. and L.M. Ericsson AB already are fighting over the future of cell phones. Now their feud is moving to a new front - U.S. District Court -where their frosty relations may get worse. The two equipment suppliers have battled for years over technology used in wireless phone networks. One sore point is a global standard for next- generation cell phone systems. But their long-simmering squabble also involves patents over a technology used today that Qualcomm claims to have pioneered in the U.S. Ericsson's patent-infringement suit against Qualcomm will reach a critical stage in Marshall, Texas, on Monday. There, the district court is set to hold a pretrial hearing. A jury trial is scheduled to start April 6. The two firms are trying to hammer out a compromise out of court. Time may be running out. San Diego- based Qualcomm would like to settle both the suit and future-standard issues at the same time. ''If a compromise were to happen between now and April, it would be an all-inclusive agreement,'' said Qualcomm President Richard Sulpizio. ''It would solve this lawsuit as well as get harmonization on the (third-generation) standard.'' Both Qualcomm and Ericsson have developed technology that digitally codes radio signals to transmit voice, data and video. Each has tried to influence industry groups that choose technical standards for wireless gear. The stakes are big. Ericsson or Qualcomm -as well as the companies favoring either side -might gain an edge selling wireless gear, depending on how standards are shaped. The standards debate is also a political hot potato. The U.S. government wants to ensure that wireless markets overseas are open. At issue are third-generation cell phone networks expected to emerge within two years. These ''3G'' systems should make it easier for consumers to use mobile phones anywhere. They'll also offer faster Internet access. The Ericsson-Qualcomm legal dispute involves key patents. Qualcomm pioneered a radio signal technology called code division multiple access. CDMA lets cell system operators cram more calls into limited radio spectrum and thus boost efficiency. But Ericsson also claims rights to CDMA. Almost 23 million people subscribe to CDMA services, analysts say. The strongest CDMA markets are the U.S. and Korea. Because of the legal dispute, Ericsson doesn't make CDMA gear. It's been unwilling to pay Qualcomm royalties. About 65 companies have licensed Qualcomm's technology. Ericsson sued Qualcomm in June 1996. Ericsson claims rights to key CDMA technology. The pretrial hearing could show which company holds the upper hand, analysts say. For one thing, it should determine what evidence is admissible. Sweden-based Ericsson says it hopes to settle. ''We'd like to have it resolved,'' said Bo Dimert, CEO of Ericsson's U.S. unit. ''We're optimistic we can settle these things so we can go ahead and continue to work on a broadband communications system for the future.'' Ericsson says it's not hurt much by a lack of CDMA products. It said its 1998 wireless phone and gear sales rose 15% to $16.2 billion. It sells phones and gear that use the wireless standard called Groupe Speciale Mobile. GSM dominates in Europe and Asia. It's one of three systems being used in the U.S. Ericsson's patents involve current CDMA systems used in the U.S., not 3G systems. Both companies claim to hold intellectual property rights for the 3G standard. If Ericsson wins, it could seek a court order requiring Qualcomm to halt CDMA-related sales. Or Qualcomm could be forced to pay royalties to Ericsson or cross- license technology with Ericsson. Cross-licensing under terms favorable to Ericsson ''would be a reasonable win-win for everyone,'' said Larry Lyles, Ericsson's general counsel. Losing to Ericsson would be a big blow to Qualcomm, say analysts and industry executives. Its sales from CDMA have driven its profits. For its fiscal year ended Sept. 30, Qualcomm's sales rose 60% to $3.3 billion. In its first quarter ended Dec. 27, sales climbed 20% to $941 million. Its profit rose a third to 65 cents a diluted share, or $48.5 million, from 50 cents, or $36.8 million. But Qualcomm's picture isn't all rosy. Its equipment business is struggling. Qualcomm is seeking a partner for its equipment unit and might sell it if the right deal comes along, Sulpizio says. Qualcomm has been the main supplier of CDMA chips built into phones and network gear. But more vendors are ramping up production of CDMA chips. That could hurt Qualcomm, analysts say. To help profits, Qualcomm this month said it would reduce its work force by 6%, or about 700 jobs. Sulpizio says Qualcomm's challenge is to capitalize on CDMA's growing popularity. ''The question is whether we can compete in the market we created,'' said Sulpizio. He says Qualcomm can boost profits even as prices drop for CDMA phones and gear. The key will be improving Qualcomm's manufacturing, Sulpizio says. One CDMA bright spot is Japan. Sulpizio says CDMA subscribers there could reach 3 million by year-end, up from 100,000 last year. GSM players like Ericsson, however, control China's fast-growing market. The debate over a next-generation standard is Qualcomm's biggest worry, analysts say. Europe and Asia have agreed on an early version of a 3G standard, called ''wideband CDMA.'' It's a hybrid of GSM and CDMA. Qualcomm wants the standard tweaked. It's asked the U.S. government for support. Qualcomm says the 3G proposal doesn't work well with existing CDMA systems. ''This is not about royalties,'' Sulpizio said. ''The new standard should be compatible with both GSM and CDMA. No one should be penalized for having used CDMA earlier than others.'' (C) Copyright 1999 Investors Business Daily, Inc. Metadata: QCOM ERICY I/4890 E/IBD E/SN1 E/TECH