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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Brian K Crawford who wrote (889)	3/30/1999 12:28:00 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Brian, Will QCOM net more manufacturing a complete phone than they would receive on the royalty when one of the big 3 builds it? I wasn't able to find the answer to that question in the 10K. The income statement doesn't provide enough detail. When you look at the income statement you'll notice that royalties are a relatively small part of the revenues. When a competitor builds a phone they might be using CDMA technology and/or they might be purchasing an ASIC from Qualcomm and/or they might be purchasing an ASIC from from one of the six manufacturers licensed by Qualcomm. My point is that even though someone else makes the phone, Qualcomm might be generating more than royalties. Are there strategic reasons they need to remain in the handset biz? I've been wondering that too. Intel and Microsoft don't manufacture computers, so I have to wonder why it's important for the Q to manufacture handsets. I wonder, in the early days of CDMA techology usage, if it's important that the Q makes their own handsets as one way of proving the technology's commercial viability. One thought to conisder is that their exposure is somewhat limited. Sony shares the exposure through their joint venture. Also, Sony Electronics buys a lot of the handsets made by the joint venture. --Mike Buckley

To: Brian K Crawford who wrote (889)	3/30/1999 8:21:00 AM
From: DaveMG	Read Replies (2) \| Respond to of 54805

Don't be confused by what you read about handset mktshare in these pieces which pass for journalism which abound on the net. Q dominates the CDMA chipset biz. They have some 20 OEM phone manufacturers using their ASICs, all of whom also pay royalties when they sell product. Q leverages this chipset advantage when they produce their own handsets, although it's true that they lose the royalty. You can be sure they're capable of figuring out whether it pays for them to continue assembling their own phones, to sub it out, or exit, one way or another a fine position to be in. The other big players such as Nokia and Motorola have licensed the technology and are attempting to produce their own chipsets but are NOT licensed to resell them. I say attempting because they've had lots of trouble. VLSI and DSP have such licenses, but have made virtually no inroads into Q's biz. It remains an open question how they'll play this handset game, whether they'll continue to brand their own handsets. One of the problems inherent in this model is that they compete with their own customers. The thing to remember is that the CDMA mkt is exploding or in Gorilla Game terms entering the tornado.CDMA subscriber growth worlwide grew 300% yr/yr, albeit from a relatively small base, and from 16mil to 23 mil from Q3 to Q4 1998. So QCOM can expand their own phone biz WITHOUT actually gaining mktshare. The big question is whether NOKIA, MOT, etc will be able to dislodge Q's technological leadership and be able to flood the mkt with cheaper products, in which case QCOM could be reduced to a royalty clipper. But don't be fooled by the marketshare numbers that compare QCOM's share with Nokia's or whomever, you have to include all the phones sold by Samsung,Sony, Audiovox, etc to get the real picture. Also worth remembering is that we're not just talking about terrestrial cellphones. There is Globalstar, where QCOM CDMA technology is behind a LEO system. Take a look at the G* website and you'll see who the partners are. One of the objects of the Wireless Knowledge JV is for Q to design a Windows CE CDMA ASIC. I assume these ASICS will go into cellphones, laptops, and probably fairly soon the computer which'll be built into your dashboard. Since this is the Gorilla thread the question of whether Q can become the Intel of the wireless is what should be focused on, although perhaps MSFT would be a better analogy. In a sense QCOM owns the CDMA operating system. Anyone who does anything with CDMA has to pay QCOM a royalty/license fee. Any other biziness Q can garner is icing on the cake. As for the quality of managment anyone who doesn't realize these people are first class just doesn't understand the odds against which they've struggled and the sucess that they've achieved. Take a look at revenue growth, it's no mean feat to achieve this kind of growth, all out of a mkt that wouldn't even exist without them. Infrastructure was a biz they got into in order to get the technology off the ground, same for handsets. The stock has spiked because people are beginning to realize that profits are likely to follow. I'm trying to find the time to put some numbers together to begin a discussion on the QCOM thread of what the earnings numbers might look like now that the money losing infras division has been sold, and to make some sort of estimates of future CDMA/royalty growth. Hopefully some of you will join in.. DMG