Last Wednesday (November 12), Qualcomm held a five-hour Investor Day conference in London to discuss its business outlook for the coming year and beyond. The audio Webcast and presentation slides are available at their website. Become a Complete Fool
This was a rather elaborate event, with presentations by all key management personnel, covering virtually all aspects of the company's business�which means that the presentations gave a rather complete view of the wireless telecommunications sector in general, and more important an assessment of the key trends and developments taking place in this sector. Those with an interest in this sector, independently of their position on Qualcomm, should still find this collection of presentation particularly interesting. I found the presentations by Drs. J senior and junior (Irwin and Paul) especially enlightening.
I was on travel that day, and was only able to quickly glance at key highlights of a few talks. I was mostly interested in the geographical basis for their handset guidance, which we had discussed on this board. But I found a very rich trough of goodies that I decided to go back too now that I have a few minutes to digest the vast array of information included in these presentations. Unlike the earnings release conference call the week before, which provided guidance only in aggregate annual totals, the London Investor Day presentations gave the rationale behind this guidance�the factors that determine the forecast handset adoption, by technology and by type, and by geographical area. I had thought that by the time I got back, there would have been several posts discussing these presentations and I would not have much left to do but recommend the posts. Apparently these have not yet been linked and dissected on this board, and I think some are worthy of attention and additional discussion.
My main initial interest from a business standpoint, namely the handset forecast, has already been discussed in a summary overview of the entire presentation day affair by my SI colleague Jim Mullens, as posted on the Investors Hub board.
My main point in this post is to discuss Dr. J's overview presentation.
Those who have followed this company and Dr. J's presentations in particular know that these usually reflect the vision and the thinking guiding the principal directions and strategic moves underway by the company; they are also often a snapshot of things to come. Regulars also know that these do not change very rapidly, and that his presentations often emphasize points that had been made previously in other presentations. But this particular presentation offers many interesting new angles, and a relatively large number of slides that I think are appearing for the first time. So I highly recommend it for an excellent easy to follow and visually rich summary of the company's growth drivers. It answered some important questions for me, and raised many more about where wireless data might be heading.
1. The main focus of Dr. J's remarks is 3G�namely that 3G is well established and growing (stats and trends on slide 7), that it will be driving growth in handsets and data use in the foreseeable future, and that while some of the anticipated wireless data services are beginning to see deployment and adoption, the potential is near limitless at this stage. To illustrate the case, slide 10 features a new wireless service in the medical arena, CardioNet, which provides mobile outpatient cardiac telemetry service, using wireless ECG device.
2. Those who read my earnings release discussion post may recall my concern about the extent to which EVDO figures in the company's growth picture. My conclusion after the earnings conference call was "only marginally, at least for 2004". However, Dr. J's presentation clearly shows that while this technology may not figure prominently in the numbers, it plays a central role in terms of highlighting the company's technological prowess and lead over all competitors in any CDMA arena. Of the existing commercial deployments, in Korea, US (Verizon in DC and San Diego; Monet in certain parts of the Midwest) and Brazil (Vesper), the Korean operators have led the way not just in the EVDO realm but also in terms of services possible with broadband wireless (slide 13). With 4 Million EVDO users in 2003 in Korea, it has become an important factor in the replacement equation, where it will continue to exert a positive effect on the Korean market. In addition to these, the biggest upcoming event is the KDDI launch, announced for November 28, with even more novel services, especially location-based services (see also slide 14). Other launches on this list are relatively minor (Ecuador, Indonesia, Israel, Taiwan, with ongoing trials at a couple of small US systems and Brazil-Vivo).
3. What might be some differentiators in favor of EVDO? These would be heavy bandwidth uses, namely Multimedia services. The new twist here is Instant Multimedia (IMM), with so-called push-to-see services, video telephony and multi-user sessions (i.e. video conferencing on your handset). Some nifty slides from the Korean experience are shown (slides 16-19).
4. Back to business�Qualcomm is strongly asserting its claims on EVDV (or Release D of the CDMA 1X 2000 standard), just as it has been doing with WCDMA (though neither were the company's first choice). We know Nokia has been staking its CDMA strategy on EVDV, with Sprint PCS as its major ace in the hole. Who owns more of that standard? Qualcomm shows its contributions to the "corrections" in that release at 66% (slide 20), dwarfing Nokia's 11%, which incidentally is equal to Samsung's. One would have to take this slide with a knowing smile... it takes more than contributions to the verbiage of an international standards body document to stake a lead; though we know that Sanjay's QCT shop is hard at work putting Release D in the next generation of chipsets.
5. And of course there is WCDMA�now firmly re-associated with the once-clever let's call it something different UMTS acronym. Given the location of the presentation, it is natural to save that for last. In fact, several of the other presentations deal with WCDMA in much greater detail, especially the geographical distribution of likely adoption and growth in the next few years. The chipset roadmap (slide 23) highlights the multimode capabilities of the coming releases, and stressed that QCT offerings for the GSM/WCDMA market essentially mirror those in the CDMA 1X arena. Much more on chips is given in Sanjay Jha's separate presentation.
6. One of the more interesting themes highlighted in Dr. J's presentation is the potential for CDMA in the 450MHz spectrum, vacated by analogue cellular service across much of Europe. What makes the 450 MHZ attractive is that geographic coverage of the signal increases with the lower frequency, resulting in the need for considerably fewer base stations and towers than under 1.8 or 2.1 GHz (slide 24). Hence the following approach, suggested by Qualcomm for large-scale provision of 3G service (slide 26). We know that WCDMA requires a lot of base stations to provide decent coverage for data and voice needs. In the large cities, the need for capacity might justify the investment, but what about the rest of the country, where existing spectrum may be underutilized? CDMA 450 (possibly over a GSM core network) might offer an interesting alternative to GSM operators who dread the capital cost of nationwide WCDMA coverage. Multiband, multimode chips would ensure that the user experience is near-seamless. The idea is not new, but its timing is particularly appropriate as many operators are struggling to figure out how to provide 3G service when the experience in places like Japan shows how dense the base stations would have to be to ensure national coverage. CDMA 450 is also one of the emerging market growth areas, with a range of new players from China supplying both infrastructure and handsets (slides 16 to 19 in Tony Thornley's presentation.)
8. The remaining few slides highlight successes with BREW, which now make for a compelling sell to otherwise skeptical operators. As shown in Paul Jacobs' presentation, Sprint and SKT remain the only two of the top 10 CDMA operators to not have adopted BREW; there is much more about BREW and the wireless data business in Paul's presentation, but perhaps someone else can discuss that one.
What's the take-away from these slides? That Qualcomm continues to lead in 3G, and Dr. J remains the most effective realistic visionary in the wireless telecom business. More tangibly, after much sputtering and false hopes, 3G wireless is increasingly becoming reality. The widespread deployment of 1X has already shown the powerful impact of feature-rich handsets on replacement, and existing EVDO and BREW launches are establishing the business case for the long hoped-for services. I will later revisit the handset guidance provided by Qualcomm in light of some of these developments; all evidence seems to be pointing towards another 10 to 15 Million more handsets in 2004 than projected in the guidance numbers.
If you're serious about the company and the sector, taking 5 or 10 minutes to go through Dr. J's presentation will be time well spent.
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Last Wednesday (November 12), Qualcomm held a five-hour Investor Day conference in London to discuss its business outlook for the coming year and beyond. The audio Webcast and presentation slides are available at their website.
Become a Complete Fool