NEW YORK-Qualcomm’s meteoric stock price appreciation in 1999 may well be a unique phenomenon that other companies are unlikely to replicate.
Nonetheless, other established and new telecommunications players seem poised to offer substantial returns on investment, J. Michael Gallipo, portfolio manager of Monument Telecommunications Fund, Bethesda, Md., said in a Feb. 9 media briefing.
Nokia Corp., which captured 27 percent of the global wireless handset marketplace in 1999, is a large-cap company with plenty of room to grow. Of the “Big Three” handset makers, which also include L.M. Ericsson and Motorola Inc., Nokia was the only one to increase its market share last year.
The outlook is even better. By 2002, the number of mobile customers worldwide is expected to hit 1 billion, up from 450 million in 1999.
The average useful life of a wireless handset is now at two years and declining. The wireless Web and other data communications are driving the acceleration of handset replacement, Gallipo said.
The portfolio manager added he is impressed by Nokia’s prototype for a new Internet phone “that eliminates the keypad; it just has a [liquid crystal display] screen, a speaker and a microphone.”
He also credited Nokia as being the first handset maker to “grasp the idea of the cell phone as fashion accessory for product segmentation.”
As data communications become more important in wireless phones, so too will voice recognition technologies. Although Monument tends to buy shares in the aftermarket rather than during an initial public offering, it is keeping its eye on voice recognition companies like Nuance that likely will become publicly traded, Gallipo said.
“I just hope the large-cap guys don’t shut out the IPO market by taking out all these [smaller companies] while they’re still private,” he said.
Although the fund generally maintains about half to two-thirds of its assets in large-cap companies, it also looks to invest in lesser known companies “down the product line,” he said. Companies like Alpha Industries, which makes chip sets for cell phones, and Powerwave Technologies, which makes base station components, also look like winners in the expanding wireless universe, he said.
Nortel Networks, MCI WorldCom and SBC Communications Inc. were Monument Telecommunications Fund’s three largest share holdings as of Feb. 9. It also owns AT&T Corp. stock.
“Anticipating mergers is not a core part of our strategy,” Gallipo said.
However, except for perhaps a handful of domestic competitive local exchange carrier acquisitions, he said he believes merger activity among American service providers will taper off this year. The cross-border arena poses the more likely prospect for new combinations.
“NTT (of Japan) and Deutsche Telekom are looking around in the United States,” Gallipo said.
“SBC has hinted at an international tracking stock and AT&T a Latin America tracking stock. That would give them currency for foreign acquisitions without diluting their domestic operations.”
