DownSouth,
I would appreciate some noble efforts from our most informed members to tell me (us) what is the downside risk re: QCOM. Let's talk some worst case scenarios.
Not that I'll include myself in the category of most informed, but I'll do my best at the noble effort. Before I do this, it might be helpful to share some history.
A year or two ago, Rainforest Cafe was clicking on all cylinders. The plans for future growth showed no signs of slowing. The stock was responding accordingly.
An investor asked if anything in the world could cause the stock to tank. I created a top-ten list of reasons (a la David Letterman), the last one being that the company would change its strategy and buy Apple in an attempt to revive it.
Since then, Rainforest's stock tanked from the mid-$20s to $5. As for Apple, Steve Jobs took over, brought out the iMac, and the company and stock have soared.
As it turned out, the absolutely best thing Rainforest could have done was the absolutely worst thing I said it could have done. When you read the following, keep that in mind. :)
As I see it, the biggest threat to our Gorilla is that a discontinuous innovation comes along that displaces Qualcomm's technology. That's the best way to kill a gorilla. It can and has happened. I don't remember the best examples but they are in the manual. You asked for worst case and nothing is worse than killing our gorilla.
As for the second worst possibility, keep in mind that CDMA is currently nothing more than a niche market. It's growing very fast in parts of the world and very slowly in other parts. For it to maintain or increase it's current growth rate, companies have to make financial investments to build the infrastructure that makes it posisble to use CDMA-enabled handsets, hand-held computers and the like. In the case of government-controlled or government-regulated areas, politics which has nothing to do with what's best for end users can get in the way of building out the infrastructure. If for whatever reason the build-out of the infrastructure doesn't happen as we would like, the company's growth will slow and the stock will tank big-time.
In summary, here's the glitch about growth: It's my experience that product never gets adopted as fast as optimistic investors such as myself think will happen. (The adoption of DSL is the best example that comes immediately to mind.) That's why I'm keeping very close track of the growth in CDMA subscribers, to have a true understanding of growth that directly impacts Qualcomm's opportunity to sell ASICs and handsets and to license its proprietary technology.
Any other ideas?
--Mike Buckley |
