The following is a reprint of my January 16, 2007 RealMoney column

In a volatile market, investors tend to gravitate toward companies and investments that provide stability. As crazy as this may sound, I think that stability can be found in a semiconductor company – namely, Taiwan Semiconductor (TSM). I think the table below shows just how stable.

Taiwan Semiconductor Cash Flow Generation ($U.S. Billions)

Sources: Taiwan Semiconductor, Yahoo! Finance, William A. Trent estimates

Taiwan Semi operates in an unsexy part of the semiconductor industry known as “foundries.” It sounds as exciting as a blacksmith shop, and that isn’t far from the truth. Foundries don’t design any of the products they manufacture. Instead, they make the chips that other companies design. Their expertise isn’t in technology so much as process and efficiency.

Because they don’t design the chips themselves, Taiwan Semiconductor and other foundries such as United Microelectronics (UMC) typically get lower gross margins. The design profits fall to their customers. TSM’s expertise in manufacturing and economies, however, are much needed by customers who are often too small to absorb the enormous costs of building a chip fabrication plant.

Such customers include many fabless semiconductor companies and systems companies such as Altera (ALTR), Broadcom (BRCM - Annual Report), Marvell (MRVL - Annual Report), nVidia (NVDA), Qualcomm (QCOM) and VIA Technology, as well as integrated device manufacturing companies such as Advanced Micro Devices (AMD - Annual Report), Analog Devices (ADI), Freescale, and Philips (PHG).

Many small customers have given the company a balanced sales base. By end market, 40-45% of sales are communications-related, about 30% are to the computer market, 15-20% go to consumer electronics and the rest serve the memory and industrial markets. In 2006, the largest customer represented 10% of company sales, and the top ten amounted to just over half of sales. The lack of concentrated exposure to any customer or end market is one of the reasons TSM can generate stable cash flows.

The largest customer related risk factor may be that three quarters of sales are to customers in North America, and thus may impact the company if there is a U.S. recession. However, the global end markets for technology suggest that the true end customer is more widely dispersed geographically.

As the cash flow table shows, it seems fairly safe to say TSM will generate about $2.5 billion in cash flow. In some years, such as 2006, the cash flow may be unusually high. But even the industry downturns in 2004 and 2007 did relatively little harm. Given that the current enterprise value for Taiwan Semi is about $42 billion, it is offering a free cash flow yield of just under 6%.

If I had $42 billion that I wanted to invest safely, I might choose between buying TSM outright or investing it all in 5-year U.S. Treasuries. The Treasuries are currently yielding about 3.0%, so I would get $1.25 billion in interest each year from my investment. If that were my choice, I think I would go with the $2.5 billion in cash flow offered by Taiwan Semi.

It’s true that as a small investor owning a portion of TSM I would not be able to access all of the free cash flow. There is some risk to the comparison, since I am hoping the company invests any cash they hold onto wisely. But the company does pay two thirds of the cash flow as a dividend. Unless things change, that is still a 4.0% yield taxed at 15% compared to a 3.0% yield taxed at my marginal income tax rate.

How Bad Can it Get?

As stable as it may appear, I also have to acknowledge that TSM’s cash flow is not guaranteed. However, I think 2007 probably marked a fundamental bottom for the semiconductor industry – or at any rate that things won’t get much worse.

Consider, for example, the pricing environment. The Bureau of Labor Statistics reported that semiconductor prices declined 16.9% in December compared to the year earlier. That number was a modest improvement over November’s decline, which was the worst on record. Even the depths of the Internet bust were better times for semiconductor pricing. The fact that the pricing environment is so extraordinarily bad suggests to me that it probably won’t get too much worse.

Year/Year Change in Semiconductor Prices (PPI Data)

Source: Bureau of Labor Statistics

Furthermore, as I have written in other columns, I think the turnaround in semiconductor fundamentals is within sight. Pricing is a function of supply and demand, and since March of 2007 demand (semiconductor revenues as reported by the Semiconductor Industry Association) has been growing at a faster rate than supply (bookings for new semiconductor equipment as reported by Semiconductor Equipment and Materials International).

I think the industry’s recent restraint in adding new capacity will soon become evident in stronger pricing even if there is an economic slowdown. If I am right, what already looks like a solid and stable cash flow level could soon look even better.

Disclosure: William Trent has a long position in SMH.

It is hard to write about Qualcomm (QCOM) without some mention of the enemies it has made over the years. The company’s success, as well as the ire of its competitors, has stemmed from its strong patent portfolio - from which it has extracted hefty (some say unfair) royalties.

With the stock down about 20% on the heels of the current dispute, I thought it a timely time to wrap up what some of the interested parties have been saying. I’ll start with Nokia (NOK).

Rick Simonson

And Tim, in terms of the impact on royalties in the quarter, when you look at our WCDMA royalty provisions, it had some positive impact on the gross margin, but there are far many more important drivers for the sequential gross margin improvement in Q2.

The success of the total product portfolio and particularly driven by having very desirable hit products in every part of the range, high end, low end, midrange, a little bit of the slightly moderated price competition that Olli-Pekka just mentioned would be the second thing that I would call out. Our favorable product mix with M and ES growing faster than MP, thirdly. And fourth, the overall good cost management.

In other words, the benefit that we got in the COGS. Those four things far swamp the very small incremental benefit from the gross margin related to our total WCDMA royalty provisions. In other words, we would be writing the exact same story of this quarter without even that small incremental benefit.

Tim Long - Banc of America Securities

So we can assume that provision is lower than what was actually was being paid previous percentage rate but it’s lower than what was being paid previously?

Rick Simonson

Well, again as we talked before, we necessarily have to be somewhere in between there because we feel strongly in our position that the rates under the old agreement with the one party, QUALCOMM are not correct and we wouldn’t be spending the time on this debate if in fact we felt that we were accruing at the same rate. But it is, to repeat as we said before, somewhere in between those two.

(Excerpt from full NOK conference call transcript)

Next up is Broadcom (BRCM - Annual Report).

Finally, as we stated numerous times in the past, we stand ready to negotiate with QUALCOMM or any other market participant to seek a commercial solution as we’ve done today with Verizon.

With respect to Broadcom’s current litigation proceeding against QUALCOMM things are going very well. Our goals remain simple and two-fold. One is to gain proper recognition of the value of our IP, and the second is to achieve a level of competitive playing field.

At this time QUALCOMM has been found to infringe four of our patents, three of them willfully in two different forms. We also have additional patents that have not yet been addressed to trial. Please note that QUALCOMM has either lost or dropped all claims against Broadcom. There has not been any movement in our discussions with QUALCOMM, as it appears that they have bet their future and end customers’ upcoming product launches on their political lobbying skills.

(Excerpt from full BRCM conference call transcript)

The patent issues also affect Qualcomm’s customers such as Sprint Nextel (S - Annual Report).

We continue to explore our options to ensure our customers have the latest handsets. We continue to import handsets with the technology solution designed by Qualcomm. Qualcomm believes this workaround does not fall within the ITC order. We’ve been testing the solution for several months and there are no impacts on the customer experience.

We are also considering a number of other alternative resolutions to this dispute, including encouraging the two parties to reach resolution.

(Excerpt from full S conference call transcript)

As noted above, Verizon (VZ - Annual Report) also uses the technology but has come to a commercial deal with Broadcom. So what does Qualcomm have to say about all this?

Obviously, we are disappointed with the rulings on behalf of Broadcom both in the Santa Ana case and in front of the ITC. We continue to believe that the rulings are wrong and are pursuing all avenues to reverse and to mitigate the effects of these rulings, including working with our partners who may obtain a license from Broadcom. We’ve been unable to come to agreement ourselves with Broadcom because they’ve insisted that a comprehensive settlement includes the ability for it’s customers to obtain royalty free rights through significant portions of our patent portfolio which would have a material impact on our licensing business. This business is funded on R&D and innovations that we have transferred to are approximately 140 licensees. We remain committed to defend our business model and the benefits they provide to wireless industry. Unfortunately given the threat of injunctions against certain of our products, the next few months represent a crucial litigation time-frame and we can’t predict the outcomes at this time….
With respect to the Nokia arbitration, we have now arrived at a process for selecting arbitrators and that process is underway and we expect to have the arbitration panel in place in fairly short order. And then once the panel is in place we think that the procedure will start moving forward, subsequently the panel will set a schedule and of course we will be pushing for a pretty aggressive schedule. I suspect Nokia will be pushing for ‘08 schedule and we won’t know what kind of schedule we get obviously until the arbitrators order, but that would be the next step.

(Excerpt from full QCOM conference call transcript)

Supposedly it was Sun Tzu who counseled “keep your friends close and your enemies closer.” Qualcomm currently seems fairly far from both.

We took a different approach with our preview of Qualcomm’s (QCOM) earnings report this week. Rather than guessing whether the company would beat earnings estimates, we forecast what they would discuss on the conference call: “Nokia Nokia Blah Blah Nokia ad nauseam (excerpt from pending conference call transcript).” For those of you who are just joining the show, Nokia and Qualcomm have been conducting bitter negotiations over how much Nokia will have to pay Qualcomm for the right to use Qualcomm’s CDMA patents.

Now that the deed is done, it is time for us to check our forecast for accuracy. So here are some excerps from the actual call, along with a few from Nokia’s (NOK) on the subject at hand.

Regarding Nokia, there is really nothing new to discuss. As you know, we commenced arbitration a few weeks ago to resolve certain issues under our existing agreement. Our patent infringement cases against Nokia’s GSM product outside the United States and our new cases against Nokia’s GSM products in the United States are under way.

(Excerpt from full QCOM conference call transcript)

The latest update on the matter from Nokia was somewhat bare-knuckled:

Rick Simonson

Thanks, Olli-Pekka. First, I want to cover a few key points around the recent IPR activity, try to cut through what seemed like a lot of noise and discuss what is relevant and important for Nokia. As you know, April 9th passed without any new agreement between Nokia and Qualcomm. However, we continue to be in cross-license negotiations and are working to reach a mutually acceptable agreement as soon as possible. After April 9th, Qualcomm’s early patents are now fully paid up, royalty-free to Nokia. Any future royalty arrangement with Qualcomm needs to address Qualcomm’s latter patents only. This agreement should reflect that we believe that to Qualcomm’s relative contribution to the development of technology used in mobile devices, especially W CDMA, is significantly lower than in 1992.

Reflecting these changes that occurred over the partial expiration of the old agreement, and other compelling reasons, we made a $20 million payment to Qualcomm, which we believe is fair and reasonable compensation for the use of Qualcomm’s patents in UMTS handsets during this quarter. We intend to make similar payments in the future and we will announce these payments when they are made.

Since Qualcomm has indicated they will not accept our payouts, we have deposited them in an escrow account for Qualcomm’s benefit. We also have said that Nokia has paid less than 3% cumulative license fees for all patents under all its patent license agreements. This number is a gross number, and it excludes infrastructure royalties and all royalty income collected by Nokia.

The point of this disclosure is that we want to highlight that there’s no such thing as a Qualcomm standard agreement or a so-called standard rate. The actual payment — i.e., what you pay — is subject to a lot of different commercial terms and conditions from Qualcomm. We then later stated that we believed Qualcomm is currently using over 100 of Nokia’s GSM, WCDMA, and CDMA 2000 central patens in its chipsets. We have yet to agree with Qualcomm on the compensation due to us for these patents, but this is a very important and critical component to our ongoing negotiations.

So what’s our end game with all of this? Nokia, over the last 15 years, has invested close to EUR 30 billion in R&D, and we have over 11,000 patent families. We want to be fairly compensated for our leading R&D investment and IPR and portfolio, both by paying what is fair and reasonable — nothing more — and also by ensuring that we are properly compensated by those who are using our technology.

(Excerpt from full NOK conference call transcript)

That begged a question, which Tim Long didn’t hesitate to ask Qualcomm:

Tim Long - Banc of America

Thank you. Just a question related to some of the legal matters here. Just from a higher level, you have the arbitration with Ericsson and Sony Ericsson where you were successful. We have seen press releases from you and Nokia with different understandings of the royalty rate. Could you talk to us a little bit about how it’s possible that there are two different perceptions of that royalty rate? And then related to that, do you think there is anything to learn from the, is it a similar type of dynamic that happened or may have happened in the Sony Ericsson case that you think positions you better for a positive outcome and potentially some back payment from Nokia? Thank you.

Lou Lupin

Tim, its Lou Lupin. With respect to the different statements regarding the royalty rates, we can only tell you about that from QUALCOMM’s perspective, and as we said publicly, the rate is not as Nokia has portrayed it. There is a rate that’s forced in the agreement. There is the way of calculating it. And as far as we understand, Nokia has been paying us in accordance with the agreement and in accordance with the rate that’s set forth there, and that’s not consistent with their public statement. So, I don’t want to speculate on how they get to their number.

(Excerpt from full QCOM conference call transcript)

As we predicted, there was quite a bit more said about the topic. They key points are:

• Qualcomm and Nokia have entered binding arbitration to resolve the issue.
• Under the current terms Qualcomm is owed about a nickel per share per quarter that the arbitration goes on.
• Nokia thinks the new terms will allow it to pay much less than that.

Both companies appear to be having success on their own merits. We’ll know the impact of the arbitration after it’s done, and in the meantime all the hot air the analysts and company management teams expell on their conference call won’t make a bit of difference.

The Economic Calendar is relatively light this week. Potential market movers include:

• Wednesday’s Durable Goods report (consensus 2.2%)
• Friday’s advance report on Q1 GDP (consensus 1.8%)

Earnings are another story. We are in the peak part of earnings season this week. A few of the stocks we follow:

Monday

• Altera (ALTR) - valuation is rich but looks set up to beat on earnings.
• Texas Instruments (TXN - Annual Report) - March and June quarters have both had significant downward revisions. Will day of reckoning be forestalled?

Tuesday

• AU Optronics (AUO) - Forecasting losses, but panel business may have bottomed out.
• CDW Corporation (CDWC) - 14.6% sales growth doable given Berbee acquisition.
• CH Robinson (CHRW - Annual Report) - Could beat.
• CSG Systems (CSGS) - earnings should be a piece of cake. If private equity buyers don’t take them out they’ll do it themselves the slow way.
• Lexmark (LXK) - Estimates are doable but we’re always waiting for this company to trip up.
• ST Microelectronics (STM) - Doing the right thing. Hopefully will pay off.
• AT&T (T - Annual Report) - Estimates and stock both keep rising.

Wednesday

• Apple (AAPL) - Hunch: company will blow away earnings, issue horrible guidance and blame it on iPhone build.
• Arkansas Best (ABFS) - We’re staying away from truckers who own trucks.
• Corning (GLW - Annual Report) - current quarter ok, guidance at risk.
• LSI Logic (LSI) - May blame their poor guidance on Agere.
• Maxim (MXIM) - Company is out of gas but focus will be on whether they might sell out.
• Qualcomm (QCOM) - Nokia Nokia Blah Blah Nokia ad nauseam (excerpt from pending conference call transcript)
• Silicon Laboratories SLAB - Sold wireless just when biggest customer began to recover. What other surprises may be in store?
• UPS (UPS) - They shouldn’t have trouble beating the estimates (but that doesn’t mean they won’t).
• Xilinx (XLNX) - Altera with more risk to the earnings target.

Thursday

• Curtiss Wright (CW - Annual Report) - PPI data suggests they should beat big, but it suggested the same last quarter.
• KLA Tencor (KLAC) - Another place we’d rather not be right now.
• Microsoft (MSFT - Annual Report) - Vista is still not living up to expectations.
• MEMC Electronics (WFR) - Earnings surprises have been getting bigger each quarter. Now that we’ve put a semiconductor name on our Large Cap Watch List (Track at Marketocracy) it will probably stop just to spite us.
• YRC Worldwide (YRCW) - See Arkansas Best.
• Sandisk (SNDK - Annual Report) - Will take more than one quarter to clear the channel inventory.

Friday

• Dassault Systemes (DASTY) - We like Ansys (ANSS) better but don’t see why this name wouldn’t beat.
• Ceradyne (CRDN)  - Earnings could be anywhere and don’t really matter.

Enjoy!

Disclosure: William Trent has a long position in SMH.

We have been saying for quite some time that the mobile phone market had peaked for the current cycle, and have been bearish on several of the associated stocks. For example, we recently said:

With potential buyers scheming months in advance on how to get hold of an iPhone, it’s a safe bet they won’t be buying a BlackBerry (RIMM), Treo (PALM), Nokia (NOK), Motorola (MOT - Annual Report), or whatever. And yes, we know there will be some people who prefer the traditional models and continue to buy them. But many of them will also wait to check out the iPhone, just in case.

We have also been surprised by the upbeat nature of some of the mobile phone suppliers such as Texas Instruments (TXN - Annual Report), who we believe are cruisin for further bruisin.

This is something of a confirmation of what we saw in the employment report last week. Things are slowing down, despite the arguments that the housing malaise wouldn’t spread. As we noted earlier today we were surprised Texas Instruments was able to tighten their guidance rather than lower it outright. A new cel phone probably isn’t a necessity for most consumers, and is an easy way to avoid some spending. What will the market reaction be if they do miss?

And, regarding optimism from National Semiconductor (NSM), we said:

So he has been fairly consistent in his categorization, which moved over time from “current” to “behind us.” But we’re still afraid that “everyone he talks to” is probably a narrow group of industry optimists. We see inventory continuing to be a problem, particularly given the slowing consumer’s likely impact on the mobile telephone market.

Judging from the revision to Motorola’s earnings forecast, it certainly doesn’t look as though the correction is “behind us.” In fact, for suppliers it seems likely to continue well into the future, given Motorola would seem likely to cut its orders back to a level more appropriate to meet end demand. Let’s take a look at some of the highlights from Motorola’s announcement:

The first quarter revision was prompted by lower than anticipated sales and operating earnings at the company’s Mobile Devices business….

“Performance in our Mobile Devices business continues to be unacceptable, and we are committed to restoring its profitability,” said Edward J. Zander, Chairman and Chief Executive Officer of Motorola. “After a further review following the leadership change in our Mobile Devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort.”

Restoring its profitability? Last year the RAZR was the hottest thing since sliced bread. It’s not like they have been in need of a major turnaround. They just made too damn many phones.

Motorola now expects sales for the first quarter of 2007 to be in the range of $9.2 to $9.3 billion. First quarter GAAP results are expected to be a loss in the range of $0.07 to $0.09 per share, including charges of approximately $0.09 from the items highlighted below.

So even without restructuring charges, the company only expects to break even. Analysts were expecting $0.17 on $10.5 billion. They are falling short by more than a billion dollars on the top line and $0.17 on the bottom line. This isn’t an earnings miss, it is an unmitigated disaster brought on in part by their failure to recognize the oversupply issue earlier. How do we know?

In emerging markets, particularly India, Africa and South Asia, competitors lowered prices at a faster rate than anticipated.

Prices fall “faster than anticipated” when supply exceeds demand. It’s Economics 101. It gets even better:

For the full year 2007, Motorola currently expects overall sales, profitability and operating cash flow to be substantially below prior guidance. The company expects to be profitable for the full year and also to generate positive operating cash flow. The company expects the Mobile Devices business to incur an operating loss in the first quarter, and to experience a gradual recovery in the second half and be profitable for the full year.

Analysts were expecting $1.05 in EPS. So Motorola’s guidance for all of 2007 is that $1.05 > Earnings > Zero. Boy, that’s helpful. But don’t worry. Motorola has a plan:

Motorola is committed to improving the financial performance of the Mobile Devices business by pursuing market segments and product tiers that demonstrate the best opportunity for high gross margins and meaningful profitability. In this regard, the company is focused on steps to reduce cost and improve consumer experiences, including:

• Deploying open standards Linux/Java™ software across mid- and high-tier devices to enhance the experiences available on handsets
• Accelerating a more cost-competitive silicon strategy
• Shifting the marketing approach to include experience as well as design as a product value proposition
• Introducing new feature-rich products that deliver compelling mobile experiences
• Simplifying platform and product portfolio while transitioning out of legacy platforms
• Improving product design processes to achieve competitive price points

Unfortunately, “stop making so damn many phones” does not appear to be part of the plan. Until Motorola and its competitors adopt that last, crucial step this won’t be the last acerbic article we write on the issue.

Disclosure: Author owns put options on Research in Motion (RIMM).

TI sees 2007 global cellphone unit sales up 20 pct | Technology | Technology | Reuters.co.uk

Global sales of mobile phones are expected to grow to between 1.1 billion and 1.2 billion units in 2007, up as much as 20 percent from about 1 billion units sold last year, a Texas Instruments (TXN.N: Quote, Profile , Research) official said on Friday. “We are optimistic on the growth momentum of low-price mobile phones,” Terry Cheng, the president of Texas Instruments Inc. (TI) Asia, told Reuters on the sidelines of a seminar in Taipei. TI is the world’s biggest cellphone chip maker.”The company has shipped large amounts of chips for low-price mobile phones since November and December last year, which will help boost our business significantly this year,” he said.

Um… shipments in November and December boosted last year’s business. You aren’t allowed to count them twice. And as to market growth, they seem way too high.

In October Merrill Lynch forecast about 950 million units for 2006 and less than 10% growth in 2007. That takes you to maybe 1.05 billion. That was also in line with an industry forecaster’s predictions.

At least we’ll give credit to TI for going out on a limb.

Last month, astute observers (defined as those with a pulse) could notice that there were an awful lot of companies in the wireless food chain announcing disappointing results. Last week Motorola joined the club, and yesterday we got news from the third-largest US wireless carrier. Sprint to Cut 5,000 Jobs; Stock Plunges: Financial News - Yahoo! Finance

Sprint Nextel Corp. reported Monday that its cell phone business suffered a net loss of 300,000 monthly subscribers in the fourth quarter and that the struggling wireless company will cut 5,000 jobs.The company’s stock plunged more than 8 percent after the financial update, which included a 2007 outlook shy of many Wall Street forecasts.

Last month we suggested that several high-multiple names might be worth avoiding. None of those stocks has since blown up, but that doesn’t mean they aren’t standing in a mine field.

The headline for the durable goods report was not very bright this morning - Durable goods orders slid 8.3 percent in Oct - Yahoo! News

New orders for U.S.-made durable goods tumbled much more than anticipated in October on a big drop in civilian aircraft but were also down unexpectedly when transportation was stripped from the total, a government report suggesting economic weakness showed on Tuesday.
Durables goods — big-ticket items expected to last three years or longer — fell 8.3 percent, the biggest drop since July 2000. The decline was propelled by a 21.7 percent fall in transportation orders, the
Commerce Department said.

But even excluding transportation orders, durables declined 1.7 percent as manufacturing, fabricated metal, and computers and electronics orders all slid.

As is our custom, however, we like to dig a little deeper into the data to determine whether there are any bright spots. Instead, what we saw for the most part was rising inventories and falling orders and shipments. All charts below are based on information provided by the U.S. Census Department and collected by Stock Market Beat.

Although last month we said it looked like it was time to play defense, even that sector is giving back much of its strength.

Also consider computers and related products. Both shipments adn orders are falling through the floor. The potential bullish case is that customers are holding off on equipment upgrades in anticipation of Microsoft (MSFT) Windows Vista. However, given the strong recent performance at Dell and Hewlett Packard (HPQ - Annual Report) this bullish case may be priced in already. That could leave investors holding a heavy bag if the Vista orders don’t come in as expected.

Communications equipment, which had formerly been bucking the trend in technology, has also seen a sharp reduction in order growth.

Semiconductors may be the bright spot, but at this point it seems too early to tell given that the one strong data point is balancing several weak ones. At the least, the strength could support the argument that slowing computer sales and orders are Vista related, and that the semiconductors will be needed to build computers in a few months.

Electrical equipment and appliances also look strong, which is probably due at least in part to strong holiday sales of flat-panel televisions.

There seem to be few places to hide.

Merrill Lynch boosted their forecasts for handset sales in 2006 and 2007.  The increases are a bit out of synch with recent disappointing reports from the handset channel. Cellular-news.com reports:

Merrill Lynch has upgraded their forecasts for handset sales next year to 1,067 million, in a research note from their analysts. Their 2006 handset estimate has also increased from 918 million to 970 million. In their view, 2006 could be the peak year for global and emerging market net adds at 440 million and 387 million.

They expect the annual growth rate of handset unit shipments to slow from 20-30% seen in 2003-06 to 10% or less in 2007-10, mainly driven by a slowdown in emerging markets subscriber growth from 28% YoY in 2006 to 18% YoY in 2007. However replacement handsets in emerging markets will grow at 66% in 2007 and provide the impetus for industry unit growth.

WCDMA handset market should accelerate, driven by HSDPA adoption, to 67% YoY to 168 million, up from 10% to 15% of the market in 2007.

The Cellular-news article has a decent chart showing the specific forecast changes, for those tracking such things.

After last week’s big WiMax confab there was plenty of talk about how industry leaders would deal with Qualcomm (QCOM) and what types of patents were necessary for what types of products and services. The Yankee Group thinks they ought to get on with it, according to Tekrati Research News:

Yankee Group predicts that standardized mobile WiMAX will not become a reality until early 2008. The analysts find that hype around WiMAX technology creates uncertainties and increased frustration among potential adopters. “While the WiMAX standards process has led to much frustration in the industry, the standard is essential to the market success for the technology,” said Tara Howard, a Yankee Group analyst who tracks broadband access technologies.Howard said standards are critical for ensuring vendor interoperability and certifying devices. It is also important to educate service providers and potential customers on the actual timeline for standardized products to help avoid a burnout.

Are standards critical? Perhaps. But that doesn’t necessarily mean standards established by a bureaucratic industry group filled with companies with competing objectives and varying degrees of leverage over the process, as Qualcomm well knows. The GSM standard adopted throughout the world was simply not as effective as Qualcomm’s CDMA technology and in a mirror image of the BetaMax story the best technology won. While GSM proponents say their technology is still the dominant one it is only because they have re-branded CDMA as UMTS for their own upgrade path. Sorry, but if Qualcomm gets a royalty on it we’re calling it their standard.

So, will the WiMax standard be set by the industry huddling together and hashing things out or by somebody that comes along with a whiz-bang product we didn’t realize we absolutely had to have?