Qualcomm Drops CDMA Handsets
By Joseph Palenchar -- TWICE, 9/20/1999
Qualcomm has announced plans to sell off its CDMA wireless-handset business because of falling margins -- a move that will give competing manufacturers an opportunity to boost their presence in the CDMA market, where Qualcomm currently holds the leading share in the U.S., industry analysts said.
Analysts said likely purchasers include Ericsson, which sells only GSM and TDMA digital handsets and which recently purchased Qualcomm's CDMA infrastructure business.
Another likely buyer is Motorola, which would bolster its digital presence in the U.S. and "put it on an equal digital footing with Nokia," said Dataquest senior analyst Bryan Prohm. Nokia captured a third of the U.S. digital-handset market in the second quarter of this year, followed by Qualcomm's 16%. Motorola's share was 14%.
In CDMA handset sales, Qualcomm came out on top in the second quarter with 33.4%. Motorola's share was 13.5%, and Nokia's was only 9.3%, Dataquest estimates show.
Qualcomm said it is already in discussions with other manufacturers and plans to reach a deal by the end of the year. If the deal is reached as scheduled, Qualcomm would become the second company this year to announce plans to exit the CDMA handset market at a time when CDMA sales have begun to outsell sales of digital handsets using other technology.
Earlier this year, Sony announced plans for a September shutdown of its wireless sales and marketing operations in San Diego, although the company set the stage for a possible return by maintaining CDMA research and development in San Diego and its 49% ownership stake in a U.S.-based CDMA handset factory. The factory's majority-owner is Qualcomm.
CDMA handsets began outselling other digital technologies for the first time in the first quarter of this year, according to Dataquest estimates. In the second quarter, CDMA held a 47% share of digital-handset sales, followed by TDMA's 38.7% and GSM's 14.3%, Dataquest said.
Like Sony, Qualcomm cited stiff U.S. competition as a major reason to leave the business, despite CDMA's bright future, but the CDMA inventor also mentioned unspecified component shortages.
Analyst Jane Zweig of Herschel Shosteck said Qualcomm's decision makes sense because the company wants to focus on its more profitable CDMA chip-making business and licensing of its CDMA intellectual-property portfolio, which it would continue to expand through R&D. "The terminal business is cutthroat," she said.
Dataquest's Prohm said selling makes sense because Qualcomm will get "the most value for its assets" before margins are driven down further by increasingly aggressive Korean suppliers and CDMA stances by Nokia and Motorola, who bring global economies of scale to manufacturing. "Qualcomm tends to have the highest-priced handsets available," he said.
Qualcomm said it would continue to make satellite handsets for the Globalstar network, which is preparing to launch commercial service in select regions of the world in the fall. It will also continue to operate its Omnitracks satellite-tracking system.
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