Sprint Nextel Battles Qualcomm Over WiMAX

Rob Zenilman submits: In this week's Barron's, Bill Alpert's WiMAX War Heats Up discusses the impending showdown between Sprint Nextel (S) and Qualcomm (QCOM) over Sprint's WiMAX rollout. Sprint, a long-time licensee of Qualcomm's CDMA technology recently announced that it will spend $3 billion upgrading its network to WiMAX technology, thereby freeing itself from Qualcomm's patents. After the announcement, Qualcomm stock fell about 4% - now trading about 18x current FY estimates, significantly lower than the 30x multiple the stock used to command.
Comment: Sprint claims that aside from WiMAX costing one-tenth as much as Qualcomm's competing technology, WiMAX is also 4 times as fast. Qualcomm's counterclaim is that their patents cover WiMAX technology, so Sprint will still have to pay royalties. The stakes here are enormous. According to the WiMAX forum:

In a typical cell radius deployment of three to 10 kilometers, WiMAX Forum Certified™ systems can be expected to deliver capacity of up to 40 Mbps per channel, for fixed and portable access applications. This is enough bandwidth to simultaneously support hundreds of businesses with T-1 speed connectivity and thousands of residences with DSL speed connectivity.

Therefore, not only does WiMAX have the potential to shake up the wireless industry, it can become a big headache for local telcos who provide the "last mile" to homes and businesses.
Prior to Sprint's announcement, WiMAX systems providers Alvarion (ALVR) and Airspan (AIRN) rose about 30% and almost 40%, respectively. These companies are discussed in Investing in WIMAX: Lessons From The Telecom Fallout.
See: Q2 conference calls for Sprint Nextel and Qualcomm.

Comments

[Brent Jason]

Qualcomm really needs to stop pushing their royalties down every carrier and vendors throats. Qualcomm has a market in the US because of Sprint. They have been very loyal to CDMA. It is not like WiMax is going to replace the CDMA/EV-DO network.

So relax Qualcomm!! Ease up on the royalties before every company on earth hates you.