Qualcomm: Asia Made it and Will Kill It

For years Qualcomm has been a fantastic company, owning the W-CDMA technology and building the chips that go into the handsets for this technology. We are moving into a new era and it is time to sell the stock.

For years Qualcomm has been a fantastic company, owning the W-CDMA technology and building the chips that go into the handsets for this technology.   This gave them a stranglehold on what was perceived to be the next generation of wireless networks.  But, hubris has caught up with them now and it is time to sell.

As everybody is well aware by now, they completely bungled the patent situation with Broadcom.  Their chips are barred from US markets and their customers (Verizon and Sprint) are completely alienated.  The company also continues to face ridiculous anti-trust suits from Nokia will not go away.

The patent loss alone, while damaging to the stock, didn't change my long-term view of the stock.  While it involved damage to the US markets, most of the company's revenue comes from Asia so I wasn't too concerned.  That is, until I just got back from visiting the Asian wireless carriers and saw what is going on over there.

I found Qualcomm's entire W-CDMA licensing fees to be in jeopardy.  Carriers now realize that W-CDMA doesn't improve on ordinary GSM and they are scraping plans to build and expand these systems.  Instead, existing carriers and now carriers are concentrating on bidding for lower cost WiMAX systems.  One influential carrier explained to me that WiMAX systems are no less than 20% less expensive than W-CDMA to operate (because no Qualcomm licensing fees) and they are cheaper to build because the equipment manufacturers have driven costs down.

Qualcomm's numbers are great and the company still looks solid on paper.  However, against a backdrop where Asia is now going to move away from its bread-and-butter W-CDMA systems, I cannot see the stock growing.  I am not an expert on their other technology, but nobody is speaking about any off these technologies emerging as a catalyst for growth here.

I could hold onto Qualcomm waiting for it to get back to where it was in December 1999 (I had bought in 1998), but I've decided to sell and switch into Alvarion which is a pure play WiMAX equipment manufacturer company.

Aron Livrone
Aron Livrone: Aron is a 2008 Wharton MBA with a consulting background prior to moving from Sweden to the US to begin his MBA.

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Comments

  • soczie

    August 28, 2007

    Qualcomm's got some brilliant people and has been counted out before. I wouldn't be so sure that they aren't going to be influential in mobile WiMAX. See:

    http://www.infoworld.com/article/06/04/28/77868_HNqualcommwimax_1.html

  • Thomas Bivens

    August 30, 2007

    They have great technology and intellectual property - potentially. They need to resolve their patent issues before the stock can move forward.

  • Peter Than

    August 31, 2007

    Agreed, WiMAX is a disruptive technology and Asia is going to be on the cutting edge with it. Qualcomm is in trouble.

  • Jim Petrokas

    September 06, 2007

    Nice call on Alvarion. It has had a rough ride but looks ready to roll higher finally. They keep winning contract after contract - reminds me of Qualcomm right when it started to move.

  • Carey Richardson

    October 11, 2007

    Good call on Alvarion.

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