Qualcomm: Asia Made it and Will Kill It

For years Qualcomm has been a fantastic company, owning the W-CDMA technology and building the chips that go into the handsets for this technology. This gave them a stranglehold on what was perceived to be the next generation of wireless networks. But, hubris has caught up with them now and it is time to sell.

As everybody is well aware by now, they completely bungled the patent situation with Broadcom. Their chips are barred from US markets and their customers (Verizon and Sprint) are completely alienated. The company also continues to face ridiculous anti-trust suits from Nokia will not go away.

The patent loss alone, while damaging to the stock, didn't change my long-term view of the stock. While it involved damage to the US markets, most of the company's revenue comes from Asia so I wasn't too concerned. That is, until I just got back from visiting the Asian wireless carriers and saw what is going on over there.

I found Qualcomm's entire W-CDMA licensing fees to be in jeopardy. Carriers now realize that W-CDMA doesn't improve on ordinary GSM and they are scraping plans to build and expand these systems. Instead, existing carriers and now carriers are concentrating on bidding for lower cost WiMAX systems. One influential carrier explained to me that WiMAX systems are no less than 20% less expensive than W-CDMA to operate (because no Qualcomm licensing fees) and they are cheaper to build because the equipment manufacturers have driven costs down.

Qualcomm's numbers are great and the company still looks solid on paper. However, against a backdrop where Asia is now going to move away from its bread-and-butter W-CDMA systems, I cannot see the stock growing. I am not an expert on their other technology, but nobody is speaking about any off these technologies emerging as a catalyst for growth here.

I could hold onto Qualcomm waiting for it to get back to where it was in December 1999 (I had bought in 1998), but I've decided to sell and switch into Alvarion which is a pure play WiMAX equipment manufacturer company.