Uncle Frank, the timing of my opinion was based on a combination of factors:
1. An article in The Economist pointing out that current conditions seem to be aggravated by a global recession. If we are, in fact, in a global recession, then it is very unlikely that fast growing markets, such as China, will contribute as much to QUALCOMM's bottom line as had been expected earlier.
2. The decision by the FCC to appeal from the NextWave decision reveals a government agency that has been coopted by the establishment and that will do anything rather than admit that an outsider, NextWave, has any legal right to its spectrum. The delays caused by this litigation will impair the rapid spread of CDMA in the U.S.
3. The not too subtle attempts by the GSM crowd to avoid switching to any form of CDMA, either because of lack of investment capital, or because they can't admit there's something better out there (in other words, vanity has conditioned their decisions), or because they think that somehow they can convince consumers to accept GSM as is, or with minor improvements for short messaging, stock quotes, etc. That in itself wouldn't amount to a hill of beans, but the real problem is that the GSM group and its TDMA allies, including the likes of AT&T, appear to be wielding a great deal of influence at the regulatory level, both here and abroad, and even in the courts.
Taken together, these factors are more than even a well managed, cutting edge technology company like QUALCOMM can surmount. Additionally, it appears that QUALCOMM is not getting as sympathetic a hearing in this administration as in the last. No single factor would lead me to change my opinion of QUALCOMM as the best long term growth opportunity for the average investor. But taken together, one must, I am afraid, come to a different conclusion.
As to modifying my investment strategy, for some time I have been placing more emphasis on securities that have less downside risk. For example, there appear to be some opportunities in certain real estate investment trusts, particularly those with very low debt and a policy of declaring dividends based almost 100 percent on operating profits (rather than the sale of assets). There also appear to be some undervalued investments in fossil energy, (oil and natural gas producers) alternative energy (solar, wind, etc.), and even in the telecommunications area.
QUALCOMM, as long as it remains almost debt free, and as long as it keeps developing new patentable processes, needs to be a component of any growth oriented portfolio. I always believe, as does Warren Buffett, that you never sell good management. You buy the stock with the intent of holding it forever, unless the management takes turn for the worse. But at the same time, one cannot put all the eggs in this basket. There are just too many other factors coming together to prevent this company from being the key to wireless technology for the next ten years.
What would make me change my mind?
1. A substantial increase in royalties, particularly from overseas customers, would be welcome. I'm not expecting it the remainder of this calendar year.
2. A tougher attitude from regulatory agencies on the efficient use of spectrum. So far these agencies, both domestic and foreign, appear to be patsies to any outside parties that have enough money to be influential.
3. A more understanding attitude from Congress and state governments concerning minimal service standards for wireless service providers. There are plenty of areas assigned to large companies like Verizon, which have no service, and for which Verizon does not intend to supply any service over the minimum voice facilities now available. This last opinion is based on a conversation with a Verizon official, who evidently thought I knew nothing at all about wireless. He claimed that Verizon could not provide base stations in many areas because that would cost "millions of dollars for each antenna." That was the last straw, as far as I was concerned. It told me that Verizon could care less about where its service was available (as long as no one else was providing any), and could care less about adding data access to its bare bones CDMA until it was good and ready, which might mean several years from now.
As far as I'm concerned, there is only one service provider that has had the right idea from square one. It's LEAP Wireless, but the problem is that LEAP is still too small a player to have much impact on QUALCOMM's bottom line.
Art Bechhoefer |
