With a newly signed document from the Chinese government in hand, Qualcomm Inc. Chairman and CEO Irwin Jacobs said last week he is “optimistic” a code division multiple access wireless network will emerge in China.
While company officials said they were looking for another sign that CDMA is taking hold , equipment orders , stock analysts were split on the significance of the document.
This is “not as great a day as the press would have you believe,” said Todd Bernier, an analyst with Morningstar.com in Chicago.
A second analyst, T.C. Robillard with Salomon Smith Barney in New York, called “positive momentum” in China one of several reasons to “remain positive” about Qualcomm stock.
Qualcomm announced Dec. 4 it had signed a memorandum of understanding with China’s Ministry of Information Industry, supporting a 10-month-old framework agreement on CDMA equipment manufacturing between Qualcomm and China United Telecom Corp.
The ministry is the same government agency that previously seemed to block the entry of CDMA to China. China uses a competing standard, global standard for mobile communications (GSM).
Qualcomm shares, which had been closing in the $80 to $83 range between Nov. 28 and Dec. 1, closed at $90 after the announcement Dec. 4. They flirted with the $100 mark the following two days, then finally closed above it, at $104.44, on Dec. 7. The price had reached $107.81 during one part of Dec. 6.
The memorandum “also supports the deployment in China of a nationwide network based on CDMA technology with continued migration to CDMA technology supporting higher data rates,” said a Qualcomm press release, which also said China has more than 70 million mobile communication subscribers.
China United Telecom, also known as China Unicom, reiterated in mid-October that it planned to build a CDMA network serving up to 10 million people. That followed a May announcement it would not adopt CDMA.
Morningstar’s Bernier warned it is still early in the process of bringing CDMA to China, and that process could bring surprises.
While the memorandum is the government ministry’s “official blessing” of the deal between Qualcomm and China Unicom, Bernier said China Unicom has a choice about whether to go ahead.
The ministry seems to have changed its mind about CDMA, said Barry Naughton, a professor with UCSD’s Graduate School of International Relations and Pacific Studies, adding that is “not as surprising as it seems.”
The ministry contains a coalition of interests, including members of the former telecom monopoly and equipment manufacturers. The “national interest” influences the ministry to some extent, he said.
“Once, a while ago, they saw CDMA as a threat because it allowed their new, domestic competitors the possibility of leapfrogging their own GSM-based mobile networks,” Naughton said. “Now, they’re relaxing a little because they see that CDMA is part of the emerging global order, and because their own equipment manufacturers are beginning to get positioned to manufacture CDMA handsets.”
Bernier said China may be motivated by a desire to be in the World Trade Organization, which would make it willing to make concessions.
Though Bernier questions the value attached to Qualcomm stock, he nevertheless called the company “fantastic” and Irwin Jacobs “a heck of a lot brighter than me.”
With the move toward third-generation telecommunications technology and continued growth of CDMA, Salomon’s Robillard said his firm feels “positive” about Qualcomm.
He said the China announcement is part of the “positive news flow” from Qualcomm that includes growth in South Korea, the strength of its patent portfolio (including court victories) and the upcoming IPO of its semiconductor business.
Hong Kong already has a commercial CDMA system. Launched in 1995, it was the world’s first commercial system using the technology, according to a Qualcomm spokeswoman.
There are experimental CDMA systems elsewhere in China.
