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Qualcomm loses $11.7 bn market cap

July 03, 2006 16:41 IST
Shares of CDMA technology pioneer Qualcomm have come under tremendous pressure over the past one month, losing a market cap of $11.7 billion on the back of Reliance Communication, one of its major customers, mulling the option of switching to GSM technology due to royalty payments.

Reliance is South Asia's largest CDMA player and pays a hefty royalty to Qualcomm for using the technology for providing telecom services across the country.

Qualcomm team led by its CEO Pal Jacob was in India last week and held discussions with Anil Ambani over the contentious issue of royalty. According to sources, Qualcomm declined to negotiate on royalty but offered volume discounts on handsets.

Qualcomm, listed on Nasdaq, share prices dropped nearly 15 per cent in the month of June on the back of various negative reports including Reliance Communication.

Qualcomm scrip was quoting at $47.05 on June 1 and was down by 14.8 per cent on June 30 at $40.07.  The CDMA operators are also facing tough times vis-à-vis their counterparts using GSM technology for allocation of frequency as they have been getting nearly half the spectrum compared to GSM operators.

Royalty and spectrum issues have been forcing the operators to rethink over the usage of technology for their telecom operations.

Although, Qualcomm is understood to have said that they would discuss the matter with equipment manufacturers in order to look at reducing handset prices based on large volumes, Reliance is bent upon lowering the royalty payment.

Reliance Communications had recently approached the government, seeking spectrum to start GSM-based mobile services in Delhi and Mumbai and later to enter in other parts of the country. The company presently operates GSM services in eastern states.

According to a recent report from Global Mobile Service Association, as many as 25 CDMA operators worldwide, including Reliance, are contemplating to switch over to the GSM family.

With a drop of nearly 15 per cent in its share price, Qualcomm has considerably underperformed in the broader market indices such as Dow Jones Industrial Average and Nasdaq Composite Index.

While DJIA lost less than 1 per cent between June 1-30, Nasdaq index shed nearly 5 per cent during the same period.

Qualcomm's market capitalisation dropped to nearly $67.2 billion as on June 30, from nearly $78.9 billion at the beginning of the month.

Besides the Reliance issue, there have been a host of negative news for Qualcomm in the recent past - such as reports of Nokia seeking to abandon its CDMA joint venture with Sanyo and withdraw from CDMA handset production, Brazil's major CDMA operator Vivo sounding out vendors regarding the GSM deployment.

Incidentally, Qualcomm's stock was present in the top-pick portfolio of a number of market research analysts with a positive rating before the spate of negative news reports started flowing in for the company, that has dragged its share price to even below its 2005-end level.

The stock had closed at $43.08 on the last trading session of 2005 on Nasdaq.

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