BACK TO THE BASICS
100, Frank and everyone,
When the stock goes up, everyone is happy to call Qualcomm a gorilla. When it plummets, there's a natural tendency to question the strength of the beast, wondering if indeed it is a gorilla. More than a natural tendency, it's always good to question the validity of our previous thinking.
100 sez: "Well according to the manual- NO Tornado=No Gorilla. ... Q is no Gorilla at this time."
Get out your calculators, class. Look at the CDMA subs growth beginning in 1997. Identify the trends and tell me you really don't believe there was a CDMA-for-voice tornado from about April, 1998 at least until the present.
Fortunately, my eyes didn't get too fatigued by that CRT I used to use. They easily see a tornado that has lasted at least two years and three months, maybe longer, depending on how the upcoming data from the CDMA Development Group looks.
If we accept that there was a tornado, why has the stock plummeted after such a steep rise? Let's first address the rise.
TRFM, page 121: "End of Tornado Corrections: We have seen that during the tornado, the market corrects itself upward to compensate for insufficient expectations. Eventually, however, these expectations do catch up with reality. This normally happens just as the tornado starts to decelerate."
Now, let's see if the manual has a reasonable explanation for the stock's huge decrease.
TRFM, continuing with the above paragraph from page 121: "Now the market actually actually goes too far the other way, projecting a tornado out indefinitely just at the moment when in fact it is beginning to fade. As a result, the next set of reports from the sector surprise and disappoint the market, and all the companies in the sector, including the gorilla, go through a 'correction.' "
Isn't that strkingly similar to what we have been experiencing in the first half of this year?
If you're still with me as I revisit the basics, what does the future hold?
TRFM, page 37: "The tornado lasts only a few years, perhaps three to five, the time it takes for the initial surge of demand to be absorbed, after which the market reesatblishes equilibrium with supply. We call this new state Main Street, and with its arrival one might assume that the power of the gorilla would subside. Surprisingly, if anything, it increases."
If we're right that the CDMA-based voice tornado is over, we're now on Main Street. Qualcomm's power will probably increase, especially if I'm right that we'll see other tornados from which Qualcomm can benefit and increase its power and control over the value chain.
For those who want anecdotal evidence regarding the price of the stock as a symptom of the market's reaction to the gorilla's longer-term capabilities, consider the comparison of Qualcomm's stock with Cisco's stock. We're now at the point (based on my observations) that the start of Qualcomm's tornado is about 27 months and two weeks old. Using that amount of time beginning with the start of the two companies' first tornado, compare the change in Cisco's stock from June 1, 1990 to Ocotber 15, 1992 with the change in Qualcomm's stock from April 1, 1998 to July 15,2000.
Cisco: Up 1150%
Qualcomm: Up 841%
That trend is remarkably similar! Maybe there's a reason? With Qualcomm prepared to reap the benefits of a few more tornados just as Cisco did, maybe the comparisons might be valid for years to come?
--Mike Buckley |
