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Qualcomm fall continues
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June 15, 2000: 7:18 p.m. ET
Qualcomm's stock slides on concerns about use in China, Korea
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NEW YORK (CNNfn) - Shares of former highflying wireless technology provider Qualcomm Inc. dropped sharply Thursday after some Wall Street analysts raised concerns about demand for the company's technology in Korea and China, two key markets.
At day's end, Qualcomm (QCOM: Research, Estimates) was down 9-1/16, or 12.8 percent, to 61-7/16, continuing Wednesday's drop of nearly 11 points in heavy trading on both days. The stock is down 69 percent from its 52-week high of 200.
Edward Snyder, an analyst at Chase H&Q, and Wojtek Uzdelewicz, an analyst at Bear Stearns, lowered their earnings estimates for Qualcomm after meeting with the company's management, following a technology conference in New York on Wednesday.
In a research report issued Thursday, Snyder said he sees "no positive news in sight for Qualcomm" and that the elimination of cellular telephone handset subsidies in South Korea is likely to reduce the company's revenue from that country.
"The likely slowdown in Korea due to the recent elimination of handset subsidies could reduce worldwide CDMA handset sales by 10 to 15 percent," said Snyder in a research note.
The slowdown in Korea could be especially serious for San Diego-based Qualcomm because about 45 percent of the handset subscribers using the company's version of CDMA last year were in that country, Snyder said.
Qualcomm makes mobile phone chipsets based on Code Division Multiple Access, or CDMA, technology and also licenses that technology to other makers of mobile phones. The CDMA standard competes with one called Time Division Multiple Access or variations of TDMA known as Global System for Mobile Communications, or GSM. CDMA was adopted as the standard in the U.S. in 1993, but GSM is commonly used in Asia and Europe.
Qualcomm says that its CDMA technology can increase a mobile phone system's subscriber capacity to a level 10 to 20 times greater than what an analog system can handle and at least three to four times TDMA/GSM-based systems. Despite the apparent advantages of CDMA, Chase H&Q's Snyder said in his research report that it is unlikely that Qualcomm's version of CDMA will ever be deployed in China because of the dominance of GSM outside the U.S. and GSM's significant head-start in China. China's GSM networks are adding more than one million subscribers per month.
"Despite the recent approval of the Chinese trade bill, it now appears that a cdmaOne network will not be expanded in China," Snyder's research report said. "We expect, rather, that China will follow the same upgrade path to 3G as European operators, a path that does not use Qualcomm's technology."
Snyder also expressed concern about Qualcomm's 6.4 percent stake in satellite phone company Globalstar. In 1994, a group of companies including Qualcomm formed Globalstar to design and construct a worldwide, low-Earth-orbit satellite system, through which they aimed to create a seamless global communications network. Like its rival, Iridium, before it, Globalstar has attracted few subscribers and is running low on cash. Qualcomm has about $1 billion of exposure to Globalstar, Snyder said.
"The situation at Globalstar (the only remaining satellite phone company that has not filed bankruptcy) is eerily reminiscent of Iridium's demise earlier this year," Snyder said.
Snyder also believes that Qualcomm's stock is expensive relative to its earnings. When he wrote his report, the stock was trading for 51 times Chase H&Q's estimate for its 2001 earnings.
"The business model is good, but the euphoria over CDMA got well ahead of reality," Snyder said on CNNfn Thursday afternoon.
 In an unusual move for a sell-side securities analyst, Snyder set a $50-per-share price target for the stock - more than 10 points below where it now trades.
He reiterated his "market perform" rating, but lowered his fiscal 2000 earnings estimate to $1.07 per share from $1.11 per share and his 2001 estimate to $1.27 from $1.49.
Bear Stearns' Uzdelewicz also trimmed his outlook for Qualcomm, cutting his fiscal 2000 earnings forecast to $1.05 from $1.08 and his 2001 estimate to $1.30 from $1.40.
"We spoke with management yesterday and, although they were not specific on the numbers or estimates, they did indicate that their business in Korea, where they supply a significant amount of chipsets, has been slowing down," Uzdelewicz said. "Additionally, we are concerned about the outlook for the use of CDMA technology in China."
"I don't think that Qualcomm has the third-generation cellular market or the CDMA market that the analysts were expecting," Marc Gabelli, managing director of Gabelli Funds, told CNNfn.
Bulls aren't worried
To be sure, not all wireless analysts saw gloom and doom in Qualcomm's future, and one analyst said that the comments from the research reports reflected nothing that hasn't previously been disclosed. Similar comments were made a month ago in London, he said.
Lehman Brothers' analyst Tim Luke told CNNfn.com that while Qualcomm's current situation overseas may pinch its stock near-term, he isn't concerned in the long view.
"I think there will clearly be some potential impact on the September quarter from the handset subsidy ban in Korea," said Luke. "However, we think that the long-term story for Qualcomm remains very strong."
Pete Peterson with Prudential Volpe said he currently rates Qualcomm a "strong buy" with a price target of $115 a share.
"I think you need to step back a step and assess Globalstar," said Peterson. "Their cost structure is significantly lower than Iridium's. The over-arching architecture as well as technologies used are very different. In terms of the market conditions, Iridium and Globalstar are really looking at the same market and now you've got one of the competitors gone. So, what does that do to the pricing environment? It has to have significant impact."
"As for its impact to Qualcomm, Qualcomm's major sales to Globalstar have already been made. They sold the ground stations and, for all intents and purposes, they are already deployed," Peterson said. "Any ongoing businesses that Qualcomm has at risk, if there was any, would be the handset business and some balance sheet issues."
Shares of Globalstar (GSTRF: Research, Estimates) plunged to 6-7/16 Thursday, from a 52-week high of 53-3/4. 
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