here is another opinion on the deal, from someone who is too shy to post himself:
Some thoughts on the Kyocera deal:
You are right about management having a track record of doing the best
deal possible. Financially and strategically this deal is a winner.
Financial - this part is easy, it is just plainly very accretive.
Kyocera takes over all of Q's inventory and commitments. So using last
quarter's run rate, they will likely make 8 million phones for the North
American market in the next 12 months. Q will get about $10 each
royalty, and about $10 or $12 of ASIC margin contribution that they
would not have gotten with the phone division as a breakeven internal
operation. That's about $170 million added to pre-tax earnings, not
counting interest earned on the cash part of the transaction and on
whatever additional working capital will be freed up. These are rough
numbers, but I figure it adds at least $.50 to $.60 to after-tax EPS in
the first twelve months (all pre-4 for 1). But that is just the
beginning. Kyocera is going to be a big factor in the Japanese cdma
market, which will probably grow by an increment of 10 million units
next year. The 70% figure for ASIC sourcing in the contract is just a
minimum - Q will get more as KYO's old models are phased out. I don't
know how many cdma phones KYO will sell outside of North America next
year, but I would be willing to bet it is comparable or actually MORE
than Nokia WORLDWIDE. So who would we rather have that ASIC contract
with in year 2000?
Moving forward everyone seems not to hear Irwin when he keeps
emphatically (for IJ) repeating that he thinks we will see very, very
rapid deployment of 1X by all existing cdma operators as soon as it is
commercially available. And lo and behold this morning's press release
announces the 1x MSM and CSM will sample starting next month. Last
night IJ told us that it is possible that the first commercial
deployment could be in place by the end of next year. Now, will NOK
have a 1X chipset ready and designed into their phones by this time next
year? Will they want to be seen as the cheapo, less-than-full-featured,
also-ran, competitor in North America? Prediction - By 2001 they will
be buying Q chipsets, so we will have NOK and KYO by then. If HDR then
gets implemented by select carriers during late 01 and into 02, who do
you think is going to be supplying the chips to NOK's high end phones?
Does Kyocera vs. NOK provide an edge when China starts full scale
deployment? I don't know, but I bet Irwin does and that he took that
into consideration.
The employee part is the best part of the deal. Think of it, hundreds
of talented cdma and RF engineers (not to mention management and
marketing types) that Q will still have available to it after the 3 year
term of the contract agreement if they want and need them. These folks
are already in great demand. What do you think it is going to be like
three years from now when the market is much, much bigger? Who knows
what kind of design talent Q will need three years from now. This way
their alternatives are preserved, the engineers stay happy, and the
customers (very, very, important) stay happy.
It is a good deal and there is no reason for anyone to be disappointed,
least of all in management. Congratulations Q, another rabbit out of
the hat. |
