Interdigital Series: Part 2

Tuesday, November 20, 2007

In the first piece of the Interdigital (IDCC) series, I discussed Interdigital's past. The second piece talks about its latest moves and challenges. You can read the article by clicking this link.

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Interdigital Series: Part 1

With the Qualcomm series winding up, I have started a new series on Interdigital. The first article in this series written for Sramana Mitra's site is titled "Visionary beginning, Rocky past" and can be read here.

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Xohm Shanti Xohm

Friday, November 16, 2007

'Om Shanti Om' is the latest Bollywood blockbuster. It is a spoof in which the protogonist reincarnates and attains the glory he dreamt of in his previous birth. Sprint's Xohm is already dying a slow death and perhaps needs a reincarnation itself. Reason: Sprint called off its joint venture with Clearwire to roll out its much advertised mobile WiMax network.

In a month-old article titled "Forsee out: Will Sprint still Xohm or is UMB back?, I had stated reasons why Sprint may no longer see Xohm attractive post-Forsee. Sure enough, we are seeing its ramifications already. This retro-step is simply an indication of Sprint's commitment as a company to WiMax roll-out. It perhaps wants to so it can gain a leadership position for 4G. Unfortunately, at the current moment, there is no economic case that its investors see. Though it is still likely that Sprint will continue its roll-out efforts, this means that the pace of such a roll-out itself will be slow. There are a few comments I will make here -
  • Tough times for Mobile WiMax means a field day for the proponents of the other two competing 4G technologies, UMB and LTE. With its existing relationship with Qualcomm, Sprint may migrate to UMB as and when there is a demand for 4G speeds in the market. On the other hand, LTE is very much in the running, especially if all competitors opt for the technology thereby driving their respective costs down.
  • Sprint's focus will now be to secure the customers and build a better brand image to stabilize the future. What is the point of investing billions if it cannot guarantee a loyal customer-base!
  • Companies like Motorola, Samsung and Intel that have vested interests in the success of mobile WiMax may now step in and be more proactive with the roll-outs, especially with Clearwire. Sprint perhap is also hoping that some posturing can help drive the WiMax costs down as well.
While mobile WiMax itself may not be down and out in the US, Sprint's Xohm needs a reincarnation of sorts to live the dream.

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The heat and the prick

I was rather pleasantly surpised to see Qualcomm acquire Firethorn Holdings, a mobile banking company. It coughed up $210 million to set its foot on rather unfamiliar territory. Though it is unclear how Qualcomm plans to use the acquisition, there are few things that pop up about this event -
  • Increasing footprint beyond its core competency areas is essential for its long-term growth. An acquisition like Firethorn can help Qualcomm achieve this. Besides, it will give Qualcomm more visibility as the mobile revolution takes center-stage. As a chip vendor or as an IP powerhouse, it will not get attention from the consumer. Software offers a better brand-marketing avenue, especially if the related domain hits it big.
  • Offering an integrated solution has always been one of Qualcomm's strengths. In fact, it has been one of its market-share strategies, its differentiator in the market place. Ask for the chipset and you get a bunch of drivers for free. Now, with software prowess in a domain that could potentially be ubiquitous in tomorrow's mobile world, it can provide a complete silicon solution. I would love to carry a phone and only a phone. If it can replace my credit card etc that I carry in my wallet, it will be perfect. With its hardware design leadership, this sounds like a good synergy.
  • Looking at this initiative in the context of Android adds more glitter. Android is perhaps a bull-dozer effort. Google can pump in the money and the effort to get its platform into mobile phones. With smart-phones and other convergence devices slowly becoming the norm, an acquisition like this, as offbeat as it may sound signifies some vision. The timing is perhaps more important and indicative of Qualcomm's gamble. Announcing this close to the heels of the Android announcement reinforces its belief in the future of communications.
So Qualcomm, what is next?

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Qualcomm unnecessarily volatile

Thursday, November 15, 2007

For the last couple of weeks, the Qualcomm share price has been quite volatile. It did not get reprieve from the market going down also. So what happened?
  • A quarter conference call in which the company, despite posting a stellar quarter announced a below-par expectation for the next quarter. This expected earning excludes the money it will be getting from Nokia accounting for a drop of about $0.25 in EPS. This sent the share prices tumbling to $36.60, almost a three-year low.
  • The share has since steadily climbed back to around $41 helped by an optimistic analyst conference and the news that a Nokia case was overthrown in Dutch courts.
  • There were other events that bolstered the share price back. The off-beat acquisition of Firethorn and the Android partnership with Google.
The share has thus been fairly volatile and will probably be this way until the legal battles are over. I did have a couple of comments though -
  • It is OK that the shares tumbled to $36.60. But here is the deal. At that rate, the company has pretty much absorbed all legal risks. This is precisely the point I was making in my Qualcomm series on Sramana Mitra's site. Other analyst opinions following the Analyst day yesterday reflect my opinions loud and clear. My point is that Qualcomm is infact doing a smart thing by not taking into account any money it has to receive fro Nokia. Contrast this against a situation when it assumes a 5% royalty while it has to settle for 2%, say. In essence, the company is converting this legal risk into a positive. Now, any money that comes from Nokia royalty, 2% or 5%, it does not matter, will only be an upside, right? Besides, I have pointed out in my analysis, Gobi itself is enough to push the share valuation back to $41 or so.
  • With the optimism surrounding Firethorn and Android, the shares can only go up. Of course, to me, both these ventures are still unclear in terms of monetization for Qualcomm. So, I will reserve my comments on these for later.
The only thing I did not comprehend was the rather reserved tone that the Qualcomm executives took this time around during the conference call.

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Posted by Vijay Nagarajan at 7:30 PM 0 comments Links to this post  

QualComm Series Ends

Last week, the last of my series on Qualcomm (QCOM) was published on Sramana Mitra's site. You can access it here. I have concluded with my perception of the company's future. It will be interesting to see how and when the events unfold. For the unitiated, here is a list of my articles that you can read from Sramana Mitra's strategy blog.

I welcome comments on each of these and in general, the quality of the articles and how useful it was for you.

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QCOM Series: Part 9

Tuesday, November 6, 2007

Part 9 is available here. This piece presents my final valuation of the San Diego company. As I have mentioned there, I would value the share at around $45. And this number has absorbed the legal risks that the company faces and also accounts for its potentially increasing 3G chipset market share and its increased footprint.

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QCOM series: Part 8

Monday, November 5, 2007

Part 8 of my QCOM series is available on Sramana Mitra's site. This briefly touches upon the company's short-term positives and bets. The next piece will incorporate these events in my final valuation of the company.

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QCOM Series: Part 7

Friday, November 2, 2007

So, as I wind up this long-running QCOM series on Sramana Mitra's site, I have an event-based valuation of the company. You can read it here. This will be followed by sequels with positive events and corresponding valuations. Of course, I will also present my expected final valuation of the stock and conclude with its future outlook.

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