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Tuesday, September 11, 2007

Qualcomm loses again

Today it was announced on the Barron's web site that Qualcomm (QCOM) had lost Motorola (MOT) as a customer. Motorola has long included Qualcomm chips in their handset products. That relationship has ended. Freescale Semiconductor, a current Motorola supplier, will be picking up the slack short-term and Texas Instruments (TXN) will become the eventual long-term replacement.

We have written a number of previous posts on Qualcomm since the company became part of the TradeRadar model portfolio. Selection of QCOM was in large part based on long term expectations that its patent portfolio would allow it to prosper as telecom companies made an expected shift toward Qualcomm's technologies as they migrated to "3G" WCDMA standards. We made the point that to a certain extent we were "buying on bad news" as Qualcomm stock was down mostly due to its legal situation. Since then we have taken Qualcomm management to task for the ineffective handling of the lawsuits in which the company has been involved. Their stubborn and unyielding approach to the Broadcom (BRCM) mess has led to fines, ITC rulings preventing importation of handsets containing Qualcomm chips and various other indignities.

Now we have the news that one of the top five cell phone manufacturers in the world has opted to design Qualcomm chips out of their products. This appears to be based on a business decision, not a technical incompatibility problem.

This latest debacle is in addition to the ongoing dispute Qualcomm is having with Nokia (NOK), the world's largest player in cell phones, who feels Qualcomm's royalty charges are too high. The contract at issue here expired in April of this year and currently languishes in arbitration. Separately, the two companies are now suing each other over patent infringement.

Lately Qualcomm has shown a talent for alienating some of its largest customers and stomping on the toes of its rivals. How long can current Qualcomm management continue to stagger from one problem to another without taking accountability and either changing course or handing in a resignation?

Disclosure: QCOM is in our model portfolio; none of the other stocks mentioned are part of our holdings.

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