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Hello All,

A tip of the old hat to Mycroft for strting this board. This is an industry that I feel I can add some value and insight to, albeit in a small way. I am posting my previous question as to why one would buy NOK over QCOM, if they were only buying one or the other. Please don't feel I am bashing NOK, that is simply not the case. Mycroft and others have labored to show us what a great company NOK is, and I'm sure they are right on the mark. I am attempting to step back and look at a bigger wireless picture, namely CDMA, and hopefully five folks an understanding of the wireless technology and playrers out there.

I am following the post with a response to a question from Lee about how much CDMA revenue will come to the bottom line of QCOM over the next few years.

Again, I post this to shed some light into the QCOM story, not to bash NOK. BTW, I have added to my QCOM position at 165 and think it is a bargain at these prices. Only time will tell.

Thanks, and thanks again to Mycroft for this forum. I believe we all will learn here. :)


There has been much talk about Nokia on this board for the past six months and it has made me stop and look hard at the wireless industry, its direction and the players in it. Rethinking my decisions as some very great minds have made some very valid points concerning Nokia. I come away from my thoughts with a few nagging concerns that I wish to present here, and ask for some feedback.

In the spirit of full disclosure I am long QCOM. I looked at NOK closely at the time I bought QCOM, though not as closely as Mycrofts/Fisher points. I made the decision to go with QCOM over NOK for the broader business mix and the patents it owns. They both have about the same valuation at this point in time.

With QCOM you get a handset maker (granted small market share), you get Globalstar (and a great and growing positioning technology business),a software company (Eudora), but most important you get a chip maker with solid patents and accompanying royalties for their CDMA technology.

Everyone is getting into the wireless industry. To highlight just a few recent service provider deals :

April 5 Sprint bought People's Choice for 103m.

April 16 MCI WorldCom bought CAI Wireless for 483m.

April 27 Sprint bought American Telecasting for 449m

May 3 Sprint bought Transworld Telecom for 30m

May 3 Sprint bought Videotron USA for 180m

May 24 MCI WorldCom bought PrimeOne for 300m

July 20 MCI WorldCom bought Wireless One for 22.6m

July 27 Sprint bought WBS America for 108 m.


The major equipment makers appear to be Bosch, Netro/Lucent, Winstar Newbridge, SpectraPoint, Hughes ,Nortel, and Floware. Might be some good values here (especially in the next few months).

My point is that with all these people in the business, won't handsets (good ones too) just be about given away as incentives to sign up with a certain service provider, where the real revenue stream exists? The PC industry is going through this evolution now, with many box builders turning into internet service providers (GTW). I would think this evolution would happen much more quickly than the PC evolution.

I also understand the competing operating systems of Windows CE and Symbian and what is at stake. My point is who cares who wins. QCOM backs CE now because it would be very foolish to bet against MSFT at this point. Even if MSFT loses ( “never underestimate the boys from Redmond”, they will simply buy market share if they need too.). If Symbian wins, QCOM still plays and gets paid as Symbian drives more CDMA chipsets into the market worldwide.

QCOM receives revenue from every implementation of CDMA and HAD (high data rate) CDMA. The equipment companies I mentioned above are mostly TDMA technology NOW, but go out and snoop around and you will find all of them understand that the standard is shifting to CDMA. And guess what folks, QCOM owns CDMA. CDMA brings:

“wireless access for the residential and SOHO markets. HDR enables carriers to deliver speeds up to 2.4 Mbps of always on service with standard 1.25 MHz channels. HDR is compatible with existing IS-95 CDMA networks; it simply requires the addition of new channel cards to the base stations. QUALCOMM and other CDMA vendors are attempting to position HDR as an alternative to terrestrial Internet access solutions, such as cable modems and xDSL connections. Initial trials of HDR have been completed by U S WEST in a joint initiative with QUALCOMM and Cisco. Trials of HDR are expected to begin at end of this year with CDMA operators IDO and DDI in Japan and with Sprint PCS in the United States.”

Believe me: bandwidth will drive sales. And soon handhelds will have video and audio with G3 technology coming out, and guess what, QCOM again gets paid for EVERY sale. Even if NOK makes a better handset with cooler features and better European design, they will be based on CDMA chip sets, and QCOM gets paid. Even if NOK has someone else build the chips, QCOM still gets paid. And we all know there is no money in commodity chip making. And that's what CDMA chips will become, a commodity.

Again, I'm asking for someone to tell me why I would own a NOK at this point in time over a QCOM. I do have an open mind. Really.

QCOM tanked lasst week because Everen (one of the few street analysts to get QCOM right and early BTW) says they won't blow away estimates again by the usual 38%). All the companies I own should have such problems. :)


Lee Wrote:


Looking at QCOMs most recent SEC filing their royalties on CDMA account only for 7% of total revenues growing at 32%. The bulk of their revenues is from communication systems at 84% of total revenues growing at 19% with a gross margin of only 30%. The CDMA stuff seems like a drop in the bucket compared to the rest of the company. Is there any projections on how big this part will be in the future?


"At least 50MM CDMA handsets will be sold across the globe in the next twelve months. Net to QCOM is $7 to $11 or $350MM to $550MM in net revenues (I am assuming that the other businesses will take care of overhead and STILL add $$$ to the bottom line). With ~168MM shares outstanding, $2.08 to $3.27 in EPS would result from CDMA royalties alone. Kinda funny when the consensus earnings estimate for the next twelve months is around $3.80 for the entire company!"

Hope this helps.


Robert




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