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Forbes ASAP, December 7, 1992
Qualcomm
Over the Rainbow
What is on the other side of the paradigm? Beyond the up-spectrum rainbows,
what do we do when the pots of gold overflow? Where do fiber surfers go
when their wave comes in? Perhaps they eagerly await an IPO for Softcom,
the coming Telecosm star that is attacking the telco establishment from
a redoubt in Freemont, California, with an OC-48 (2.5 gigabit) transponder
card on an ordinary PCI bus on your personal computer motherboard. This
portends a revolution that can soon shake the telco and networking establishment
to its foundations. But most of us are too impatient to wait for this
new wave, heralded by this frothy crest in the opening graph of the GTR.
So do we retire to the beaches of our dreams come true? Or what?
Such a fairy tale fulfillment of the Telecosm seems ever closer as Qualcomm's
(QCOM) CDMA (Code Division Multiple Access) technologyóthe prime
call of this letter from the outset and my leading technology enthusiasm
since 1991ógained a near total worldwide triumph. By spreading
the signal across a wide spectrum band and differentiating calls by codes
rather than time slots as in TDMA, CDMA enables mobile phones and other
communicators with unsurpassed acoustics in spectrally noisy environments.
It also can handle bursty Internet data as efficiently as voice, for it
already treats voice as statistical data. CDMA also uses far lower power
than other mobile technologies, allowing longer battery life, and is automatically
encrypted by its code. The Europeans declared that it violated the laws
of physics.
For eight long years Qualcomm's most avid enemy and ardent detractor was
Ericsson (ERICY), first as a leading producer of GSM systems (a TDMA variant
predominant everywhere but North America) and then as champion of a CDMA
version sans Qualcomm's cooperation or key Qualcomm patents. Last month
the Swedish giant came to the table and ate a huge helping of crow, while
swallowing as well the infrastructure division of Qualcomm. Ericsson agreed
to create with Qualcomm a common, world-wide, third-generation wireless
standard and technology mostly based on Qualcomm patents and compatible
with existing Qualcomm equipmentóa truly awesome capitulation.
Meanwhile Qualcomm loses nothing by selling its infrastructure division
to Ericsson, since the division loses money, held only seven percent market
share, and was launched in the first place chiefly to demonstrate CDMA's
feasibility.
Similarly manifesting the new power of CDMA was the announcement on March
21 of an international roaming agreement in Asia. The agreement joined
Hong Kong's Hutchison, South Korea's Shinsegi, and Japan's DDI and Nippon
(NTT) IDO Tsushin, all major players in their home markets. An historic
advance, this deal allowed the first ever international roaming for Japanese
customers, previously trapped in proprietary cellular standards, and made
CDMA the lingua franca of Asian cellphones. Also portentous were China's
announced acceptance of CDMA and the inauguration of CDMA systems in Australia.
As Europe completes its already ordained move out of GSM and into wideband
CDMA, and the rest of the world follows, Qualcomm technology and its portfolio
of some 400 CDMA patents will dominate a market already six and a half
times the size of the CDMA market today with much more to come. (See Chart
1)
Qualcomm's share price has surged from the low forties in September and
October to more than $140 as we go to press, as investors race to catch
up with the prospects of a $4 billion company that had increased its revenues
threefold and its earnings fivefold over the last three years while barely
budging its stock.
Nevertheless, Qualcomm remains undervalued, laboring within an acrid fog
of ìfear, uncertainty and doubtî spread by the same European
and American FUDcasters that now find themselves compelled to adopt its
technology. As wireline voice moves to the Internet at nominal prices,
CDMA mobile phones will capture the bulk of profitable new voice minutes
over the next five years, and encroach heavily on the revenues of existing
wireline carriers. At the same time, Qualcomm will become the Intel (INTC)
of the personal communicators that will emerge as the most common PCs
of the new era. (GTR Feb. '99, Oct. '98) Qualcomm's pdQ, with a Palm [Pilot]
on board and a potential 2 megabit modem, will spearhead the move toward
wireless Internet access. Qualcomm's deal with Microsoft (MSFT) to develop
a new single chip modem using the CE operating system could enable a wide
range of other portable products.
Meanwhile, Globalstar (GSTRF) is Qualcomm's CDMA satellite entry, beset
by inefficient TDMA rivals such as Iridium (IRID). Long on our Telecosm
list and finally ready to loft its entire network by July, GlobalStar
will penetrate markets around the world otherwise unserved by wireless
systems. GlobalStar is worthy of interest for investors looking for CDMA
bargains in the face of Qualcomm's surging share price.
Companies using CDMA in a different context will also attract attention
in coming months as the impact of Qualcomm's victory becomes apparent.
With CDMA as an antidote to noise in any communications channel, Terayon
(TERN) applies CDMA to the noisiest realm of all, the bottom 40 megahertz
of a cable TV line. It worked for air communications, it will work for
equally noisy cables. Terayon began with a system that was incompatible
with the DOCSIS (data over cable service interface specs) and thus could
make gains only overseas, in Israel, Europe, and Canada. But now that
it is DOCSIS compliant, Terayon will gain share of cable modem business
around the world.
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