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Tuesday, October 03, 2006

Qualcomm's Model Show Wear And Tear (QCOM)(MOT)(NOK)(INTC)

The growth engine that drop the price of Qualcomm from $15 in 2002 to $53 earlier this year may not be fraying at the edges. The stock dropped over 10% last quarter to $36.35.

The company's licensing model, which brought it revenue from a very large portion of the cellphone produced around the world is under siege now. Sprint has adopted WiMax for its next generation phones and the standard is being pushed by big companies like Intel. Despite its claims that it may have patents that cover WiMax technology, Qualcomm will have to fight to get a piece of that pie. Qualcomm has also been after Broadcom, which is developing 3G chips that would probably take share away from the long-time leader in phone chips. A judge denied a Qualcomm attempt to get an injunction against Broadcom's development of new mobile chips, and Qualcomm's stock dropped sharply.

Nokia, a huge Qualcomm customer, has recently licensed IP that will make it more difficult for Qualcomm to renew its agreement with Nokia on favorable terms. Qualcomm has said Nokia infringes on its patents. Nokia claims that Qualcomm employs monopolistic practices.

Fighting with a large customer is never a good sign. With other forces in the market like WiMax potentially making large in-roads into Qualcomm's share, the drop in the companies share last quarter may only be the beginning.

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

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