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

To: Maurice Winn who wrote (25524)	3/29/1999 6:58:00 PM
From: Ruffian	Read Replies (1) \| Respond to of 152472

Another Take> Qualcomm, Ericsson unite over new wireless standard By Peter D. Henig Red Herring Online March 29, 1999 Quarreling wireless giants Qualcomm (QCOM) and Ericsson (ERICY) have finally agreed to join hands. The arrangement will make something of Qualcomm's money-losing infrastructure business, while clearing the way for a single new wireless technology standard. Investors applauded the deal, unlocking healthy gains in Qualcomm's stock and Ericsson's American depositary receipts (ADRs). The truce was announced last week. Ericsson, as part of a settlement of a long-running patent-infringement dispute with Qualcomm, agreed to support Qualcomm's code-division multiple access (CDMA) wireless technology and will take over the Qualcomm business unit that researches and builds infrastructure products for cellular communications. The financial terms of the deal were not released, leaving analysts to speculate about how the numbers would play out in each firm's future valuation. However, the deal is sure to leave the industry better off than it was a week ago. Preliminary estimates have Ericsson shelling out a cool billion for Qualcomm's operations. With this truce, the groundwork is now laid for the cellular communication industry to move ahead with a new standard -- currently dubbed 3G, for third-generation -- around which the industry can build compatible products for high-speed data and video, as well as voice. SETTING THE STANDARD The deal makes sense all the way around. Although Qualcomm introduced CDMA in the late 1970s, Ericsson had charged that Qualcomm's latest version of the technology violated some Ericsson patents for wireless technology. CDMA has never dominated the world market for wireless technology, but the new version is expected to supplant the global system for mobile communications (GSM) as the most popular format. To date, Nokia (NOK.A) and Motorola (MOT), two of the top three cellular handset makers, have started manufacturing CDMA-compatible products. The third, Ericsson, had adhered to GSM, which kept the market fragmented. Following the Qualcomm/Ericsson news, it's likely that CDMA will form the core of the new wireless 3G standard, which will incorporate Europe's dominant GSM technology while having the capacity to carry digital traffic such as email. GLOBAL EXPANSION Now that Ericsson has its hands on Qualcomm's infrastructure business, the Swedish firm will suddenly be able to compete with CDMA equipment vendors like Lucent Technologies (LU), Motorola, Nortel Networks (NT), and Samsung, which are each vying for a piece of China's multi-billion dollar mobile phone market. In 1998, China overtook the United States as Ericsson's largest market, with more than $2.8 billion in sales, but China had been leaning toward using just CDMA technology in the future. Without this deal, Ericsson would have found itself on the outside of the Great Wall. DIVIDE AND CONQUER "It was a double whammy for Qualcomm," says Pete Peterson, analyst with Volpe Brown Whelan. According to Mr. Peterson and other analysts, because the money-losing infrastructure group was weighing down Qualcomm's balance sheet, and because the industry hadn't yet cleared the way for a single standard based on CDMA technology, many investors had remained hesitant to commit to Qualcomm for the long term. This deal uncorked a lot of hidden value. It puts the infrastructure business in the hands of a company that can truly develop it, while allowing Qualcomm and the rest of the industry to move forward and design for a standard with no danger of it soon becoming obsolete. "No one wanted to roll out the wrong technology," says Mr. Peterson, "but we were the guys who were bullish on Qualcomm because of all of that potential." Although most analysts agree that the pie just got bigger for all players -- including the wireless carriers like Sprint (FON) and AirTouch Communications (ATI), whose revenues grow as more handsets are sold into the market -- they are split as to how bullish it will be for Qualcomm in the near term. With a hefty run-up in its stock price -- at production time, shares were trading at $114.84, up at least 13 percent in the past week -- investors may have gotten ahead of themselves. Several unnamed analysts caution that Qualcomm's handset business could still disappoint rosy industry expectations. Although its chip set and licensing revenue should continue to ramp nicely, Qualcomm's handsets will be competing with the marketing machines of Motorola and Nokia, and that's stiff competition.

To: Maurice Winn who wrote (25524)	3/30/1999 12:39:00 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 152472

Thanks for the commentary, Maurice. Your tag line had me roflmao! My daughter just flew over to your fair islands on Sunday. She and her room mate flew into Aukland, rented a car, and are Wellington bound (via Rotorua) as we speak. They'll take the ferry to the South Island, and tour down the west coast, cutting across at Queenstown. Then they plan to drive up the east coast, and depart from Christchurch for a brief stay in Sydney before returning to the States. So if you see two pretty 25 year old American girls who appear to be lost, please say hi for me <g>. Frank