LONDON -- There's little doubt that the shift toward third-generation mobile phones means money in


(QCOM) - Get Report

coffers. Just how much money and how quickly it will start flowing are issues that likely will occupy the minds of investors.

To date, investors have been focused on the former question, but it's the latter issue that poses the greatest risk, notes Wojtek Uzdelewicz, an analyst with

Bear Stearns

, who rates Qualcomm attractive. (His firm hasn't provided underwriting services for the company.)

Already this year the stock is off 46% from its December high of 200. But on Tuesday, the shares closed in New York at 108 11/16, up 4 3/8, or 4.19%. Still, the slide from December came even as Qualcomm is poised to enjoy surging demand for its technology, which will be adopted by most carriers as they switch from their current spectrums to the richer 3-G networks. That move will offer a whole range of new services.

To San Diego-based Qualcomm, Europe perhaps holds great opportunity. The company currently does zero business on the Continent, instead deriving 60% of its $3.9 billion in revenue for the most recent fiscal year from the Americas, with the balance coming from Asia. Until now, Qualcomm has been locked out of Europe because its patented CDMA (code division multiple access) digital technology, which transmits voice and data over mobile-phone networks, was developed after Europe had adopted a different standard known as GSM (general standards for mobile).

Over the next two years that will change, thanks to a decision by major wireless operators that establishes Qualcomm's CDMA technology as the standard for third-generation phones. Whether mobile operators in Europe choose the wideband CDMA, or Qualcomm's CDMA2000 version, they will have to pay Qualcomm a royalty.

Just how big a royalty has been the cause of some concern for Qualcomm shareholders. It was the most frequently asked question of Tony Thornly, Qualcomm's chief financial officer, during a

Banc of America Securities

conference in London last week.

The answer: Qualcomm's take will almost certainly be lower on these next versions of CDMA than they are currently.

Qualcomm's business falls into two categories. About 65% of its earnings comes from royalties it collects from mobile-phone makers like



, which license its CDMA technology. That works out to about $10 for each CDMA phone.

Thornly told

that Qualcomm's patents would allow it to maintain that royalty rate in the age of 3-G. But Mark McKechnie, an analyst with Banc of America Securities, isn't so sure.

"Motorola and



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have done a lot of work

on this patent issue," he says. That means Qualcomm's royalty fee could be half its current level. McKechnie rates Qualcomm a buy and his firm hasn't performed underwriting services for the company.

The rest of Qualcomm's earnings come from the actual sale of chip sets, which the company manufactures. Here, too, there's a catch: Qualcomm itself will have to pay mobile-phone operators a fee to ensure that the chips it manufactures will have roaming capabilities to GSM networks, because not all carriers will upgrade to w-CDMA at once.

"That would result in either higher costs to our customers, or reduced margins," Thornly admits.

Uzdelewicz, the Bear Stearns analyst, says that while important, those risks are only a small part of the story. "The real risk is what happens should the switch to w-CDMA be slower than expected," he says.

Already anecdotal evidence suggests that some carriers may be slower to invest in the new technology than originally expected. Uzdelewicz says

BT Cellnet

, the mobile arm of

British Telecom


, recently awarded

Nortel Networks


a large contract for GSM equipment.

"You need to depreciate some of those costs before you migrate to a new technology," Uzdelewicz says. All of which leads him to believe that "Europe appears to be moving more slowly toward w-CDMA than people expected."

Although a BT spokeswoman declined to confirm the Nortel contract, Mike Short, director of network strategy for the telco, says: "There are a number of factors that

affect the pace of the migration from 2G to 3G." These include market demand, equipment availability and regulatory issues.

"We need to make sure that all the pieces are in place before we launch a service," he adds. "We still need to see better visibility" on these issues.

While it's unclear whether other operators will follow BT's decision to invest more in its current infrastructure before deploying w-CDMA, what is certain is that new technology rarely rolls out seamlessly.

"With the launch of WAP, we were ready to go, but we had technical problems with the WAP handsets and had to hold back before we could start selling to our customers," says a

Vodafone Airtouch

(VOD) - Get Report

spokeswoman, referring to the wireless application protocol that allows mobile-phone users to access the Internet. Vodafone is currently testing GPRS (general packet radio service), which will serve as a go-between for GSM and w-CDMA, with plans to deploy the latter in 2002.

Should that transition hit a few speed bumps, so, too, would the growth in Qualcomm's earnings.