Analyst: 3G is a Qualcomm game

The global trend toward 3G technologies will lift Qualcomm Inc.’s earnings and stock value over the coming years-despite the company’s ongoing dispute with Nokia Corp., according to American Technology Research.
Over the next three years, W-CDMA will replace GSM in two-thirds of wireless networks globally, analyst Mark McKechnie wrote in a note to investors. That makes 3G technology the fastest growing segment in wireless, with 50 million W-CDMA-based handsets sold in 2005, 100 million in 2006 and about 175 million expected to be sold this year.
Together with solid growth in Qualcomm’s traditional CDMA business, a probable increase in Motorola Inc.’s reliance on Qualcomm for W-CDMA, and potential growth in China’s use of W-CDMA, Qualcomm’s earnings and stock value should rise in coming years, McKechnie said. Uptake of Qualcomm’s MediaFLO streaming technology will add to the lift provided by 3G, the analyst said.
McKechnie assumed that over the next three years, 730 million handsets based on CDMA and W-CDMA will be sold, with Qualcomm securing 55% of the blended share.
One wild card, of course, is the ongoing dispute between Nokia and Qualcomm over a cross-licensing agreement. McKechnie forecast an agreement between the two parties in “6 to 18 months” with the analyst’s “best guess” that Nokia will in the end pay Qualcomm a 2.5% royalty rate. (McKechnie suggested that Qualcomm’s current, average royalty rate is 3.8%.)
Qualcomm must force an agreement, in McKechnie’s view, and its likely venue is the American Arbitration Association, where it has filed a demand for arbitration.
In the near term, the foregoing scenario requires that Qualcomm’s “non-Nokia” customers, including Motorola, Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd., do well in the market place.
A number of upcoming events have the potential to improve investors’ outlook on Qualcomm’s fortunes, according to McKechnie.
The United States International Trade Commission is set to announce on June 7 a remedy in Broadcom Corp.’s successful patent infringement case against Qualcomm, though the analyst doubts the ITC will impose a “downstream” injunction banning the importation of handsets with Qualcomm chips. By delaying whatever sanctions the ITC imposes for 60 to 120 days, Qualcomm will be able to devise an alternative to using Broadcom’s IP, according to McKechnie.
An announcement in the next week or two from Motorola about further restructuring plans-which McKechnie said will likely include further job cuts than the 3,500 already announced-may well contain hints on whether Motorola will rely more heavily on Qualcomm for its high-end 3G product line.
Lawsuits launched by Qualcomm against Nokia will proceed in the United Kingdom in June, in Germany in August and a complaint before the ITC is anticipated to be decided by September.