here's an article from the street.com********************************
>SATURDAY GROUP: Why I Still Love
> Qualcomm
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> editor-in-chief:
> Jonathan Steinberg 11/20/99
>
> Irwin Jacobs has to be one of the happiest guys around.
>
> Afterall, the chairman and chief executive officer of
> Qualcomm (NASDAQ: QCOM - Quotes, News, Boards)
> just released stellar financial results, is at the forefront of a
> huge market opportunity, and has seen its shares surge by
> more than 1,200% thus far this year.
>
>
> Like this Article?
>
>
>
> The stock closed Friday at $367.06, up $11.25. But, we
> would still be buyers.
>
> What's the scoop?
>
> Well, Qualcomm is riding high on the CDMA wave. That's
> right, CDMA, or Code Division Multiple Access.
>
> Qualcomm has pioneered this digital technology that
> provides crystal clear voice quality for wireless
> communications products and services. Additionally, CDMA
> provides more capacity and higher levels of security and
> reliability than competing wireless standards.
>
> As a consequence, CDMA is considered to be more efficient
> for transmitting and receiving e-mail and for accessing the
> Internet via wireless devices--applications that will be in
> really high demand.
>
> As the CDMA pioneer, Qualcomm holds lucrative patents on
> the technology, resulting in over 75 different
> technology-licensing agreements with CDMA equipment
> manufacturers. Additionally, Qualcomm is a leading
> manufacturer of CDMA chipsets and associated hardware
> and software.
>
> And sales of CDMA phones are proliferating. It is estimated
> that CDMA phone shipments can total 40 million this year
> and over 70 million next year.
>
> While Qualcomm is a leading manufacturer of cell phones
> the company is in talks to exit this low margin business and
> focus on the much more lucrative CDMA royalty streams
> and on new market opportunities.
>
> A key catalyst for Qualcomm shares is forthcoming as
> management indicated in recent analyst conferences that it
> is in discussions with a number of parties regarding the sale
> of its handset business. Any sale would result in a lucrative
> CDMA licensing agreement with the purchaser, providing
> Qualcomm with an additional lucrative revenue stream--a
> clear positive.
>
> Divesting low margin businesses is not uncommon for
> Qualcomm management, who have done an incredible job at
> keeping the company a nimble research and development
> outfit. Recent transactions include the spin-off of its carrier
> interests such as Leap Wireless (NASDAQ: LWIN -
> Quotes, News, Boards) and the sale of its wireless
> infrastructure business to Sweden's Ericsson (NASDAQ:
> ERICY - Quotes, News, Boards).
>
> In its most recent quarter, the fourth quarter of fiscal 1999,
> Qualcomm's strengths were clearly evident. Earnings came
> in at $0.91 per share, $0.03 ahead of consensus estimates.
> Royalty revenue, a pure profit center, rose to $113 million in
> the fourth quarter, up from $52 million in last year's
> comparable quarter and can top $500 million in the new
> fiscal year.
>
> The strength in royalty revenue coupled with cost savings as
> a result of the disposition of the wireless infrastructure
> business in May resulted in a tremendous expansion in
> operating profitability--an expansion that can continue.
> Operating income as a percentage of revenue more than
> doubled to 24% in the fourth quarter, up from 9% in the
> fourth quarter of last year as operating expenses decreased
> to 17% of revenue in the fourth quarter from 24% last year.
>
> Qualcomm has four business segments: CDMA
> Technologies, Technology Licenses, Wireless Systems and
> Consumer Products.
>
> CDMA Technologies is a leading supplier of chipsets and
> system software to CDMA handset and infrastructure
> manufacturers.
>
> Technology Licenses is the segment that develops and
> patents CDMA technology and generates those lucrative
> royalty fees.
>
> Qualcomm Wireless Systems operates a satellite-based
> mobile communications and tracking system.
>
> Finally, Qualcomm Consumer Products is a leading supplier
> of digital wireless phones.
>
> In the fourth quarter, all of Qualcomm's business segments
> posted record results with strong growth prospects.
>
> In conjunction with its fourth quarter earnings release,
> Qualcomm announced a four-for-one stock split, sending
> shares, already at lofty levels, into orbit. In fact, Qualcomm
> shares surged from $260 to a high of $378 in the week
> following the earnings and split news.
>
> With estimates calling for $4 per share in profits for the
> current fiscal year and $5.15 for next year, Qualcomm
> shares are trading at almost 70 times next year's estimates.
>
> Guess what? I think that these estimates are low! While
> shares will be volatile and may pull back some from their
> recent run, expect the stock to continue to make higher
> highs.
>
> Here's why:
>
> Qualcomm has great momentum at its back. With $1.4
> billion in cash and the imminent disposition of its low margin
> consumer business, expect Qualcomm to aggressively
> proliferate its technology.
>
> Qualcomm recently settled a 2 ½-year patent dispute with
> Ericcson that will pave the way for Ericcson and Qualcomm
> to both support a uniform cell-phone standard. Huge
> opportunity exists for Qualcomm in Europe, where CDMA is
> not the leading standard.
>
> With new technology licensees, royalty revenue will continue
> to surge, fueling a continued expansion in operating
> margins.
>
> Bottom Line:
>
> So, I see Qualcomm as being well positioned to
> continue to surprise on the upside with some real big
> catalysts over the near-term. Buy this one on any
> weakness!
> |
