The great wall between China and the deployment of CDMA technology may finally fall. And soon.
After a year-long soap opera with Qualcomm Inc. over proliferating the technology in the country, the Chinese Ministry of Information Industry signed a memorandum of understanding to allow the nation’s second-largest wireless company, Unicom, to deploy CDMA service to the country’s 10 million potential customers.
“I’m hopeful it’ll be sooner, not later,” said Qualcomm chief Irwin Jacobs. “Hopefully not too late into the year (2001), but we’ll have to wait.”
Although the initial estimates call for 10 million lines to be deployed, the technology is expected to compete with GSM technology, with a year-end projection of 75 million subscribers, securing its status as the dominant standard and a magnet for investments from both Unicom and rival China Mobile.
A Korean newspaper, the Maeil Business Newspaper, however, believes CDMA service could reach 75 million users in four years. But that will hinge heavily on the fortune of GSM technology.
With a 10 million customer base, the deployment is expected to generate $130 million in licensing and $217 million in chipset revenue, which will yield a pre-tax profit of $182 million in one year.
According to research by Credit Suisse First Boston Foundation, Qualcomm has to raise funding for its network deployment. If it succeeds in its fund drive, the research says Qualcomm can generate incremental earnings per share of about 13 cents in 2002.
This will factor in 100-percent market share in chipsets, 4.5-percent share on handset sales and 2 percent on infrastructure.
Optimism is not misplaced because China is one of the fastest-growing telecom markets in the world, and if the deal succeeds it will be a substantial source of revenue for Qualcomm, which relies on licensing the technology for royalty payments.
Politics and bureaucracy had complicated the deal during the past year and inflicted a toll on Qualcomm’s shares, which have dipped and risen and dipped in an almost-predictable cycle.
The stock peaked at $200 in January when the China deal was first proposed and hit its low of $51.50 in July. News of the MOU sent Qualcomm’s stocks up $6 to $89 a share Dec. 4.
Although the agreement will cover current-generation CDMA technology, Jacobs says it will prefigure third-generation networks on Qualcomm’s CDMA 1X standards.
