Irwin Jacobs

Qualcomm's stock is trading significantly higher than that of its peers these days, despite the fact that the company trimmed its financial forecasts for coming quarters due to slowing growth in the handset business.

That's because things look quite rosy worldwide for Qualcomm's chief moneymaker: CDMA technology. Just last month, China Unicom awarded several contracts to build a nationwide CDMA system throughout China. CDMA licensee Qualcomm and major CDMA infrastructure vendors had negotiated the technology's entrance in China for nearly five years. CDMA was often used as a trump card in U.S.-Sino relations.

“Any time you have a country with a billion people, the move to CDMA is very important worldwide,” says Irwin Jacobs, chairman and CEO of Qualcomm. “China was a very critical country for the near-term expansion of CDMA.”

Unicom's decision came just in time. Investors were getting tired of the ride, and analysts such as Tim Long with Credit Suisse First Boston suggested Qualcomm's short- and medium-term outlook was unclear because the emergence of new CDMA networks was stalled.

And nearly a year ago, Qualcomm was waging a huge public relations battle with the stock market. Wideband CDMA (WCDMA), a technology incompatible with current IS-95 CDMA technology, appeared to have huge momentum around the world. Many analysts questioned to what extent Qualcomm — which claimed to hold equal patents to both IS-95-based technology and WCDMA — could collect royalties from the technology. Qualcomm, which has shed its infrastructure and handset businesses, makes most of its money from CDMA chips and royalties.

But WCDMA isn't in the limelight anymore. Heavy licensing fees, expensive equipment and technical glitches surrounding the brand-new technology have hurt many European operators' deployment plans. This has given rival IS-95-based cdma2000 1XRTT technology a leg up. Companies such as Sprint PCS and Korea Telecom Freetel are now working to capitalize, publicizing the fact that they will have commercial third-generation systems by the end of the year.

“Although I fully support any deployment of any CDMA, everything we look at says 1X has tremendous advantages in time to market and spectral efficiency,” Jacobs says. “Verizon and Sprint are working hard, and they will end up with a significant competitive advantage.”

He also believes Qualcomm will see a significant upturn by the fourth quarter. “1X products will be shipping, and that should be generating excitement that will cause handset sales to increase,” Jacobs says.