Wireless Industry Analyst

OK, maybe I am jumping the gun, but I wanted to have a quick feel for what Gobi and a future-line of products in this direction meant for QCOM and the numbers have left me a little more comfortable with its share value than I have been in the past few days.

Before I go into the findings, here are a few assumptions I have made. Feel free to correct me and we can get a more accurate valuation together.

What I am finding based on this (guesstimate) is that the potential revenue from this venture is about $7 billion in the next five years. The point to note that most of this comes from chipset sales. The licensing revenues will be a percentage of the module and not on the laptop price or at the cap. So, this revenue will be more fool-proof if one can say that. Another news is that my valuation for the company share has gone up by about $10. It is definitely a good sign. I was earlier getting numbers between $40 and $45 with QCOM's current market position. This was assuming all lawsuits went in favor of QCOM. So, I had the feeling that the market really has not observed the legal risks involved at that point and was just going with historical growth data.

With a couple of lawsuits going against it, or if the Nokia negotiations yield slightly unfavorable percentages, the share value can still potentially slide below its current market value. Nonetheless, I think this is a good sign of things to come. As an engineer, this technology leadership excites me while my analyst side is curious to see beyond the veiled curtain:)

In the previous article, I mentioned the importance of Gobi to QCOM. As a strategic move, it is important for the company as it pushes to preserve the interests of 3GPP and 3GPP2 vs WiMax. More importantly, this is an attempt to skew the 3G silicon market share in its favor.

As I have highlighted elsewhere, I have reasons to believe that if QCOM does not mend relationships with the handset vendors, it risks being marginalized on the chipset market share despite stellar products. And more than anyone else, the executives at QCOM are aware of this. There are two paths and the company will attempt one or both -

The Gobi move fits well with the first bullet point. Also, this can spawn a series of future products and will give QCOM the edge if the concept takes off. For one, I can see this evolve to 4G systems when they begin to replace the CDMA-based systems. Secondly, I don't see QCOM shying away from throwing WiMax into the mix if push comes to shove. As the company emphasized, WiMax is not in right now since (read only since) no viable service is being provided nor is there a substantial pervasiveness as yet. Let us keep in mind that QCOM does have the mobile assets of TeleCIS and can deliver when needed. It would be naive of anyone to think that the company is keeping its WiMax assets dormant amidst all its public posturing.

And let me re-iterate: QCOM will diversify and the PC/Laptop/Notebook market is lucrative. It will attempt to capture more of the silicon in this space. Based on the direction of all the lawsuits and licensing discussions, I expect it to internally shift some focus to other segments so it can compensate for any lost margins due to licensing fee reductions. Watch out for any announcements pertaining to integrated WiFi products coming from its Airgo acquisition.

It has an uphill battle though, because it has to establish credibility in such new markets amidst potential mudslinging. But given history and its technical leadership, I would not be surprised if it easily does that provided there is some tempering of its characteristic aggression.

QualComm announces Gobi. Gobi packs EV-DO and HSDPA capabilities in a single chip, a punch aimed at side-lining Intel-backed WiMax. Whether it originates from 'Go and Be' or it implies Go-Bi (for the two technologies), the product does not disguise its intent.

I am very happy to see this product, though I am not surprised. For one, I strongly believe that in order for QualComm to maintain its position in the semiconductor industry, it should start diversifying. I am betting on QualComm making greater strides in the PC/Notebook market. I do not wish to digress on these comments and will reserve them for an article to be published later on Sramana Mitra's site. Secondly, as I have often stressed in my earlier articles, the future of wireless is all about integration. The technologies have been defined for the next 10-15 years. It is about how these are packaged and made available to the user who wants it all in one gadget. So, this is a right step in that direction.

Will it be successful? I am optimistic about it. The reason is that it has gotten a lot of different folks excited. Laptop makers like HP are raving about it and the carriers are behind it. So, QCOM seems to have got the value-chain bottoms-up, at least that is the impression it wants to give. Contrast this with the situation in the mobile space where it is in loggerheads with a lot of handset makers and other chipset makers. The computer manufacturers stand to make money out of subscriptions as well. So, they may not be inhibited by the initial cost in their quest to make it happen. Carriers of course will back any technology that can grow their subscriptions meaningfully.

This being said, I am not sure about the single-day or other short-term subscription ideas that are doing rounds. The infrastructure set-up cost will not lend itself to such schemes. I can see tie-ups between carriers if longer contracts are signed. But perhaps, a slightly higher cost structure for the long contracts can help offset these short-term schemes that popularize the technology.

In the sequel, I will look into what this means to QualComm among other things.

I want to dedicate some space to the numerous lives that have been disturbed by the spate of wildfires in the Southern California area. Many people have been displaced and evacuated and a lot of them have lost their homes and offices.

Companies have shut their offices and many risk losing data, the product of hours of hard work. The wireless wars took the back-seat for a while as mother nature united the very engineers behind the success of each of these firms. Today it does not matter if you are an investor in QCOM or a staunch BRCM follower. The whole community has come together to help each other in distress. I know friends from BRCM being helped by others in QCOM. I know people who cannot worry about BRCM's earnings fall this quarter or about QCOM's impending call. As an analyst, there are various factors that I research, but nature's fury can hardly be accounted for. My heart goes out for all the people there who have made the wireless industry what it is today. Ironically, I am unable to reach most of my friends through my cell-phone because seemingly, all these networks are jammed.

I hope the fires subside soon. Please join me as I pray for as quick a return to normalcy as possible.

Almost a year and a half ago, when Anil Ambani suggested that he will go GSM for Reliance's expansion, it did not make too much sense since -

Reliance started its GSM rant after talks with QCOM on reducing royalty rates did not go its direction. Reliance perhaps felt that the operational costs for its CDMA networks were high compared to GSM. So amidst all fan-fare and collaboration efforts with QCOM through this year, Reliance obtained the nod from the Information technology minister, A.Raja, to offer GSM services as well. With 18% market share, and deep pockets, Reliance is suitably positioned to exploit the Indian mobile market. With its potential move to GSM, Reliance seems to have further marginalized CDMA2000 and its descendents in India. It does not seem to be posturing since Reliance was quick to pay the Rs.1651 crores needed to stay to make its GSM roll-out a reality. Now, is that good or bad for QualComm?

Gary Forsee has resigned as the CEO of Sprint following heavy investor pressure. Sprint's voes with the iDen integration and the Xohm plans are seen as key reasons. While the Nextel iDen integration is stretching beyond the $2.8 billion initial budget, its WiMax plans have been a cause of worry for the investors.

The point is that Sprint is yet to completely monetize its CDMA infrastructure which runs to billions of dollars by itself. The carrier is also faced with churn issues. The investors' position is perhaps that the basic business plan should accommodate means to steady its current network and then look into the future. With the need to roll out the 2.5 GHz band, Sprint is faced with a double-edged sword.

It is quite possible that the new CEO will likely go with the investors. So, I can well see Sprint's investment in WiMax tapering off leading to an eventual spin-off. What this opens up is also an oxygen mask to UMB that just last month was dealt a severe blow with Verizon hinting at LTE. QualComm (QCOM) perhaps sees this as an opportunity to revive the long-term fortunes of the standard dominated by its IP.

With the other OFDMA standards being more even on the IP front, UMB presents QCOM an opportunity to retain its IP value while also having a dominating chipset market share. So, any small window of opportunity on this standard is good for the San Diego company. That is why I see this as a positive for QCOM.

While the analysis so far in the series looked into the current scheme of things, this piece, QualComm: Digging Gold is the platform for any further insights and analysis on QualComm's future. This will also let us discuss what the company's future strategies may be or ought to be. You can read it in Sramana Mitra's website.

Also watch out for more articles that will talk about the revenue impact of the EC and the US lawsuits and QualComm's future (not just 4G) strategies.

QualComm: The 3G Goldmine is now available on Sramana Mitra's site. I have reviewed the 3G growth and potential targets for QualComm's future growth in this piece. As usual, your feedback is most appreciated. New insights will help me update my analysis framework giving all of us a better peek into the company's future.

As my coverage of QualComm picks up speed, Ms.Mitra has posted a commentary/analysis as a follow-up to my first three posts in the series. It is now on Seeking Alpha and can be accessed here. Our objective is to start a healthy debate on the topics while trying to understand the cellular/wireless industry better in the context of the high-adrenalin events surrounding the San-Diego based CDMA pioneer.

In the next couple of posts, I have a five-year analysis of the handset market share and revenue forecast enabling us to see a bigger picture about the lawsuits that are flying left, right and center.

So, the EU has finally decided it will ramp up the anti-trust lawsuits against QualComm (QCOM). While it appears to be just another lawsuit, it has great significance in the context of the fact that most WCDMA/HSDPA growth will be in Europe. With some of the bigger handset vendors being EU-based, the case may well be biased towards the 6 companies that filed the case. The bottomline for QualComm is -

So, this will be a key-event to watch out for, and at the outset does not look like a positive one for the San-Diego based company.