Qualcomm ( QCOM) investors are busy dancing in the streets, but an emerging set of rival wireless technologies threatens to dampen the festivities.Having conquered nearly half the U.S. market and laid the groundwork for a repeat performance in China and India, Qualcomm has proven its many skeptics wrong. Its code division multiple access, or CDMA, wireless standard is sweeping the world in many forms, and it continues to win fans. Qualcomm's stock hit yet another two-year high Friday, rising $1.95 to close at $68.23. But instead of uncorking the champagne, industry observers are watching a new generation of technologies that could derail the Qualcomm locomotive. Competitors ranging from chip industry powerhouse Intel ( INTC) to closely held technology venture, Flarion, have been busy cooking up new systems that aim to deliver faster, cheaper mobile Net access. Industry analysts say these rival offerings, backed by deep-pocketed sponsors, could soon be eating away at Qualcomm's market dominance.
Flarion, which has investments from Lucent and Cisco ( CSCO) among others, was recently chosen by Nextel ( NXTL) on a trial basis to test its fast mobile Internet connections in Raleigh, N.C. Notably, networking gearmaker Nortel ( NT) is helping with the installation and management of the Flarion equipment for the trial. While it's obviously too early to pick any winners, the long-range concerns coupled with more immediate doubts have some Qualcomm bulls starting to fear the company may be peaking.
But industry observers point out that EV-DO has some faults. To handle data, EV-DO must rob the network of valuable voice capacity. And the service is expensive to boot. RHK's Shah estimates that EV-DO costs users between $1 and $3 for every megabit of information they receive or send. That compares with the 5 cents users are accustomed to paying with their in-home broadband connections. Flarion's solution, according to Nextel, would cost considerably less. Though Flarion is a closely held company, that hasn't stopped some Wall Street analysts from projecting the impact Flash-OFDM could have on equipment spending. Deutsche Bank analysts predict that of all the emerging fast mobile data technologies, Flarion's Flash addresses the largest market opportunity. By Deutsche Bank estimates, as much as $2.9 billion could be spent on Flash-OFDM gear over the next five years. That edges out Qualcomm's EV-DO, which could attract as much as $2.7 billion in spending. Deutsche Bank has done underwriting for Qualcomm, and has no banking ties to Flarion. So there's still ample reason for Qualcomm investors to celebrate -- but they may not have exclusive rights to the VIP room.