Text of WSJ "Heard on the Net" piece on Qualcomm.
November 18, 1999
Overheard:
Profit-Taking Hurts Qualcomm
But Investors Are Still Upbeat
By CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
An 18% drop in a company's stock over two days would normally incite panic
on Internet message boards. But many message-board participants are taking
this week's skid by Qualcomm Inc. in stride.
Shares of the San Diego wireless
communications company closed at 342 7/8
Wednesday on the Nasdaq Stock Market --
down 63 1/4 from its record high of 406 1/8
on Monday.
Analysts say there are no fundamental reasons behind the sell-off, blaming it on
a bout of profit-taking in a highflying stock that had doubled in the past month.
The shares traded at 27 about a year ago.
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The recent surge was fueled by the company's healthy profits and a plan to
jettison its money-losing business that makes mobile phones and focus on
developing the technology and selling components -- booming areas.
Not surprising, many investors see even fatter profits ahead and continued
gains in the company's stock price. They view this week's dip as a temporary
blip and an opportunity to buy the stock at a cheapened price.
"OK I'm in at 342 and ready to ride. Pull the lever marked UP," one poster
wrote Wednesday on a Silicon Investor board (www.techstocks.com). "No
Problem. ...The stock will come back just don't be foolish and sell," wrote
another.
Pete Peterson, an analyst at Volpe Brown Whelan & Co. in San Francisco, said
while the drop in the stock seemed unprovoked and deep, it wasn't surprising
given the recent surge. "That sets up the scenario for profit taking," he said.
Officials from Qualcomm couldn't immediately be reached by telephone late
Wednesday for comment.
The company's shares, which traded below 200 in October, have been on a
tear since Qualcomm posted a fiscal fourth-quarter profit above expectations in
early November. It earned $136 million, or 73 cents a share, up from $39.9
million, or 27 cents, a year ago. Revenue rose 14% to $1.06 billion.
Qualcomm cited a booming market for its mobile-phone technology. It also
said it would sell its mobile-phone manufacturing unit. The sale of the handset
division, which is expected to close during the first quarter of next year, is
expected to dramatically improve Qualcomm's profit margins.
The company will instead focus on making components for wireless digital
phones as well as developing and licensing technology to other companies.
Qualcomm pioneered the latest wireless digital technology, which is being used
in many next-generation mobile-phone networks.
But analysts have differing opinions about what to expect as the company
transforms itself.
"The whole story about the handset division being sold, investors are trying to
figure out to value it," said Mark McKechnie, an analyst with Banc of America
Securities in San Francisco. "It changes the fundamentals of the company
from a major equipment supplier to more of a technology component supplier."
Some analysts are confident that the stock will keep doing well. "Overall the
stock will continue to move up, but we will see some volatility which has been
a part of the Qualcomm story for years as its value continues to be tested,"
says Mr. Peterson, who has a buy rating on the stock. "In this new [cellular]
environment technology paces very fast, the technology innovator has a very
important role. This is a very dynamic communications technology play."
Others say Qualcomm's highflying days may be over for a while. David Heger,
an analyst at A.G. Edwards in St. Louis, has a "maintain" rating on the stock
and a 12-month price target of $270. "At some point [shares] will settle out,
unlike most Internet companies, Qualcomm has very solid earnings growth,
that will help create a cushion on the downside."
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