A recent BloomBerg report hinted that Qualcomm Inc. (QCOM) is negotiating with U.S. telecom giant AT&T (T) to divest the spectrum of its failed mobile TV venture called the “FLO TV.” Last July, management had announced that the company is looking for a suitable buyer to sell its mobile TV venture.
Qualcomm has spent $683 million to acquire nationwide wireless spectrum in 6-MHz blocks within the 700-MHz frequency. Furthermore, the company also spends $800 million to build its mobile TV network.
Global wireless market, particularly the U.S. is witnessing an unprecedented growth in wireless data traffic due to continuous and sustained growth of smartphones. This makes wireless airwaves as the most sought after component to cope with growing customer demand.
AT&T is currently upgrading the coverage and capacity of its existing 3G networks and is also gearing up to start deploying 4G LTE networks in mid-2011. Several industry experts have estimated that Qualcomm’s FLO TV spectrum alone may be valued at more than $1 billion based on strong demand.
Qualcomm’s diversification into the mobile TV venture has turned out to be a real disaster. The main reason for this is that none of the popular smartphones supports FLO TV and therefore it does not get meaningful market traction.
Besides the lack of popular smartphone support, other stumbling blocks for the success of FLO TV were a dedicated pocket-sized TV for $249.99 including six months of service, a $15 monthly price tag, lack of WiFi support and nationwide network.
In the third quarter of fiscal 2010, operating loss from this segment was just $132 million, up 50% year-over-year. In last October, the company decided to stop selling direct-to-consumer FLO TV devices, which include palm-sized gadgets and displays for cars. Qualcomm will maintain its network so that its existing subscribers are able to see broadcast TV up to spring 2011.
Management also informed that in case of FLO TV closure, it will lay off some employees. The company will adequately compensate the employees or redeploy them in the organization. Qualcomm will also adequately compensate its existing customers and business partners. Qualcomm recently announced that it expects to incur $125 million – $175 million of charges in fiscal 2011 to exit the FLO TV business.
We maintain our long-term Neutral recommendation for Qualcomm. Currently it is a short-term Zacks #3 Rank (Hold) stock.
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