Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Tuesday, August 08, 2006

WiMax Nation: Qualcomm's Patent Play

Stocks: (QCOM)(MOT)(INTC)(NOK)

The press is painting Qualcomm as the big loser in Sprint's decision to use WiMax technology for its next generation broadband wireless initiative. Since WiMax is spring up in countries all over the world (some estimates have up to 80 countries using or testing the tech), Qualcomm's problem would seem to be worldwide.

But, Qualcomm says that its patents for broadband wireless cover the new WiMax system, and that the company expects royalties from the new deployments. Sure.

The Wall Street Journal even went so far as to say that Qualcomm claims that its patents cover "some elements of the WiMax, meaning that the company expects to get a slice of licensing revenue.."

Qualcomm's stock will drop on the news. First, because its technology did not win the Sprint horse race and seems to be losing share elsewhere. Second, because the market is going to be justifiably skeptical about Qualcomm's patent claims. has just published an analysis of why Qualcomm is not well-positioned as new technologies for cell phones come online. One of the core arguments is that the company lags Texas Instruments in the "processing technology" that is critical to newer handsets. Also, Qualcomm says it should get 50% of the new WCDMA silicon market. According to TheStreet, Qualcomm would have to get Nokia, Motorola and EMP to use its products, and, because each of the handset companies needs some customization for its products. This may make getting all three companies into the barn very tough.

One the patent front, it is fairly hard to believe that Intel, Motorola and their primary horse in the race, Clearwire, will roll over on royalty payments that would cut into their margins. It is worth watching whether this battle will go into the court system, which would be a multi-year process.

Qualcomm's stock has had an extraordinary run from well under $20 in early 2003 to $53 earlier this year. The stock has pulled back to under $35. In the quarter ending June 25, 2006, Qualcomm's revenue hit nearly $2 billion. Operating income was over $700 million according to Yahoo!Finance. The markets may be concerned that Qualcomm's run is in jeapardy.

Douglas A. McIntyre can be reached at He does not won stock in companies that he writes about.

Powered by Blogger