QCOM mentioned in new issue of Barrons :
August 2, 1999
Bullish -- But With a Pile of Cash
A hedge-fund manager takes a Jim Valvano approach to investing
An Interview With Paul V. Holland -- With his partner, Daniel R. Jaworski,
Paul co-manages a $375 million global hedge fund for Orlando-based BPI Global
Asset Management.
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Q: What else do you like?
A: Qualcomm is another arms supplier to the wireless industry. Demand for its
proprietary code-division-multiple-access, or CDMA, technology is likely to
increase significantly following the settlement of its dispute with Ericsson, which
initially didn't want to license CDMA. Briefly, two other industry standards are
GSM and TDMA. We believe CDMA is well on its way to becoming a world
standard for the next generation of wireless networks and phones, now known as
G3. The next generation will transmit data as well as voice, and we think that,
longer term, data will become much more important than voice. CDMA simply is
a better mousetrap than other technical standards.
Q: GSM also has a highly vocal fan club.
A: From what we're seeing, year-over-year growth of GSM is slowing and it's
losing market share. The risk in all technology is the invention of a better
mousetrap. The owners of GSM networks want to try to maximize their
investment in this technology before making capital outlays for a better
technology. At the same time, they don't want to pay royalties to Qualcomm to
license CDMA.
Eventually there won't be three industry standards. We believe the next generation
of cellular will be CDMA-based. This technology can handle data transmission at
faster speeds than its rivals, and its voice transmission is a little bit faster and a
little bit better. The CDMA train left the station on March 25, when Ericsson
agreed to support it as a single world standard, and a lot of people missed it. The
reality is, this isn't hype, it's an almost unbelievable story. Over the past three
months, the stock has doubled and earnings estimates have doubled. Based on
Qualcomm's phenomenal growth rate, the stock still isn't that expensive.
Q: Give us some numbers.
A: The stock recently was 151. QCOM earned 73 cents a share in the fiscal year
ended September 1998. It could do $2.50 this year. The Street sees $4 in fiscal
2001, but we think $5 is realistic.
Q: What could go wrong?
A: QCOM still derives a big hunk of revenues from making handsets. That
business is becoming more and more competitive. The risk here is that QCOM's
handset sales could decline faster than royalties from CDMA increase. However,
that would be a quarter-over-quarter shortfall. The underlying ramp-up in earnings
is still there. The stock definitely still has legs. Our target currently is 200.
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