Lindy,
Do you mind if I offer the rebuttal? :)
why is their year over revenue growth has been slowing down for >the last 4 quarters?
>June 98 -68%,
>Sep 98 -54%,
>Dec 98- 19%,
>Mar99 -22%,
>June 99-14%.
I didn't take the time to compare every year-to-year comparison of the quarters the author referenced, but I did compare the June 99 quarter which is NOT down 14% as the author states. The pro forma revenue was $966 million compared to $875 million in the previous year, up 10%. If I chose to ignore pro forma revenue, which would be inappropriate in my opinion, the June 99 revenue would be even higher.
As for the other quarters that I didn't take the time to compare, it simply doesn't make any sense to make a case that each of the five most recent quarters showed declining revenues compared to the previous year. As reported by my data feed, trailing revenues are far ahead of last year's revenue, and we're talking about a company that has had increasing revenues every year since 1993.
And why is their return on equity so feeble...
Not relevant. Return on equity is not a criterion of gorillas, chimps, kings, or anything mentioned in Moore's book about evaluating high-tech companies. If the author prefers to use return on equity as a criterion for investing, s/he should feel free to do so.
And QCOM's margins for the past 2 years are also very tepid: 3.9% and 3.8%. No improvement at all there.
I'll side with the author that many of us have publicly stated that Qualcomm's margins are very low compared to other gorillas' margins. However, the author fails to mention the dramatically different fundamentals that changed in the last two quarters that have shown remarkable improvement in margins in the short term. An understanding of the new fundamentals also shows there is solid reason to belive margins will continue to improve in the future, though I don't know if they will ever get to the lofty numbers Softee, Cisco and others produce.
QCOM has almost 40% of its financing in debt, in the form of convertible preferreds, and, more to the point the conversion price is < .5 the current market price. That represents *enormous* potential dilution for someone
buying the common.
Convertible debt, options, warrants, preferred stock and convertible preferred stock are taken into account when determining fully diluted shares. That explains why there are only 150 million basic shares while there are 188 million fully diluted shares. EPS is reported on the basis of fully diluted shares, the importance being that if every bit of the outstanding options and warrants were exercised and if the convertible debt and stock was converted into common stock, the EPS would NOT change.
If a substantial portion of contracts were exercised and/or substantial portions of debt was converted, there would likely be a lot of selling of stock that would put temporary downward pressure on the price of the stock. That is not to be confused with shareholders' dilution of ownership. Stockholders' equity per share would not change.
At the current market price QCOM has a PE on *estimated* '99 earnings of around 72. This is no great bargain by any standard.
We've discussed at great length that most of us have solid reason to feel the analysts are intentionally being very conservative in their published estimates, resulting in what we think is an inaccurate '99 PE. Moreover, I don't believe the author is using the pro form earnings to determine the PE, which in my belief is an irrational approach because it renders misleading information, ummm, misinformation. Lastly, the author appears to be unaware that gorillas have been historically proven to be undervalued by the market when traditional valuations appeared to be overvalued. At the moment, Qualcomm's stock appears to remain true to fashion.
When the author mentions that the stock is "no great bargain by any standard," that simply is not true. Any devotee of gorilla gaming realizes that by gorilla-game standards, the stock is undervalued.
When I put my hard earned money into something I either like a very clear future (and little in tech is ever that clear), or a good price.
Assuming the author is not open minded to consider other criteria, it's understandable that s/he shouldn't waste any further time looking at Qualcomm as an investment opportunity. Using the traditional metrics that s/he seems to adhere to, the stock will probably never be undervalued. And while s/he feels that little in technology is ever clear, I think that statememt shows a basic lack of understanding of the big picture. Having been able to say the same about myself as little as three years ago, my comment about that isn't critical; just the opposite, I have a lot of empathy for the author's misplaced perception having been there myself.
I prefer that no one copies my post into the Gorilla Game list-serv. I prefer not to have a huge increase in e-mail. And not being a subscriber of the thread, I have no way of responding to those who disagree or agree with me.
--Mike Buckley |
