Qualcomm Inc (QCOM)

[Mindy]

3G Phones Dominate Domestic Market

http://times.hankooki.com/lpage/tech/200403/kt2004031619290212350.htm

By Kim Tae-gyu
Staff Reporter
On the back of solid domestic demand, code division multiple access (CDMA) 2000 1x EV-DO (evolution data optimized) phones continue to gain clout in the Korean market.

Local handset makers on Tuesday said they will hike EV-DO phone production to meet Korean customers' intensifying thirst for the third-generation (3G) gadgets.

Samsung Electronics, the third-largest cell phone maker in the world, said it will introduce 40 EV-DO phones this year to the local marketplace among the total of 50 new models planned.

The mobile phone giant churned out around 40 new products last year in Korea with top-of-the-line EV-DO phones accounting for 70 percent of them.

The world's fifth-biggest player LG Electronics, which rolled out only nine EV-DO models among a total of 32 last year here, plans to almost triple 3G phones to around 25.

Pantech Group, the remaining one of Korea's Big Three, will also join the trend by increasing the portion of the new EV-DO models to over 50 percent this year in Korea from 12 percent a year ago.

Experts attribute the EV-DO phone fever to the budding mobility-specific multi-media service market, as the high-end gear enables users to download and access large-sized data like movies or TV dramas.

EV-DO provides a peak rate of over two Mbps with an average throughput of over 700 Kbps, deploying killer applications like video conferencing or video on demand.

``Koreans are more and more leaning to multi-media services on the move, and that's is a driving force of the strong demands for EV-DO phones,'' said Stan Jung, an analyst from LG Securities.

Two effects in opposite directions

Market sources said the booming EV-DO phone market will give rise to both positive and negative repercussions throughout the telecom industry.

Wireless operators greeted the news, as their revenues from wireless data services are expected to skyrocket while handset makers worry about the shortages of CDMA chips and high royalty payments.

``As more Koreans snap up and carry EV-DO phones, mobile operators revenue will soar on the strength of non-voice service revenues,'' Jung predicted.

Wireless data services have buoyed Korean mobile outfits over the past years.

For example, the nation's biggest player SK Telecom earned 1.32 trillion won last year from the segment, carving out 13.9 percent of the total sales of 9.52 trillion won, and looks to extend the portion to around 20 percent this year.

Rival KTF also cashed in 380 billion won from the new-found source of growth on 4.3 trillion won in turnover throughout 2003.

In contrast, the EV-DO chip shortage and high royalty payments weigh on Korean cell phone makers, according to Daishin Securities telecom analyst Lee Young-joo.

``As long as CDMA phone production is concerned including EV-DO models, the baseband chip is always a major concern for handset makers,'' Lee said.

Earlier last week, Korean handset makers pointed their fingers at Qualcomm, the firm which retains a strong lock on the CDMA equipment market, for the shortage of CDMA chips.

They claimed Qualcomm has offered only 70~80 percent of baseband chips from among the original orders with lead times sometimes stretching to well over 15 weeks.

It was not the first time for Qualcomm to come under fire here as the U.S.-based giant levies a royalty of 5.25 percent based on the total handset price excluding packing and batteries instead of the chip and related software prices.

``As Korean handset makers swell up production of pricey EV-DO phones, which casually contain cameras and other expensive peripherals, their royalty burden will increase under the current royalty system,'' Lee said.

Qualcomm has declined to unveil its total royalty revenue but Korea's parliamentary data showed last year that the nation's firms have paid over 1.5 trillion won in technology usage fees to Qualcomm since 1995.