Qualcomm Inc (QCOM)

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Analyst taps Nextel, Qualcomm
Kenneth Leon


As the wireless revolution accelerates, the best investment opportunities lie with the ‘premium names’ in the sector, says Kenneth Leon.



Symbol Rating* Name Last Change More Links
NXTL 10
Nextel Communications 26.49 +0.59 Charts / Msgs / All NXTL picks

QCOM 10
QUALCOMM, Inc. 63.09 -0.61 Charts / Msgs / All QCOM picks

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Cell-phone use is growing, and competitors are racing to add the equipment and infrastructure that allows them to sell the new services that consumers want, said Kenneth Leon, a telecom equipment analyst with Standard & Poor’s.

Among the wireless carriers, Nextel Communications (NXTL, news, msgs) is growing faster than its peers, Leon said on CNBC’s “Squawk Box” on Friday. The stock is cheap, Leon added, selling at 12 times projected 2004 earnings. He likes the company’s management, which he said has done a good job of clearing debt from the company’s balance sheet.

Handset makers are a less attractive investment, according to Leon, who favors technology innovators like Qualcomm (QCOM, news, msgs), which, like Microsoft (MSFT, news, msgs) in the software realm, has parlayed its intellectual property into royalty-generating licenses.

“We would (prefer) to be at the royalty level with Qualcomm than fighting it out at the handset level with Motorola (MOT, news, msgs),” he said. Get additional details below, and use the CNBC.com on MSN Money tools, including StockScouter, to learn more about each company. Click here for recent stock picks.

Quick Analysis

Nextel Communications

• The Reston, Va., company is the nation’s sixth-biggest wireless phone carrier. Its “push-to-talk” service, Direct Connect, helped make it a leader in the business market. Business customers account for 90% of its 13 million subscribers.
• Until last year, Nextel was the only carrier to offer the popular and profitable walkie-talkie option. Verizon Wireless introduced its own walkie-talkie feature last summer.
• The Justice Department is investigating whether Nextel and Motorola colluded in preventing other carriers from introducing comparable push-to-talk services, The Wall Street Journal reported. Motorola supplies all of the mobile phone carriers, but Nextel is its biggest customer.
• Nextel hopes to capitalize on the growing popularity of cell phones among teens and young adults by rolling out a new product line, Boost Mobile, which packages its walkie-talkie features with youth-oriented branding and which charges on a pay-as-you-go basis.
• Its fourth-quarter profit fell from a year ago, when it had revenue from the sale of an international unit. Revenue rose 29%. It added 550,000 new subscribers and minimized defections to rivals after a new law went into effect allowing customers to switch carriers and keep their phone numbers.
• Check out recent key developments for Nextel Communications.


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QUALCOMM, Inc.

• The company is a leading developer of wireless-chip technology. It pioneered CDMA (code division multiple access) technology used in mobile phones and other wireless communications equipment. It licenses CDMA chip technology to dozens of equipment and cell-phone makers.
• The San Diego company this week raised earnings projections for the quarter ending March 28, citing greater-than-expected demand for its chips for cell phones.
• Analysts said Qualcomm is well positioned in the ongoing shift to newer “3G” or third-generation cell-phone technologies that can transmit data at higher speeds. Its 3G technology has been more successful at high-speed transmissions than those based on the GSM (global system for mobile communication) technology. CDMA carriers such as Verizon Wireless are adding customers at a faster pace than GSM-based competitors Cingular and AT&T Wireless.
• Leon said the company is pushing development of digital wireless technology in China and India, among the world’s biggest and fastest-growing mobile telephone markets.


http://moneycentral.msn.com/content/CNBCTV/Articles/StockPicks/P76312.asp