Qualcomm Lower as China Backtracks on Phone Deal - TheStreet

Updated from 7:30 a.m. EST

Qualcomm's

(QCOM) - Get Report

long-awaited entry into the potentially lucrative Chinese market may fall victim to a political tete-a-tete between Beijing and Washington.

On Thursday, media reports said the Chinese government had inexplicably postponed the deployment of CDMA, or code division multiple access, mobile phone networks, which rely heavily on American technology, as a result of political disputes with the U.S.

Those reports followed comments by Qualcomm's Chairman and CEO Irwin Jacobs in which he said that political disagreements between the U.S. and China could undermine a deal his company signed to supply a leading Chinese telecommunications company with CDMA technology.

Qualcomm's shares were down 9 23/32, or 6.6%, at 137 5/32 in afternoon trading. Expectations of the riches Qualcomm would reap from the Chinese market contributed to the meteoric 2000% rise in the company's share price in 1999. Qualcomm shares closed down 7 3/16, or 4.9%, at 139 11/16.

"You can see this news reversing the course of the share price," said Wojtek Uzdelewicz, an analyst with SG Cowen Securities. "The news works both ways."

Qualcomm's spokeswoman, Christine Trimble, said the company still believed China was committed to deploying the CDMA network.

China now reportedly is using its commitment to CDMA as a bargaining chip after Congress warned that China may not be granted admission to the World Trade Organization following its threats to use force against Taiwan. China also is believed to be concerned about foreign involvement in its Internet and telecommunications sectors.

A spokesman for the Chinese embassy in Washington was not immediately available for comment.

China Unicom, China's second-largest phone company, signed an agreement last week with Qualcomm to use the San Diego-based company's patents for mobile technology in exchange for royalty payments. The deal could increase the number of people using cellular phones equipped with Qualcomm chips and software by 20% to 60 million by the end of 2000. China Unicom has said it plans to have the capacity for 10 million subscribers on the CDMA system this year.

Uzdelewicz said he was concerned about the unpredictability of China's political stance, adding that a decision to delay the rollout of CDMA would lead him to recalculate earnings projections for Qualcomm.

"Potentially, in terms of Qualcomm's earnings next year, we have China representing five to 10 percent of earnings," said Uzdelewicz, who rates Qualcomm a buy and has done no underwriting for it. "Right now, people are saying the risk that China might not employ CDMA did increase."

He added that over the next three months investors should take their cue regarding Qualcomm from political developments between U.S. and China.