Qualcomm dives on Globalstar, Korea concerns

Qualcomm (Nasdaq: QCOM) plunged Thursday following comments from the company's CFO about the possible impact of a Globalstar (Nasdaq: GSTRF) failure and speculation about the company's business in South Korea. Analysts were mixed on whether a change in manufacturing in South Korea would impact the wireless communications company's business.

Shares in what was the best performer on the Standard & Poor's 500 Index last year, fell 11 1/16 to 62 7/16, or 11 percent, deepening their 60 percent drop off in 2000.

Qualcomm stumbled recently on news China Unicom would not use its CDMA technology.

Anthony Thornley, the company's CFO, reportedly said at the Bear Stearns technology conference in New York Wednesday that if Globalstar were to fail, it would cut fiscal 2001 earnings by a dime a share. Qualcomm is a vendor which provides handsets and user terminals to the cash-strapped company.

Thornley also said he was still evaluating South Korea's decision to tell service providers that subsidized wireless phone purchases must end, Bloomberg reported.

Following the speech, Bear Stearns analyst Wojtek Uzdelewicz chopped his 2001 EPS estimates on the company, which he continues to rate "attractive." Uzdelewicz cut his earnings estimate for Qualcomm by 3 cents or 4 cents a share from $1.08 for the year ending in September, and to $1.30 a share from $1.40 for fiscal 2001, Bloomberg reported. He cited concern about slowing sales in Qualcomm's biggest market, South Korea, where the government recently banned cell- phone discounts, as well as worries about sales in China and the company's Globalstar satellite-phone venture

Qualcomm makes chips based on the code division multiple access standard it developed, and collects royalties on sales of CDMA phones. More than 57 million people worldwide use CDMA phones, with about 26 million of those in South Korea. If the government cuts subsidies for phones, the expectation is that sales may slow, and Qualcomm's revenue may suffer as a result.

Mark Roberts of First Union Securities, who reiterated a "strong buy" rating on the stock Thursday, says that's not so. The government's plan to cut subsidies is part of a move to shift its exports into high gear, a move that could benefit Qualcomm.

Roberts said he was flabbergasted by other analysts' downgrades. He said he has spoken with Qualcomm management since Wednesday's Bear Stearns conference, who encouraged him to maintain his estimate for the upcoming July quarter, and said they are comfortable with estimates for the fourth quarter.

First Union's estimate is 3 cents above the consensus of 30 cents a share for the fourth quarter, as reported by First Call's poll of 19 analysts. First Call is expecting a profit of 27 cents a share for the third quarter, and $1.08 for the year.

"They're acting like this is an apocalyptic event," Roberts said of other analysts, questioning whether they had spoken with the Korean government, or manufacturers such as Samsung and Hyundai. Roberts said the purpose of the Korean government's elimination of handset subsidies was to slow down manufacturing in order to free up capacity for the manufacture of devices for export.

"The government is encouraging (the manufacturers) to ship more phones to South and North America," Roberts said. He has spoken with Samsung, Hyundai and LG International, all of which said they don't expect any substantial change.

As for Globalstar, Roberts said "We'd built that expectation into our model."

Chase H&Q also lowered its estimates for the company Wednesday-- setting a price target of $50 on the stock and saying "there is no positive news in site for Qualcomm"

Qualcomm's CFO Thornley also told investors at the Bear Stearns conference that Qualcomm is developing chips based on the wideband-CDMA standard, which will be available in the third quarter of 2001, according to a Bloomberg report..