Qualcomm Inc (QCOM)

[khemara_qc]

More on Qualcomm/Flarion from UNION-TRIBUNE

Qualcomm to buy wireless-tech firm

Deal for N.J.'s Flarion is $600 million cash, stock
By Bruce V. Bigelow
UNION-TRIBUNE STAFF WRITER
August 12, 2005

http://www.signonsandiego.com/news/business/20050812-9999-1b12qualcomm.html

In a move that stakes a new claim in future wireless technologies, San Diego's Qualcomm said yesterday it will acquire Flarion Technologies of Bedminster, N.J., for roughly $600 million.

If anything, the cash and stock deal emphasizes the relentless nature of Qualcomm's battle to establish its technology as the standard for the wireless industry.

For most of its 20-year history, Qualcomm struggled to convince a global market that its proprietary wireless technology was better than the competing standards many cellular companies had already adopted.

Flarion specializes in a variety of technologies capable of transmitting enormous amounts of data to mobile devices.

With the transition to third-generation wireless technologies well under way, Qualcomm is now looking over the horizon at what the fourth generation might bring.

The San Diego company envisions wireless devices that receive TV broadcasts via the Internet. Children could play computer video games on the drive from San Diego to San Francisco, and sports fans could tune in to see the latest plays at the beach. The company says TV news programs transmitted to cell phones would be especially helpful during catastrophes.

In buying Flarion, Qualcomm has laid claim to what amounts to a swath of undeveloped country that will likely become a future battleground for the wireless industry. The territory was created essentially by patents that Qualcomm and Flarion hold for wireless technologies capable of providing video and high-speed Internet services.

The combination will make it hard for rivals to move in without crossing Qualcomm's turf, Paul Jacobs, Qualcomm's chief executive officer, told analysts in a conference call.

"Coupled with our existing intellectual property, there is no question that Qualcomm possesses one of the broadest portfolios of wireless patents in the industry," Jacobs said.

Qualcomm is always happy to license its technology, a spokesman added. The San Diego wireless giant, which ranks as the second-largest maker of wireless communications chips in the world, maintains an extensive portfolio of patents covering CDMA, or code-division multiple access, technology.

The company's shares rose $1.27, or 3.2 percent, to close at $40.48 yesterday on the Nasdaq Stock Market. Analysts said the deal should secure Qualcomm's future in an intensely competitive industry, at least for awhile.

"What it means is that 10 years from now, we won't be asking, 'Whatever happened to Qualcomm,' " said Peter Jarich, an industry analyst with Current Analysis.

Flarion, founded in 2000 with technology developed at Bell Labs, is a venture-backed startup company with about 200 employees. As part of the deal, Qualcomm offered to pay an additional $205 million over the next eight years if Flarion can meet a series of technological goals.

"They're going to be integrated into Qualcomm's existing structure," said Jeremy James, a Qualcomm spokesman. "But we want them, we want Flarion's employees to continue to develop what they've been working on."

Flarion has developed a variety of technologies capable of transmitting enormous amounts of data to mobile devices. The technology, called Orthogonal Frequency Division Muliplex Access, or OFDMA, would provide wireless users with high-speed Internet service comparable to a cable or DSL connection.

"One of Qualcomm's core strengths has always been the ability to quickly take technology innovations to market," Jacobs said. The deal "pairs Qualcomm with the strongest technology and product development teams in both CDMA and OFDMA."

Flarion's technology may offer a new option to customers that might have been reluctant or unwilling to adopt Qualcomm's CDMA technology, Jacobs said.

"As the wireless industry moves more and more to generate revenue through data services, operators are looking for increasing differentiation," the chief executive said. "Through the acquisition of Flarion, we can now more effectively support operators who might prefer an OFDMA or hybrid OFDMA-CDMA track for their services."

Jarich added: "They understand there are some markets that don't necessarily want CDMA. So they see an opportunity for a solution, they can take their technology and make it more broadly available and commercial than it is today."

The Flarion-Qualcomm combination also could pose a significant challenge for companies, such as Intel and Motorola, that have been developing future versions of WiMax, an emerging high-speed wireless technology.

WiMax developers could have "a difficult time designing their systems for mobility without infringing Qualcomm patents," as a result of the deal, said Deutsche Bank analyst Brian Modoff.

"We believe our (patent) portfolio as well as Flarion's portfolio would be applicable to WiMax," said Steven Altman, Qualcomm's president and chief operating officer.

The deal is expected to close later this year, pending regulatory approval and other customary conditions.

Qualcomm expects the acquisition to dilute its pro forma earnings for the fiscal year ending in September 2006 by about 3 cents a share.

Wall Street analysts, on average, had expected the company to earn $1.43 a share for fiscal 2006, according to Thomson Financial.

Qualcomm anticipates one-time charges of roughly $10 million, mainly related to in-process research and development.

Upon completing the acquisition, Qualcomm expects to issue stock worth about $267 million, assume existing Flarion options and warrants worth roughly $128 million and pay about $205 million in cash, net of Flarion's projected cash balance.



--------------------------------------------------------------------------------
The Associated Press and Reuters contributed to this report.
Bruce Bigelow: [phone]; [e-mail]