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To: tero kuittinen who wrote (10849)5/24/1998 4:37:00 PM
From: RP Svoboda   of 152328
 
<<When Nokia started out manufacturing GSM phones, the initial profit margins were around
40%. Why? Because there was no digital phone competition. However, CDMA is coming
late to the market and has to compete with entrenched competition from other digital
standards. In this kind of squeeze, it's hard to envision a small company with no
manufacturing experience, no brand, negligible market share and ruthless competition
coming up roses.>>

When I first began researching QCOM I was fearful of this exact issue. Although I cannot verify Nokia's numbers according to tero, I did realize that QCOM was facing a formidable challenge. So what has my research told me . . . Although I am not as eloquent as some on this thread. . . So what? If QCOM holders do not realize that this company is in its infancy then they did not accomplish DD. I have talked to many people smarter than I and the general consensus is that CDMA is by far and away a better technology than TDMA/GSM. Along with that, it is a relatively new technology and as a result, needs to get the bugs worked out. Since I have bought in for the long term, I watch very closely issues such as production difficulties, management placing too much emphasis on single mode phones, infrastructure build-out and the fact that a major CDMA carrier has gone through six software revisions in the past year and still has some glitches. Again, so what? I find that most management's timetables are overly aggressive and therefore I use a fudge factor to account for delays. I do not think that QCOM management is significantly off the desired mark and as a result, the stock still looks like an unbeatable buy at these levels.

Tero talks about the relative stock performances between QCOM and Nokia. Again, QCOM is in its infancy. However, if you look at QCOMs price performance you will see nice price run-ups followed by strong drops on bad news. As far as I'm concerned, the market has already shown its cards. It has show us what it was willing to pay before the story has solidified and become even more compelling. It has shown us how rapidly the price will run-up once the "bugs" are worked out. It has shown us how quickly the stock momentum will turn positive once the infrastructure, handset and ASIC steam rollers gain their respective momentum. If you take the easy way out and extrapolate the stock performance over the past year (or so) into the future then you are doing yourself a disservice. I have taken the time to understand the technology and the business model and I think QCOM is the stock to own. I firmly belive that 5-10 years from now, I will be celebrating the success of this prediction.

One final note, in case you are looking for the facts, figures and supporting links - There are none - this was just a rant.

Thanks.
Boda

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To: tero kuittinen who wrote (10849)5/24/1998 5:18:00 PM
From: JScurci   of 152328
 
Dear Tero,
Aren't you that fickle fellow that works for Ericcson that was
chased off this thread a few months ago for regurgitating the same old
warmed up, worn out, leftover garbage from days past? As a representative of Ericcson it would be nice if in future posts you would be so kind as to disclosing your Nordic affiliations before
singing yesterday's old GSM siren song. Speaking of GSM, how is it
that we never hear about 3rd generation GSM. If GSM truly is God's
gift to the wireless world, why is it then that our Nordic friends
are feverishly working to develop some form of wide-band direct
sequence spread spectrum technology - so called W-CDMA, and preferably
one that uses as little of Qualcomm's IPR as possible? Could it be that GSM has finally reached the end of its road and that it can no longer be tweaked to achieve improved capacity and performance characteristics? Your description of Nokia as an industry juggernaut
with a massive production base that is therefore impossible to compete
with requires some perspective. As recently as late last year Nokia
was the world's largest handset producer with production volume of some 1.5 million per month produced through 5 different production
facilities and spread out over 5 different technology platforms: GSM,
TDMA, PHS, CDMA, and Analog.Qualcomm by contrast,the company you say
has no production experience, has current production volumes that will soon exceed 700,000 per month. Not bad for a company that is only twelve years old and only produced its first handset about 2 and a half years ago and is evidently already at about one-half of Nokia the
current world leader's production rate. How long did you say Nokia's
been making handsets? Looking closer at Qualcomm's handset production
we see that all 700,000 per month comes from one production facility
in San Diego, and in one single flavor: CDMA. Now Tero, I'm no efficiency expert but I'd bet my last Swedish Krona that Nokia's
margins on its CDMA handset production couldn't hold a candle to Qualcomm's, especially since Nokia's production rate in CDMA is miniscule and they have to pay Qualcomm a royalty to boot. You say
that new CDMA phones from such world leaders as Motorola and Nokia are
technologically inferior. I agree. That's because both those companies
felt so threatened by Qualcomm that they took it upon themselves to
engineer their own CDMA chipsets which are relatively primitive next
to Qualcomm's 4th generation version, which means that Motorola and Nokia CDMA handsets are "brick phones" that suck up power and thus have heavy battery requirements. You also say that only big wireless
companies with big production volumes can succeed. Well being "big"
certainly hasn't been of much help to Motorola which as recently as
1996 was the world leader in wireless handsets and through the early
part of this decade "owned" the world mobile radio market with an
estimated 80% market share. Being "big" is not better than being right.And what makes Qualcomm "right" is that it is 100% CDMA which is
the fastest growing wirless technology platform.Your musings on the
economic conditions in Korea and Japan also begs a response. Now Tero,
I'm no economist but I do know that in spite of these adverse economic
conditions Korea added more than 1.5 million new CDMA subscribers
during the first quarter of this year and that Japan which currently
has 31 million wireless subscribers is still adding new ones at the rate of more than one million per month - and that's before the Japanese get to sign up for new, improved CDMA next month. Finally
Tero, you speak of "failed predictions" by Qualcomm and CDMA. What
about the failed predictions from your Nordic camp?- First it was that
CDMA was a hoax and that it didn't work, then that even if it did work that nobody would ever use it, then that if somebody did use it that the system would crash when fully loaded. Tero, in the "failed predictions" arena the Swedes truly are the best - their latest :
"We've got something better than CDMA its called W-CDMA and its coming
soon to a base station near you but in the meantime won't you please buy a few more antiquated barrels of GSM?" Get real Tero.
Regards,
John

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To: JScurci who wrote (10852)5/24/1998 7:56:00 PM
From: bdog   of 152328
 
Thanks JScurci, I needed that . . . the thoughtful and on point response to tero, I mean. I must admit he got to me a little. The past two years stock performance has been pretty disappointing. R.P. Svoboda's post was very much on point here too. Thanks to both of you. Its sometimes a bit of a drag being too prescient (early) as a buy and hold investor don't you think?

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To: tero kuittinen who wrote (10849)5/25/1998 2:08:00 AM
From: Maurice Winn   of 152328
 
True enough Tero! It's good to see how reality matches what was expected. Yes, 1998 was going to be the lift off year for Qualcomm as far as I was concerned. At the beginning of 1997, there was cdmaOne activity in Korea and the USA was just getting going. By the end of 1997, all technical doubts were gone and it was a question of how far, how fast. I'd predicted 7.34159 million cdmaOne handsets extant by the end of 1997 early in 1997 and got that about right.

Then during 1997 I thought 1998 would be the first real year of substantial growth with many suppliers crowding in. And here they come. Including Nokia which is doing an absolutely excellent job in the wireless industry from all I see.

I'd thought $53 per share would be the low of the new trading range [predicted about mid 1997]. With $83 the high. It got to $72. Then there was panic over Korea, so it dropped just out the bottom of my range.

Now, looking at QCOM vs ERICY share prices over the period Qualcomm has been public. Qualcomm has gone from $10 to $56 since IPO in 1991. Ericsson from $5 in 1990 to $28 in 1998. And Ericsson has paid dividends. So Ericsson is ahead by the dividends. But these things are a little up and down, so they are much the same really.

What really matters is what will happen from here. Ericsson has got enormous market share, brand awareness, experience and all that stuff. Qualcomm owns the new technology which even Ericsson now admits does work.

More later, but on those scores anyway, Qualcomm is doing very well for a company that was a fraud, with technology that broke the laws of physics.

I think 1998 is so far the lift off year. About 10 million handsets being used. Many handset makers underway. Japan launching. Korea growing. China getting underway. WLL selling now. Globalstar operational. By the end of 1998, things will be looking more substantial than the pretty good position now evident.


Maurice

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To: tero kuittinen who wrote (10849)5/25/1998 4:00:00 AM
From: Maurice Winn   of 152328
 
Tero, picking your post apart a bit more:

You said: "First of all, by now it should be obvious that GSM's main advantages; wide customer base, large production volumes and unique strength in handset manufacturing have given it viable in a way that most CDMA-supported did not predict in 1996. There are now no realistic prospects that CDMA will overtake GSM in the foreseeable future."

Any old technology has the same advantages over new. All that matters is the relative advantage of the new. A small difference might see the new one never catch up. A big difference will see it happen quickly. CDMA has substantial advantages over GSM. The rate of takeover is guesswork, but quick. As you say, handset design and quality is a big part of the equation, and GSM has enjoyed a long advantage there. But that is changing with Palm Pilot, Unwired Planet etc coming up quickly. Nokia will put lots of effort into making cdmaOne as successful as they can, which won't take them long, to ensure they gain a big market share. They won't leave cdmaOne as a backstop to GSM. No reason to do so. They'll put effort where the sales and profits over the next 5 years will be. GSM to be sure, but they won't want to be 10th in line in cmdaOne either.

Maurice

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To: Maurice Winn who wrote (10855)5/25/1998 8:33:00 AM
From: tero kuittinen   of 152328
 
Maurice,

As ever, I'm impressed by your loyalty to this company. But exactly how much do the stock price gains of early nineties console people who parked their money in QCOM during the last two years. The period was a disaster no matter how you slice it and I do not think that the argument of "yeah, but 92-98 period is still great" has much merit. The point here is that this stock stopped performing back in -96. Coincidentally, this was when the transition into a manufacturing company took place and Qualcomm had to actually start to deliver on the promises that had buoyed the stock between 92-96.
The upshot: Qualcomm's E/P ratio has drifted from 100 to 30, while Nokia's has risen from 17 to 30, roughly during the same time period. This is not "fluctuation". This is a re-evaluation of the future prospects of the companies performed by the market.
It's too late. Too late to enter the handest market, because the volumes have swelled and the margins have already come down: only the biggest companies will remain profitable. Too late for a quixotic thrust into Europe, which has already committed to GSM and its follow-up, W-CDMA. Too late for a conquest of China, which has already chosen GSM.
Trust me on one thing: Nokia will never truly commit to IS-95. It has too much on stake with GSM and W-CDMA. All the big innovations have been introduced in GSM standard, and they will be incorporated into CDMA phones only after a time-lag. Just like Motorola never truly bet the ranch on CDMA , as evinced by the interminable CDMA product delays. The biggest three phone manufacturers, the only ones with real market power, are still putting their R&D money mostly into GSM.


Tero












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To: JScurci who wrote (10852)5/25/1998 9:14:00 AM
From: tero kuittinen   of 152328
 
Hi John,

I've been accused of being a Swedish engineer before... it's always disturbing. I'm a Finnish biochemist with no ties to Nokia (apart from stock ownership). I do have a different point of view to mobile communication industry, since Finnish newspapers tend to report much more widely and accurately on the topic than even American specialist publications, which tend to be puppets for the sinister CDMA enclave.
A good example is the thoroughly distorted reporting on W-CDMA that we see in US sources. Of course Nokia and Ericsson are choosing CDMA as the GSM upgrade standard... the decision was made around -92 or -93. There never was any talk of using purely GSM based solutions for the 3G. Nobody's "feverishly" developing W-CDMA as some sort of kryptonite to vanquish Qualcomm. W-CDMA was in development long before anyone had even heard of Qualcomm. The university of Oulu conducted CDMA research in collaboration with Nokia throughout the nineties, starting from 1992. And this is why Nokia and Ericsson have a credible case of putting W-CDMA together without major licensing fees from Qualcomm. They've been working on it fo almost a decade.
And now W-CDMA is the best bet for a standard that will unify European and Asian markets. NTT-Docomo is the world's biggest mobile operator and it embraces the Nordic standard. Some semi-bankrupt nonentity like DDI can root for IS-95 and the American 3G model all it wants. NTT rules the Japanese market and has the biggest influence on neighbouring Asian countries.
As far as the production numbers are concerned; Nokia is holding approximately 24% of the global market share in mobile phones right now. You can't be serious in claiming that Qualcomm produces half of Nokia's numbers. That would give Qualcomm 12% of the global market, when in reality the company is nowhere near reaching even 4% this year. So your view of the global marketplace is completely out of whack. I suspect many people in this thread have equally skewed perception of Qualcomm's importance in the global context.
I don't know about Nokia's CDMA phone profit margins, nobody outside of the company knows, but that doesn't really matter. Nokia's *overall* profit margin in the handsets is around 18%. That's over twice as high as Qualcomm's... and here's the hook: Nokia is already competing with twenty companies in the GSM marketplace, the most competitive and technologically mature standard. But Qualcomm's margins are already much lousier, even though it hasn't faced any real competitive pressure. The company missed the chance of capitalazing on its early lead and it will never have a shot at that golden moment again.
Nokia and Motorola didn't produce their own chipsets because they felt threatened by QCOM. They did it because QCOM's demands were exorbitant. This company manages to alienate valuable collaborators with suave ease. As a result, Nokia's and Motorola's CDMA entries are old-fashioned; and that will play directly into the hands of the competing standards. These are the brands that people know and trust. CDMA will be curtailed by the lukewarm attitude from world's leading manufacturers, stemming directly from Qualcomm's naked, shortsighted greed.
You asked about the early days of Nokia... the company's take-off was so spectacular precisely because it had sky-high profit margins in the early days. Margins will always drop as competition increases. Since Nokia started out with 40% even a steep drop still yields it 18% today. But if Qualcomm is starting with 7%, guess what those Asian companies will do to the numbers in a year or two? Moreover, Asian companies never managed to crack the GSM market, so Nokia hasn't had to worry about huge devaluation advantages of its rivals. Qualcomm is in much worse position.
The only place that questions the relevance of W-CDMA is USA, because it is in the process of being left out of the loop. Both Nokia and Ericsson already have working prototypes of W-CDMA networks and terminals. The commitment of NTT, Siemens, Nokia, Ericsson, Alcatel, Motorola, the Japanese giant conglomerates, etc. speaks for itself. The promise of W-CDMA bowing within twenty months is already influencing the buying decisions of Asian nations who want easy expansions for their current networks and compatibility between European and Asian standards.

sincerely,
Tero
































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To: tero kuittinen who wrote (10856)5/25/1998 9:15:00 AM
From: DaveMG   of 152328
 
Tero,

You are also looking in the rear view mirror when comparing performance, whether it's 91-98, 96-98.It's undeniable that this has been a trying period for Q investors, and a joyous one for Noka, Lu etc.,but this is a marathon at about the 10th mile. The question of which technology is better suited for a datafilled future is being resolved in CDMA's favor.ERICY will have to beat QCOM in court to bump Q out of the picture.Over the next few years IS95 networks will live up to their promises. CDMA is winning the Americas-Mex,Brazil, Chile, Can...You're counting MOT down before the count. Lu beleives CDMA is the best system. Nokia is hedging.Ericy has toned down its scorched earth criticism. I think there's a reasonable chance of settlement and 3g harmonization before the courtcase in Dec.China is a biiiiiig place. We'll see what happens there.And then there's G*,the most glorious CDMA project of them all, which unless my memory fails me is neither a Nokia nor an Ericy project.....I know, Iknow..Ericy is making handsets.


Large volume mass production of CDMA phones and components is really just beginning. Until now GSM has had the wind at its back, little competition. Things are changing. Obviously Q has production/margin problems it must overcome. Fortunately there are royalties to help in this regard.

It's way too early for post mortems..Thanks for focusing our minds.

Dave

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To: Maurice Winn who wrote (10854)5/25/1998 10:54:00 AM
From: Sawtooth   of 152328
 
<<Now, looking at QCOM vs ERICY share prices over the period Qualcomm has been public. Qualcomm has gone from $10 to $56 since IPO in 1991. Ericsson from $5 in 1990 to $28 in 1998. And Ericsson has paid dividends. So Ericsson is ahead by the dividends.>>

Maurice: You may want to do a double check on this. Ericy was around $5 in 1990, but was in mid-fifties last week before it split two for one at the end of the week, settling at $28. ...Tim

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To: Sawtooth who wrote (10859)5/25/1998 11:58:00 AM
From: CDMQ   of 152328
 
All,
Looking at QCOM vs ERICY @ the Indy 500: The winning car, as seen in the finishing photo had "Ericcson" in small letters on its nose cone. The PCS Sprint car, in which I believe QCOM has an interest, did well but did not finish. It seems QCOM is following the PR lead of ERICY. Probably a great Idea.

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