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Technology Stocks : Qualcomm
QCOM 154.80+1.4%Jul 18 9:30 AM EDT
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To: Scott Jarrett who wrote (59)2/8/1997 8:15:00 PM
From: Philip Merryman   of 68
 
Mr. Jarrett,

The question whether Qualcomm's price/earnings ratio is high or not depends on whether Qualcomm's past earnings are representative of its future earnings. In evaluating this question, the most important consideration I believe is the fact there were few commercial CDMA systems in operation during Qualcomm's preceding fiscal years (which run through the end of September). Qualcomm was primarily a research and development company able to subsidize its CDMA development efforts through the revenue of another product it offers called OMNITRACS. Now, however, large-scale commercial implementation of CDMA is occurring in the United States with the launch in November 1996 by PrimeCo (an alliance of AirTouch Communications, Bell Atlantic, NYNEX and US WEST Media Group) of CDMA networks in 16 cities covering 58 million potential customers and the launch by Sprint PCS in 10 cities these past few months. Sprint PCS will ultimately cover 260 million people in the United States, the Virgin Islands, and Puerto Rico using CDMA. The question that naturally follows from PrimeCo's and Sprint PCS' launches is whether they will be a success in attracting customers? The best answer to this is, I believe, to look at the growth of wireless communications in the past. The Cellular Telecommunications Industry Association (CTIA) has a graph available at wow-com.com which shows the growth of wireless users from 203 thousand in 1985 to 38 million in 1996.

The question of whether CDMA will be a success competing against existing standards can be answered by using 2 criteria: 1. Has CDMA been adopted by major communications carriers? and 2. Can CDMA technology provide communications for a large number of people? The answer to the first question is yes and the answer to the second remains to be seen.

Philip Merryman
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