The New Qualcomm - a S&P500 company Message Board

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Technology Stocks : The New Qualcomm - a S&P500 company

QCOM 174.80

+0.3%

Dec 5 9:30 AM EST

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To: Ramsey Su who wrote (4697)	12/31/1999 2:31:00 AM
From: cfoe	Read Replies (1) of 13582

To that excellent post from your "shy friend" I would like to add the following. It comes from a transcript of a panel discussion at the New Economy Conference (related to Gilder Group) this past fall. The panel was mainly discussing the valuation of Internet companies (such as Amazon and Yahoo), but when I read the transcript, I immediately thought of QCOM. One of the three panel participants was Michael Mauboussin, chief U.S. equities strategist at Credit Suisse First Boston. He said the key to valuing these companies were three factors: "cashflow.com; ...flight from capital to knowledge; ... real options theory." I believe the first two are pretty self-explanatory and the Q has them and will have them even more in the future as your "shy friend" has pointed out. The third is based on the Black Shoals model for pricing options and in my opinion speaks to the third leg your "shy friend" spoke to. One sentence in Mauboussin's talk that relates directly to your shy friend?s third leg was the following: "So we can analyze these companies in terms of the real-world options they have created [or will be creating] for themselves." He goes on to say that "real options thinking" in evaluating companies is "particularly appropriate when you have three things in place." They are: A smart management team [We got that one] Market-leading business [We got that one too] Uncertain markets [Boy, do we have that one!] Finally he says that how they use the "real options" approach is to take the value of the company based on the numbers (discounted cash flow, etc.) and compare that value to the stock price. The difference between the two (i.e., the amount the stock price exceeds the calculated value) ?could be attributed to real options. Reasonable people may?disagree on what the real option value should be. But we think that neglecting option value is a huge analytical error (emphasis added). None of this means that QCOM will automatically reap the rewards of its future ?options? nor does it offer a way to gauge a specific amount of such rewards. But we must factor these in to QCOM?s current valuation. FWIT, I think $250 split adjusted by next December is low, even if we all agree the current price is ?high.?

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