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To: gdichaz who wrote (25323)	3/27/1999 12:20:00 PM
From: Ruffian	Respond to of 152472

VLSI May Have A Problem> 3/26/99 - Patent resolution could erode VLSI's bargaining position Mar. 26, 1999 (Electronic Buyers News - CMP via COMTEX) -- Silicon Valley- As VLSI Technology Inc. and suitor Philips Electronics NV were laying the groundwork for friendly negotiations, Ericsson and Qualcomm Inc. announced an agreement that analysts said could affect VLSI's future. An exchange of letters between VLSI and Philips that sets the stage for a new round of talks came about a week after VLSI rejected Eindhoven, Netherlands-based Philips' unsolicited offer of $776.9 million and said it would explore alternatives. Although industry observers said no negotiations have been scheduled, analysts speculated on the effect of the deal between Ericsson, a major customer for San Jose-based VLSI's GSM chipsets, and CDMA pioneer Qualcomm. Last week, Ericsson Telecom AB, Stockholm, Sweden, and Qualcomm, San Diego, resolved an ongoing patent dispute over CDMA technology through a cross-licensing arrangement. Ericsson's working closely with Qualcomm to develop CDMA chips could adversely affect VLSI, said Justin H. Burgin, an analyst at Olde Discount Corp., Detroit. Ericsson's business accounted for about 30% of VLSI's 1998 sales of $547.8 million, and the chip maker is just gearing up to produce CDMA chipsets by the fourth quarter. But it's too early to tell how the deal will affect VLSI, Burgin said, noting that the impact could be mitigated by the fact that Ericsson's business revolves around GSM rather than CDMA. The cross-licensing deal opens major opportunities for Qualcomm to sell CDMA chipsets to Ericsson, said Johan Lodenius, vice president of marketing for Qualcomm's CDMA Technologies Division, the semiconductor and software arm of the cellular-phone leader. "I wouldn't say we have a purchase order [from Ericsson]," Lodenius said. "But the [Ericsson-Qualcomm arrangement] certainly gives us access to a new customer base." Qualcomm, which dominates the CDMA chipset market, is shipping its fifth-generation chipset, while competitors are barely getting their products out the door, he said. But a more daunting prospect for VLSI is that Qualcomm can now develop GSM products. Qualcomm, which hasn't made a decision about manufacturing GSM chipsets, plans to focus on products for the third-generation (3G) digital cellular standard, which could hit the market around 2002, Lodenius said. Qualcomm is backing cdma2000, a 3G standard, while Ericsson is endorsing Wideband-CDMA, a competing protocol. Under the pact with Ericsson, Qualcomm can make chipsets for W-CDMA applications, as well as cdma2000-based products, Lodenius added. Burgin couldn't say how the Ericsson-Qualcomm agreement would affect negotiations between Philips and VLSI, or if VLSI has started merger discussions with other suitors. Philips Semiconductors chairman Arthur van der Poel wrote in a letter that the company "would be delighted to negotiate" with VLSI and was prepared to send a team to California to begin discussions. And a letter from VLSI chairman and chief executive Alfred J. Stein encouraged Philips' investment bankers and lawyers to begin negotiations. A VLSI spokesman said: "We view the announcement by Ericsson and Qualcomm very positively. This development clears the way for a single standard, 3G, to emerge over time. Given our presence in GSM, CDMA, and TDMA today, we believe VLSI is well positioned for that future." -0-