Rich, Cont....
3. Earnings
It is all in the earnings! Now that we have a model, a pattern if you will, of CDMA growth, we can determine QCOM's part
of that growth and how it relates to their growth. An equation for this could be
E= S + R
E= Yearly EPS Growth
S= subscriber growth in percentage
R= replacement phones (30% of total subscribers)
Thus in 1999
E=1.0 + .3
E=130%
And in 2000 a conservative view is:
E= .5+ .3
E= 80%
Using this to determine actual growth variables, one could use the equation
T = A + (E)A
T = total phones sold in the year
A = new subscribers in the year and
E = EPS growth
You can see how the base subscriber rate acts as a huge growth multiplier for replacement phones. You math majors could
perhaps think of a better equation with actual variables, but this is the best I can do with my janitorial-like mind and half a
bottle of Chianti. But understand this: The more CDMA subscribers there are, the more replacement phones that will be
sold. Easy enough so let's finish by doing the numbers and let's be as conservative as humanly possible. A worst case
scenario.
Q1 = .28
Q2 = .50 (I added a premium because HS division is gone)
Q3 = .56 (12.5% growth)
Q4 = .63 (12.5% growth)
2000 earnings = $1.97
so using a 100 forward PE, TODAY we should be at $197/share in a VERY conservative way
If $3 ($12 pre) is 2001 earnings, we should be at $300 a share in December of this year.
Remember these facts:
A) I am only using subscriber growth in parallel to EPS growth. I DID NOT use the more accurate equation above
B) I am not using a premium for HDR, China, WCDMA or Huge expected data growth
So what if we use Janitor's numbers:
Q1 = .28
Q2 = .50
Q3 = .60 (20%)
Q4 = .72 (20%)
Or earnings of 2.10 so $210/share today and 357/shr in December PLUS I would add FMV or $25/share for HDR, $25 per
share FMV for China and $10/Share for WCDMA for a total of $417 at year end. I used less WCDMA because it is the
furthest out there in terms of definitive analysis.
Am I still being conservative? YES! What about other CDMA applications and other Q business units? $25 premiums are
cheap for the like of what China would do to our growth rates. What about HDR and new licensing fees for IS-2000? What
about new data users? Well, as I said at the beginning: Janitor doesn't want to speculate. I want a sure thing and right now
QCOM is a sure double and likely triple based on CDMAOne growth and earnings alone.
- Janitor
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