QCOM wins back Moto

Wednesday, January 23, 2008

I said so! Here is the piece of news that ratifies a speculation I posted 3 months ago i my QCOM series on Sramana Mitra's site.

http://www.edn.com/article/CA6525019.html

Motorola announced, along with its grim financial results, that it will use QCOM chipsets in its UMTS phones. The new CEO, Greg Brown, may have played a key role in Moto's change of stance on QCOM which it shunned just a few months ago. I had written on November 5th, 2007 -

"Look who is back: As data takes the forefront, and modem performance becomes more important, some vendors who have looked away from QCOM may come back. The QCOM receiver is perhaps the most advanced, thorough, stable and well tested product out there. With R&D two generations ahead of the competition, the engineering superiority is never in question. The caveat is a slight change in the heart of the QCOM management and a reduced royalty rate. And I think both of these are good for the company in the long run as it strives to get more chipset market share. We may see Motorola coming back to QCOM for 2010 and beyond. And who knows, maybe Nokia too!"

It seems Motorola is doing so even for 2009. This is certainly big news for QCOM. In my note on QCOM's valuation, I had mentioned "The valuation of the QCOM stock with Gobi in the picture goes up to $52. Motorola coming back to its fold can also raise valuation to the same number." Effectively, a sustained partnership, not to mention the chances of Motorola regaining market share with its superior performance, is worth a few billions to QCOM and boosts its valuation by about $6.

For Motorola, it no longer needs to worry about performance superiority and can now focus on software, GUI and other issues that have bogged the sales of its phones. Of course, the modem itself is only one of its worries. Nokia is the market leader by a mile because it understands the pulse of the emerging markets like no other handset manufacturer. The indigenous designs that cater to almost all segments of phone buyers is yet to be matched. Motorola will have to work on these macro parameters if it wishes to make the best use of the best modem out there.

Paul Jacobs remarked that cell phones are ``not a luxury, they're a staple.' This strengthens the case of cell-phones despite concerns of an economic downturn. The Motorola alliance adds to QCOM's strength and resilience. It is a firm pointer to the company's survival in the wake of a recession.

Posted by Vijay Nagarajan at 5:00 PM  

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