Qualcomm Inc (QCOM)

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Qualcomm to Ring Up More Technology Royalties

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Dec. 16--The merger between Sprint and Nextel is not only a boon for the two cell phone companies but also for San Diego wireless giant Qualcomm. That's because the deal will broaden Qualcomm's already formidable base of U.S. cellular phone customers.

Sprint has long used Qualcomm's patented technology, while Nextel has used its own proprietary wireless technology. The merger of the country's third- and fifth-largest wireless companies means that the combined entity eventually will migrate all users to Qualcomm's technology, especially for next-generation wireless services such as high-speed data.

Analysts said that is undeniably good news for Qualcomm, which had been shut out of offering its code division multiple access, or CDMA, technology to Nextel's 15.3 million customers. Sprint has about 20 million wireless customers.

"It (Nextel) was the one major carrier that no one knew how they could migrate to CDMA," said Albert Lin, an analyst who covers the wireless industry for American Technology Research. "There was definitely that mystery of what Nextel could do if they had to go it alone."

Qualcomm said yesterday it was pleased by the merger, acknowledging that it will boost the reach of its CDMA technology. Qualcomm makes money selling CDMA chips and from royalties each time a CDMA chip is used in a cell phone. The more CDMA phones are sold, the greater Qualcomm's revenue. Verizon, the country's No. 2 wireless company, already uses Qualcomm's technology, while Cingular Wireless, which recently merged with AT&T Wireless, uses a competing technology.

"We think this is a positive development," Emily Gin, a Qualcomm spokeswoman, said about the merger.

Nextel and Sprint say they plan to complete their merger by the end of 2005 and begin to migrate customers to Sprint's next-generation CDMA network as soon as 2006. The companies said the migration will be gradual and that a phone that works with both companies' current technologies will be offered near the end of 2006.

While the merger is positive for Qualcomm, the wireless technology company will not see an immediate boost to its revenue, said Michael King, a wireless industry analyst for the Gartner Group. "The significant impact won't be felt until 2006," he said.

A research note from Piper Jaffray said Qualcomm shares should trade higher because the company is benefiting both from the Sprint-Nextel merger and from other cell phone companies' migration to next-generation wireless networks. Piper Jaffray, which rates Qualcomm an "outperform," gave a price target of $50 for the stock.

Shares in Qualcomm rose 30 cents yesterday to close at $44.34.

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Source: The San Diego Union-Tribune