The H is the tricky part. Having held my position in QCOM from late 1997 to present, it has been a painful experience at times. The currency collapse in 1998 postponed infrastructure opportunities for QCOm in emerging markets in Mexico, India, Russia, etc... The cracks in the handset casings for the q phone was a further debacle. The door opened in 1999 as the Ericcson deal was inked, confirming Gilder's prognostication that Qualcomm would win worldwide royalties on WCDMA. (They were the only company to challenge QCOM's IPR in the ITU standards process.) That kept me on a high note through the end of the year. Piecyk's 1000 price target was an emphatic cap to that rally.
Now comes Y2K. What the hell has happened to our beloved QCOM. We are being evaluated more like a value stock than one of the fastest growing companies on the Nasdaq. If I paid attention to the stock price, I would be thoroughly depressed. The only thig that keeps me smiling is my low cost base around $7.
This is the gut test of the year. Telecom is out of favor thanks to the disruption of the WCOM FON merger and the fears about the high costs of 3G buildouts (spectrum and new hardware.) We go through these painful times and ask ourselves why in the world we are holding onto QCOM through these painful times - not to mention the rest of the baggage in our portfolios.
I believe QCOM could be viewed as the most important technoogy for the next decade for the following reasons.
1) HDR eliminates the need for computer OS's. The digital connection to the internet enables wireless customers to enjoy the entire internet experience with nothing more than a Eudora Home Page and a Web Browser to the internet. Since every form of media can now be digitalized on the internet, it seems kind of ridiculous that consumers need Windows. Who is going to waste their time with expensive DSL products when CDMA provides the same sppeds from any device - thanks Wireless Knowledge.
2) Globalization of 3G CDMA. The harmonization of GSM, CDMAOne, and TDMA to 3G CDMA will enable QCOM to earn billions of dollars on royalties. Between now and 2005, QCOm's royalty stream is projected to grow from $600 million to $3.6 billion. That is a compounded growth rate of 40%.
3) The opportunity for CDMA ASIC's will grow from $3.2 billion to $15 billion using the same long term growth assumptions.
4) CDMA wireless products will migrate to new products including smart phones, pda's, cars, planes, ships, trucks, laptops, televisions, and other appliances connected to the internet. that should increase the penetration of CDMA from 100% to 400% - globally.
5) With the application of CDMA wireless to the internet, all other forms of technology become subordinate. Fiber backbones and other data networks will be essential, but the last mile solution to the internet will be totally dominated by wireless due to the growing demand for mobility and real time access from different devices.
6) The introdction of gps and hdr provide the window to new regulations for safety and accountability. The governement is going to be taxing the internet soon. Federal regulations requiring E911 are going to cost the consumers money. It may take awhile, but the cost will be payed by the consumer.
7) Although subscriber growth is slowing for voice, the pent up demand for wireless data is incredible. However, none of this is going to happen until CDMA2000 handsets equipped with 1X chipsets become commerially mandated. HDR will continue to exploit the value added for wireless data vs. wired data. I don't want to be stuck behind a computer my whole life.
8) We are going to see arpu's (plan rates) & asp's (handsets)start edging higher. PCS did not cut off service to dead beat customers by accident. "If you can't pay these rates, you certainly won't be able to afford our new services for voice and data." Now that the market share has been developed, the model of discounting prices to attract more customers no longer works. The only other way to generate growth is to increase prices.
After all, there is only a handful of telecommunications companies. It shouldn't be too hard for these companies to start basing their prices on a inflation based equation. They will increase our prices at 3% a year to keep pace with inflation. Before long, the phone companies will be increasing prices like the electric utility companies. They will cry wolf about the high cost of spectrum and the hidden charges (e911) and start increasing their rates like any rational company. The only company that I feel sorry for is WCOM. They have been stuck trying to acquire DSL companies like ICIX thanks to Europe's intervention in the Sprint merger.
I'm sure there is more, but I gotta fly!! |
