Qualcomm beating odds in troubled telecommunications industry
By Catherine Ivey
Associated Press
SAN DIEGO — Eight years ago, when Qualcomm Inc. introduced its signature technology for cell phones, few outsiders believed it would go anywhere.
Today, Qualcomm's technology fuels 13 percent of the world's wireless subscribers, and the company is feverishly working to expand into new markets including India and China.
With ambitious forecasts for growth abroad, record revenues and its first-ever quarterly dividend for shareholders, Qualcomm ranks as one of the few consistent success stories in the embattled telecommunications industry.
Yesterday the company raised its estimates for microchip shipments amid a surge in demand for advanced mobile phone networks that enable consumers to browse the Internet, play games and take photos.
Its stock has risen steadily in the past six months — for the first time since the 2000 tech-market bust. The company further buoyed its shares by announcing plans to buy back $1 billion in stock.
But can it last? Even Qualcomm's most optimistic cheerleaders take nothing for granted.
"Qualcomm is a beacon of light in a sea of wireless misery," said Brian Modoff, an analyst for Deutsche Bank Securities. "They've got growth. They're not competing with other vendors. They're generating very good returns. I think that what we don't have a good answer on is how sustainable this is."
Commercialized in 1995, Qualcomm's code division multiple access technology, or CDMA, is one of only a few standards used worldwide to convert speech into digital information for transmission over a wireless network. CDMA assigns a unique code to the bits of information to distinguish each call, a process that allows more callers to share the airwaves.
"When they first started with CDMA, only people in San Diego believed it would work out," said analyst Roger Entner of the Yankee Group, a telecommunications research firm. "They have proven the world wrong."
CDMA is now the most popular cell phone standard in North America, where it is used by Verizon Wireless, with 32.5 million subscribers, and Sprint PCS, which has about 17 million subscribers. The technology also dominates the cell-phone-rich market of South Korea. Last year, the number of subscribers grew by 31 percent.
Having sold off its phone-manufacturing business, Qualcomm now enjoys the fruits of its near monopoly on CDMA. By owning 90 percent of CDMA patents, Qualcomm benefits every time a CDMA-based chip is sold or a mobile operator uses its standard.
That probably puts the company in "the best position of anybody in wireless today," said Craig Mallitz, an analyst with Legg Mason.
But even with 13 percent of the world's 1.1 billion cell phone subscribers, according to the CDMA Development Group, the standard has been somewhat stymied by GSM, or global system for mobile communications. Largely helped by a European Union mandate making GSM the continent's standard, GSM comprises nearly 70 percent of the world's wireless users.
These days Qualcomm is putting up a fight for Europe. The continent's next generation of phones will use a Qualcomm-designed technology that will send royalties back to San Diego, albeit at a lower rate than what the company draws for CDMA. Qualcomm also hopes by next year to fire off a new chip that lets users on a GSM network roam onto a CDMA network.
