These are exactly what Qualcomm claims - Strategic Investments!!! Even if they never come above water (and I suspect that in a few years they will), that is not their only purpose. They are furthering the rollout of CDMA systems, and now is probably about the best time to do that, when Qualcomm has cash and is cash flow positive
I agree 100% with this Clark, but it does call into question the quality of earnings. A mid-1990's parallel in business and accounting was Boston Chicken aka Boston Markets. In order to further the rollout of the concept, these guys fell into an increasing money pit of lending money and investing in franchisees - so that the franchisees could then turn around and funnel royalty income and product purchases back to the franchisor. Same general idea as what QCOM does.
The end result was that after an SEC investigation, earnings were restated for several years, Boston Market went BK, and the audit partner on the job was fined and barred by the SEC for five years. (I worked for this guy years ago.) Anyway, Boston Market blew up because the franchisees couldn't pay back the loans, and the SEC took the position that the loans and investments to the franchisees were just a means of circulating reported income through Boston Market's P&L, but that it wasn't real earnings. I think maybe the market is fearing, to some extent, that a variation of the Boston Market game is being played by QCOM, and that few of these investees and debtors can actually ante up at the end of the game.
The continued emphasis on pro-forma earnings, in today's environment, only adds fuel to these suspicions. By no means is QCOM unique in this regard, but the whole VF and investment model is coming into question - and I think rightly so.
You can see that, at least in the USA, important parts of the Qualcomm "value chain" is getting hit pretty hard. If the carriers can't perform better, in a generally robust consumer economy, what good is all the whiz-bang technology? Then what does that say about the company that sits at the head of the proprietary value chain? |
